WBD335 Audio Transcription
The Psychological Barrier of a $100k Bitcoin with Willy Woo
Interview date: Friday 16th April
Note: the following is a transcription of my interview with Willy Woo. I have reviewed the transcription but if you find any mistakes, please feel free to email me. You can listen to the original recording here.
In this episode, I talk to on-chain analyst and the co-founder of Hypersheet, Willy Woo. We discuss moving price targets, hedging my bet with American HODL, and some of the strategies and risks of trading.
“You’re definitely a moron… if you sell in a bullrun and try to buy back lower, that doesn’t work.”
— Willy Woo
Interview Transcription
Peter McCormack: Willy, man, how are you?
Willy Woo: Awesome, Peter. It's been busy, it's always busy in a bull market as you know.
Peter McCormack: Man, it is. I was chatting to someone recently saying I think I enjoy the bear market more. You get more work done, it's more productive. I spend so much time dealing with emails, spammers, scammers, shitty waste of time requests. Actually, someone messaged me the other day saying, "Love your shows with Willy, can you give me his email because I want to ask him something?" I was like, "No".
Willy Woo: No.
Peter McCormack: Willy probably gets way too many questions from people. I imagine every one of their questions come down to, "Tell me how to make more money".
Willy Woo: Pretty much, or their ideas on how to make money and what do I think about it, but yeah, generally that's the same category, that's interesting.
Peter McCormack: I said, "No", to him. I said, "No, he won't want to receive it, he'll get too much", and listen to the show. Take it from the show we do; there's enough stuff in there. It's funny also because every month we speak we get to talk about a new all-time high, but that will come to an end eventually.
Willy Woo: No, it's only going up forever.
Peter McCormack: Not forever.
Willy Woo: It's going up forever, Laura.
Peter McCormack: Stop it, man. Okay, there are two main things I want to talk to you about today, we'll cover the basics. I want to talk to you about psychological barriers because the 100K looking inevitable, I want to talk about how you think about psychological barriers. Another thing, I want to talk to you about this bet I've got with American HODL, do you know about this?
Willy Woo: I saw something on it. Yeah, can you remind me? I saw it, I didn't look at the details of the bet, but yeah, remind me.
Peter McCormack: We did a bet last year on the US Election, half a Bitcoin. He picked Trump, I picked Biden and I won. Now, we're doing another one on $300K by the end of the year. If it hits $300,000, he wins half a Bitcoin; if it doesn't by the end of the year, I win half a Bitcoin. It's quite interesting because you've gone from $250,000 to $300,000; looks like it will beat it. So you, as a measure, is quite an interesting one, but the market is pricing it differently from you and I think I can hedge it.
Willy Woo: Interesting. How are you hedging it; options?
Peter McCormack: I think so, yes, but that's what I've got to ask you about, but I think so. We'll come to both of those, let's cover off the basics first. Another all-time high, you were waiting for us to break out $61K, did this come ahead of time for you; and do you think it was a Coinbase thing or it was a by-the-rumour pump?
Willy Woo: No, well I put out in my letter that we'd test all-time highs over the two- to three-week phase and right in the middle of that, like two and a half weeks later, it did test it, it hovered underneath. It's really interesting in that when you get this kind of set up where it's been consolidating essentially, hitting the $60K-ish zone and it's been going sideways for months, down, up, down, up, and then it creates this kind of triangle; for traders it's a technical trading pattern called an ascending triangle. The probability of that breaking upwards is quite high. I can't recall exactly what that is, but it is high, it's above 66%. So, it's a big one, it's going for months.
It's a brain-dead trade because once it breaks above it, you've got a very high probability of it running, so every time we got close to it, everyone went long on the derivative trading market. They went degenerate long and so when that happens, it's very incentivised for people to take out a side trade. So really, right now, we broke it but everyone's still very, very largely in long positions, so it's creating a lot of headwinds for us to move upwards.
It hit the top, it's been testing, I said anytime in the next two weeks this thing can break and I actually meant at any time within hours to two weeks, because two weeks is where the apex of that triangle hits and you know that something's going to happen. Typically, what happens in these trading patterns is they hit the support and resistance lines and our resistance was flat at whatever it was, $61,000, $62,000 and then we had this support line that's trending upwards, so as time goes by it's going higher and higher and higher. If it breaks below that, then you break into a new pattern, but it wasn't; it was holding very easily that price line.
At the point where the two lines converge, you know something's going to happen; very seldom does it run out sideways. That was the next two weeks and it broke. We had that kind of degenerate long position stuff happening and it created headwinds. A lot of traders like to countertrade it, but if everybody's in long positions, obviously you can't stay in the long stay in the long position for free.
If you're buying a house on a mortgage, you're doing a long position on your house, essentially, you're just borrowing money from the bank to buy stuff you haven't already got, you're not actually paying for with real money; you're borrowing it. They are cost funding rates, and when those funding rates go really high, Mr professional trader comes in and goes, "Oh, I can make close to 300% per annum by going short and holding the Bitcoins". So, a lot of people start to balance that off by going short and then people also protect that line, because what you can do is force the price downwards.
If you can force it down past a certain line in the sand, you can cause a liquidation. It's just a trading strategy where you can countertrade everyone and take them home to the wreckers essentially, so that's what we were currently doing last year.
Peter McCormack: I've got a couple of questions on that, does the triangle ascend because essentially as time moves on, you've got less and less sellers at the lower prices. Are you essentially wiping out the different stop losses at different points?
Willy Woo: If you were to think of it in a price discovery, the market's a price discovery mechanism, and you've got long-term buyers coming in. Whenever it dips, someone buys the dip and says, "I'll take that price thank you very much", so it's rejecting any lower price because people do want to buy it. If you get this history of, "I'll buy that", and then, "I'll buy that", at the next higher price, you get this pattern forming where this thing is discovering its natural price higher and higher.
Certainly with Bitcoin being quite special, it's a market that's not at saturation. Publicly traded markets, commodities, gold, anything you can think of in the traditional world is at saturation, it's done its full penetration of its market base, people trading it. Whereas Bitcoin, of course, in this hyperbolic curve upwards as people adopt it and so we're currently something like 50,000 more people that you can see on the blockchain per day coming in to buy it for the first time. That means probably around 150,000 people all told including the exchanges. They're probably seeing 150,000 people a day right now, coming in.
So obviously, you've got these hordes of people coming in to buy it, and every dip you get they're buying it. You'll see this upward moving, every dip is bought up higher and that would be explaining this particular triangle within Bitcoin.
Peter McCormack: That makes sense, I get it. When you talk about people then countertrading the longs, who's actually doing that? You say they're taking up the shorts, are these more professional sellers; and how does the price get forced down to wipe out these degenerate long positions?
Willy Woo: You can scare wall people; I call it the scare wall. Essentially, you put a big sale order, and it's this big wall of death. Particularly if you're a trader, you're going to buy the derivative and you're going to buy it thinking, "Okay, I'm going to buy it here and the price is going to rip upwards if it's a long position. Then I'm going to sell slightly above that and I'm going to cash home".
But when you suddenly see this big wall of death saying, "I want to sell $10 million or $50 million or $100 million of Bitcoin", right at the price below where you've bought, you're probably going to get scared because that free run upwards is probably less likely to happen, because there's got to be someone that's going to take up that wall by buying $100 million of Bitcoin. You might just decide you're going to exit your position and as you exit, that's called selling, because you've just bought it.
Someone who's got a large amount of capital -- these are derivative markets too, so say I've got $10 million; that's a very small fund, a very small hedge fund. Say I leveraged up 10X, which you can easily do in Binance, FTX, BitMEX, all these derivative exchanges; you can go 10X with that kind of size and trading $10 million. So suddenly you've got $100 million of sell power, then you just call everyone's bluff and just go, "All right, $100 million, sell wall; let's see who gets scared".
If they keep buying into it, you probably will pull it. You're faking them down, but sometimes that will influence you.
Peter McCormack: Sometimes I go on the trading platforms, look at the charts and you just see these walls appear and disappear quite quickly at times. Is that basically what it is? Sometimes a wall isn't being eaten, it's just being pulled.
Willy Woo: Yeah, sometimes it gets pulled. You can generally tell; you can look at the order execution. If the wall goes and it disappears and no one actually bought, that means they withdrew the order.
Peter McCormack: Is that why sometimes then the price suddenly flies up as well, because it then just eats through the orders above it?
Willy Woo: Yeah, because someone pulled the wall and everyone just FOMOs in and goes, "It's gone, that means that they gave up. Let's enter our long positions" and everyone starts buying; it's a bit of a crazy game. I always say it's like the game of Gridiron where you're going for yards. There's all sorts of tactics to push it one way or the other so you can bet on which way the yards go.
Peter McCormack: Interesting. Where were you in terms of price floor now; what's your call for the rest of this month; what do you think is going on?
Willy Woo: I tweeted something a little bit back and a few days ago, I reckon where we're at right now is a halfway intermission. Actually, the name of my last letter was called intermission, because we're at the halfway point. That's based on a lot of the money as revenue. Every time miners exceed the prior all-time high, last one was 2017 obviously at the top of the market, since then we've had a halving, so they're mining half the number of coins per ten-minute block, so they've got to make that up with higher prices and we just passed through that zone a few weeks ago where we went into this consolidation.
If you look at whenever they go through this zone, the price goes through a consolidation, if you remember the double pump of 2013 on the charts.
Peter McCormack: What was that?
Willy Woo: That was big sort of run up and then it corrected I think 93%, if you were tracking the minute chart, but people thought there was a bear market, but that was actually the consolidation of 2013 because it was such a volatile asset. We saw the same thing in 2017, we hit that first major dip, it was around the $2,500 zone. We went through this big consolidation that was sort of the halfway point, before we ran up again.
I think we're just sort of pausing and we're just making that breakout so it's interesting; I don't know exactly what's going to happen, how the price chart will shape till the end of this year, because things have accelerated so quickly. If we have the same sort of quarter that we had in the first quarter, it seems too fast and that would normally spell the bear market and it might come early if it's going up at this rate.
Peter McCormack: It might come because it becomes unsustainable and once you enter a bear market, people get spooked; whereas if it's more sustainable you might get to those higher prices?
Willy Woo: I use a bunch of models, but the main one that I'm predicting the top on, that's a moving average essentially. It's something traders would call a mean reversion model and that simply is a moving average. A lot of people use moving averages on the price chart and when it starts to run away from the moving average, you tend to think of that as being overheated and it's going to come back to that average.
This is a special one; it's not rocket science it's essentially your all-time moving average, it's a cumulate moving average, like the entire average for the entire price of Bitcoin since year dot. It uses that as a metric, and it happens to have hit every single top that we've had in the history of Bitcoin. So, if you measure that line, it gives you an upper bound where we can hit before it's got to come back down, so the longer this bull market runs, the higher that top can go. Right now, it's so fast.
Peter McCormack: What's the range you've got it in then? Is that the chart I saw where you've just kind of splintered it off at the end, it's like $200,000, $300,000, $400,000, $500,000?
Willy Woo: Yeah, so right now it's on track to go above $300K. Normally, this line, the top cat model, it curves upwards near the end of the year; and so if it goes straight line it's $300K, if it starts curving up, we're going to hit $400,000, $500,000, I don't know how high it'll go, but I haven't got a read of how high it's curving up yet.
Gosh, I have no idea. It's really great because PlanB's sitting there with his stock-to-flow model which gives a hard number of $288,000. Mine is like, I don't care; as more money piles in, this line keeps moving up, it's a moving target. Even that $288,000 target, you'll see there it overshoots, it always overshoots it's fair valuation based on scarcity; it's based on that model. It overshoots so if it's $288,000 it goes to $300,000, $400,000 even $500,000, it kind of fits his model because we overshoot and we come back down on the other side of it when we go into the bear.
Peter McCormack: We're looking good to leg up still right now, do you think?
Willy Woo: Yeah.
Peter McCormack: We're back at $63,000. People keep saying a number like $69,000, $69,200 or something I keep seeing. I don't really keep to those, but I'm assuming we're going to run up to $70,000 at some point.
Willy Woo: Yeah, so right now I don't know if anyone's talking about it, if you lay down the Fibonacci Retracement Lines, what that is is Fibonacci numbers and magic spirals, golden ratios all these sorts of patterns in nature. It turns out markets are patterns in nature and you put that trace over the price chart and the next resistance is exactly in the zone we're contesting right now, which is $63,400. We're just working our way in that zone. Normally, it goes sideways, it tests it or rejects it, so it's going sideways.
Once we get past that, I think it's $74,000 is the next Fib level, so it should be relatively clean sailing up to there and then we can see. I have a model right now; it says we can't go past $84,000 or $85,000, based on the amount of capital that's coming into the network at this point.
Peter McCormack: At this point?
Willy Woo: Right now, today, there's no way it can get past $84,000 and that's going to climb as more capital goes into the network so obviously when it gets to $70,000, whatever month that is or whatever weeks in the future that is, more capital's coming in because we've got 150,000 people coming in every day buying Bitcoin, let alone hedge funds. It gives you an idea anyway of price targets. I can tell you're really wanting to win this bet, Peter!
Peter McCormack: Yes, let's talk about this bet. Of course I want to win it, but another reason I want to do it is, I just want to learn more about trading ready for in four years' time or three and a half years' time, we get the next -- well actually, it will be about March 2023 where I think the next bottom might be; around that time, right? 2023; no, 2024, so I'm just trying to learn all different trading strategies and things and I'm picking up a lot from you and I'm trying different things.
Apart from my long-term cold storage, I've got no long positions open but I'm waiting for the right moment to take one. If I don't see it, I'm not going to take it, but this bet I'm doing for a couple of reasons. It's just fun, but also, I think this is a chance for me to have a little play with options. Let me tell you what I was thinking, and you tell me if it makes sense, and I don't really know how these work properly so I'm probably going to get some of this wrong.
He's offered me a 50/50 bet; the strike price is $300,000, so if it hits $300,000 at any point between now and the end of the year, he gets half a Bitcoin; if it doesn't, I get half a Bitcoin. My downside is essentially that $300,000 plus opportunity cost of losing that half a Bitcoin, so I was like ,"Can I hedge this?" For the small amount I understand about options, I was thinking, "If I take out three contracts…", is that correct, three contracts; do three contracts represent three Bitcoin in value?
Willy Woo: I think it depends on the exchange, but is it Deribit that you are using?
Peter McCormack: I have no idea, I have never done -- Dude, listen I've never done anything.
Willy Woo: It depends on the exchange. Even on the CME, on the futures exchange, one contract equals 5 Bitcoins.
Peter McCormack: Okay, but imagine it's 3 Bitcoins' worth, right. I'm thinking if I take out three, at a strike price of $200,000 and it hits $300,000, I've got essentially 3 Bitcoin of upside?
Willy Woo: Are you buying a put or a call option?
Peter McCormack: You tell me, I thought I'm buying a call. I don't know anything. I literally don't know anything.
Willy Woo: A call option is an option to buy the asset at an agreed price, your strike price, at a such and such a date. Obviously, say you buy a call option at $200,000 and the price goes to $300,000, that means that your call option is roughly worth $100,000 because you've got the option to buy that contract and so forth.
The put option is the opposite, you have the option to sell Bitcoin at $200,000 and so if the price was -- you'd never execute that if it's $300,000, why would you want to sell at $200,000. Basically, it's out of the money, you don't want to execute it and if it's underperforming, it was $100,000 then that contract's worth $100,000 because you've got the option to sell it at $200,000.
You're currently betting it's going over $300,000, and you want to --
Peter McCormack: No, I'm betting it's not going over.
Willy Woo: You're saying it's not going over $300,000?
Peter McCormack: Yeah, yeah.
Willy Woo: Oh, okay. So, you want a call option is what you want.
Peter McCormack: Yeah, so I was thinking a call option at $200,000. If I take out 3 Bitcoin worth, then if it goes to $300,000, then I've got $300,000 of profit.
Willy Woo: What's your strike price; your strike price is $200,000?
Peter McCormack: If I say $200,000, yeah.
Willy Woo: Okay, so let's say the price goes to $300,000, you've got those three contracts, each one of those contracts is worth $100,000 right, because you have the option to buy Bitcoin at $200,000 and now it's $300,000 so it's worth $100,000 per contract; so you've got essentially $300,000 in that contract value if it hits $300,000.
Peter McCormack: Because my bet's only half a Bitcoin, I'll only be losing $150,000 if it strikes $300,000.
Willy Woo: Exactly, so you're over-hedging. If it hits $300,000, you're over-hedging; you're going to make a profit at that point. How much is the contract costing, those three contracts?
Peter McCormack: I don't know. Do you want to have a look? You would know where to look these up. I wouldn't have a clue.
Willy Woo: I don't know, I don't trade options.
Peter McCormack: Would you hedge this a different way?
Willy Woo: Well, it's definitely the way to do it. It's just that you don't even know, you'd have to run it across a spreadsheet, because what if it goes to $400,000? Now, you've made $600,000 and you're really in the money then, you're like totally profiting.
Peter McCormack: I lose to him.
Willy Woo: What if it hits $250,000?
Peter McCormack: What if it hits $250,000?
Willy Woo: Yeah.
Peter McCormack: If it hits $250,000, I win off him and I'm still ahead in my contracts.
Willy Woo: Yeah, exactly, so I'd say you're over-hedging at that point, but you don't really know exactly how much you're going to make until you know the final price and so you just have to run a whole possibility grid of going, "If it goes to this price, this is how much I make", and so forth. You've just got to be happy; you will know at a certain point if you're not covered.
Peter McCormack: I've got that table and I've got it mapped to show these lines of where I win and lose and basically, the only place I lose is, I'm losing initially on the bet because I've already paid out the money on the contracts.
Willy Woo: Yeah, so you've lost the use of that money, true.
Peter McCormack: I've lost the use of that money.
Willy Woo: It's an insurance policy is what you're essentially looking for.
Peter McCormack: Yeah.
Willy Woo: It should be small, right.
Peter McCormack: Say we get to the end of the year and Bitcoin's still at $60,000, I've gained half a Bitcoin from him and I've gained $60,000 but I've lost whatever those contracts have cost me.
Willy Woo: Exactly.
Peter McCormack: So, I've actually gained $30,000.
Willy Woo: It's whatever it costs for those contracts, they should be cheaper though.
Peter McCormack: That's the thing I want to ask you, because you're predicting $300,000 yet the price of the contracts are quite cheap at $200,000. Is that because people doubt it, or is it because these things reprice as they go?
Willy Woo: They definitely reprice as they go, yeah, but generally the market doesn't believe this.
Peter McCormack: I looked on Deribit and I didn't even know how to read the bloody website. I might even reach out to them and say, "You need to help me", because I was looking on the charts. It's quite interesting, it says, "BTC USD times 100", is that basically a 100X leverage? I just see an order book.
Willy Woo: I need to look at it, I don't actually trade on Deribit. I haven't traded options since 2014 on Bitcoin and I got out really quick because it was so eloquent back then. It was when Deribit was just starting out. So, you're in the options area, are you?
Peter McCormack: BTC Options, 31 December 2021, but everything here seems to be priced in Bitcoins. I've got no idea how to even read this page. Strike, here we go; Strike $300,000, here we go, 31 December and the bid is -- actually I want $200,000. $8,200 is that correct?
Willy Woo: I'm still trying to load it, $8,200 for the cost?
Peter McCormack: Yeah, $8,200.
Willy Woo: That's pretty expensive, so you're going to have to spend $24,000. Are you kidding me, you're going to spend half a Bitcoin on these contracts?
Peter McCormack: I'm not going to spend half a Bitcoin on the contracts, I'm going to spend $24,000 of cash, liquid cash.
Willy Woo: About equivalent -- so times three, but you're over hedging from what I can tell.
Peter McCormack: What you're saying is that my opportunity cost is to buy half a Bitcoin or have those options, because I could just buy half a Bitcoin and own that.
Willy Woo: Yeah, right now if it's $63,000 per Bitcoin, it's going to cost you 0.4 Bitcoins to buy up those three contracts.
Peter McCormack: So, I could just buy the $300,000. My worry about buying $300,000, Willy, is that say it shoots up to $300,000 in October and then drops, and I'm still holding this contract until the end of December.
Willy Woo: No, you're not, because you can sell it at any time.
Peter McCormack: You're not?
Willy Woo: This is the same with futures. When you see that date, that's the contract that you're betting on, but you can sell it to someone else and they'll take on that bet and there's a live market for that bet, that contract. That's like a common misconception when you're trading futures.
Bitcoin's quite interesting in that we've got the perpetual swap which doesn't have an expiry, but generally we also have the quarterly future every quarter the contract expires, but you don't have to hold the contract to the expiry. Just think of it as an altcoin.
Peter McCormack: Hold on, I might be reading this wrong, I mean I've got no idea how to read this stuff. There's two bids and asks right. There's a bid of $2,000 for the $300,000 contract and then there's another bid of $11,000, but there are two sides to the chart and I can't figure this out, what the difference is.
Willy Woo: I can't get into it, because I didn't KYC and I'm not going to, because I'm not trading anymore. I'm on a refresh loop.
Peter McCormack: I might have it wrong. Does $2,000 sound more reasonable?
Willy Woo: It just seems very expensive for 31 December.
Peter McCormack: What I'm going to do is I'm going to speak to a couple of people actually just try and get and my head around this, but the point being is I'm going to hedge it with options. The other thing is I would have a choice, an interesting one, Willy, would be the fact that say I'm over-hedged and it hits $300,000 in October, like I can sell that contract, but I might want to hold onto it, because like what if it goes to $400,000?
Willy Woo: You could. I think it would be rather foolish unless we have confirmation of a surface cycle.
Peter McCormack: Yeah, but I can hedge the bet.
Willy Woo: You could hedge it. It would be a very, very sophisticated trade. I would expect that from a Bitcoin savvy person to make a bet and then hedge it on the markets, but also you should have skill in the game, I don't know, it depends on how you look at it.
Peter McCormack: I wonder how he can hedge it?
Willy Woo: I've got a bet going on, I thought I should hedge it, but I'm not going to bother.
Peter McCormack: Have you?
Willy Woo: Yeah, I've got a half a Bitcoin bet going.
Peter McCormack: What's your bet?
Willy Woo: My bet was that the price would not fall below $44,600 for the rest of this year.
Peter McCormack: Wow, okay that's a good bet. Your risk is just in the short term really.
Willy Woo: Yeah, so I think we're out of the risk zone now. It was when we were at sort of $53,000, $54,000 and the price was plummeting, everyone thought that was the top and we were going to retrace.
Peter McCormack: I think you are, because even 30% down from here at -- what's the price?
Willy Woo: $44,600.
Peter McCormack: It's close, because if we had a 30% drop now it could get close.
Willy Woo: It'll get close but realistically we'd have to drop below $1 trillion of market cap and as of yesterday it's probably higher, it's probably over 13% now. Over 12.5% of the Bitcoin monetary supply has moved. All the Bitcoins in existence have moved, 12.5% of them, have moved above $1 trillion of market cap which really validates that we're a $1 trillion asset class and we're not going back. So that's a $53,000 zone; $53,500 is $1 trillion market cap. You're going to break down that price validation; it's very hard to do right now.
Peter McCormack: Who's the other side of the bet?
Willy Woo: I'll have to look it up, he's got a podcast channel; let me just have a look.
Peter McCormack: Have you locked the money up in a multisig?
Willy Woo: No, we didn't. Fluffypony's holding it for both of us. I figure he won't run away with the money!
Peter McCormack: No, as long as you've got someone. I did the one for Udi and another guy online. I had two other Trump bets, actually I've got one with Jacamo I've not called in yet and they were just based on trust. This is really incredible, so one of them it was a 0.01 Bitcoin, it was like a small bet and he got banned from Twitter, lost the bet, disappeared, but he then came and found me and said, "Look, I know I've lost the bet, I've been banned from Twitter".
He was a non-account, and he came and found me and paid his bet. He could have disappeared and not paid it. I was kind of impressed by that.
Willy Woo: You want to do this as well; there's so many people want to exit. Yeah, we want to play for the long game, build a rep. Okay, let's have a look. It's JackedTrades is the guy.
Peter McCormack: Is he on Twitter?
Willy Woo: Yeah, JackedTrades.
Peter McCormack: J-A-T?
Willy Woo: No, jacked as in you're jacked. I'll send you the link.
Peter McCormack: Jacked, I think we've got him, Jack of All Trades.
Willy Woo: I wasn't planning to make this public, but I guess it is now.
Peter McCormack: Jesus, he is ripped, his arms are bigger than my legs.
Willy Woo: I haven't checked his photo, all right. You don't want to mess with him; maybe I should lose this bet just so he doesn't beat me up. Whoa, that guy's -- what? That's nuts, what's he doing in crypto, he should be on Hollywood or something.
Peter McCormack: He's rich, good looking and jacked.
Willy Woo: Yeah.
Peter McCormack: Fuck that guy, there must be something wrong with him. Listen, your bet's till the end of year, mine's till the end of year.
Willy Woo: Yeah, same.
Peter McCormack: You and me might have a half Bitcoin party.
Willy Woo: Yeah, we might. That'll be fun.
Peter McCormack: The other thing I want to ask you about these psychological levels, and do they exist, are they real, etc, because I seem to remember $10,000 being an issue. I seem to remember getting back over all-time highs also being an issue. At $50,000 I'm pretty sure we bounced off and I'm thinking $100,000 is coming, is that going to be some kind of firm, hard level of resistance. Is that a natural place for people to start thinking, "I should sell a bit here"? What tends to happen around these psychological levels or am I overthinking it?
Willy Woo: I think it does happen. If first saw it when it was breaking 1 cent; just kidding! Definitely at $1,000 there was resistance and I remember also seeing at $10,000, we had that. Remember in the bear season of 2018, we had the $100 million resistance and that was psychological too and that was really that sort of --
Peter McCormack: $100 billion?
Willy Woo: $100 million market cap.
Peter McCormack: I don't remember that. If that was 2018, that would have been $100 billion.
Willy Woo: Wasn't it like $6,000 Bitcoin as it was coming down from the 2017 high, can you remember?
Peter McCormack: That would be $100 billion, not $100 million.
Willy Woo: Sorry, $100 billion, yeah. What's three zeros?
Peter McCormack: We didn't see much resistance on $1 trillion.
Willy Woo: No, we did; we consolidated right on it. We've been on it for months. $55K, I remember tweeting this at like at $20,000 or something saying $55K is the next target because that's $1 trillion, and it's been doing that for ages. We're just clearing that zone now, so yeah, I think that $100,000 is going to be another psychological zone, yeah. What do you think?
Peter McCormack: I imagine it will and in my head I'm like, "Do I?" Do I put up like 15%, 20% of my stack? Do I sell it at $95,000, see if it bounces off, drops down 20%, 30%, rebuy; or am I just being a moron and probably going to screw it up and lose Bitcoin?
Willy Woo: Yeah.
Peter McCormack: I'm most probably not going to do that; I'm most probably not going to do it. If anything, I must just like take a short at about 95% and just see what happens for a bit of fun, rather than actually risk some of my Bitcoin.
Willy Woo: Yeah, this opens up to an interesting topic. You're definitely a moron if you sell, trying to sell in a bull run and try and buy back lower, that doesn't work. You're lucky if you can get that to work, I think we've covered that in the past.
It's going to go into a sideways band, and so a lot of traders, particularly whale traders that are savvy, then go, "Yahoo it's alt season! When Bitcoin's going boring sideways, we'll just deploy and move that capital off into altcoins". Alt coins tend to go up when Bitcoin is sideways without the threat of it breaking out and going to the moon, because when it's about to break out and go to the moon, whales aren't going to risk that and go into altcoins; but if it looks like its rangebound for a while, we'll go into altcoins, and we get your alt season.
Having said that, I think it's great but it's also a dated proposition, because now we've got very well-developed derivative markets and options markets that are slowly getting more liquid and so you can also now just do the straddle trade, so you can sell a put and sell a call option, because you can think of these options as they're essentially insurance policies. They're very cheap to buy and if it goes in a particular direction, you get exponential gains on it and so you match the two, you sell a put and you sell a call and the two balance each other; the thing goes sideways and doesn't break out of this range, you're making money every day.
That's an option too, it's relatively sophisticated, I haven't done it. I know it's possible, but I haven't really had time to investigate all the numbers behind it. It's interesting in this cycle, this bull cycle, that Bitcoin with its immense liquidity and all of the derivative markets, derivative markets we've got, traditionally what we've had in crypto is people using altcoins as substitutes for what you can do now.
If it's a bull market, rather than buy XRP, Ethereum or whatnot, thinking you're going to get a higher run up in the bull market than just holding Bitcoin, you can just buy this other kind of shitcoin and that's called a derivatives contract; a quarterly contract that goes long on Bitcoin. So if you do 1X leverage, you get double the return; if you go 3X, then you get triple. That really competes with something like Ethereum.
Peter McCormack: Are you trading alt coins, or do you just keep it all to Bitcoin?
Willy Woo: No, I don't trade -- I traded a little bit of DeFi to learn about it. Last 2017, I was degenerately trading altcoins, like ridiculous. I think at one point, it was 90% in altcoins because there was just a crazy altcoin tulip bubble.
Peter McCormack: Dude, I did it man. Dude, I did it and I did really well for eight months and then really badly.
Willy Woo: The BS side of it, all the liquidity dries up and you're screwed because you can't sell out of your positions and altcoins, you need to know what you're doing. Each coin has its own thing going on and you've got all these Telegram channels and all of these whatever, Discord, Slack channels and you've got to have endless amounts of time to understand exactly what's happening with each altcoin, whether they're introducing this or that in their monetary policy.
So no, this cycle the only thing I really trade is Bitcoin, because I don't need to understand what's happening with Ethereum; I don't need to understand they're going to version two and there's the staking award and they're going to burn the miners' reward; they're going to burn token. All these dynamics, every altcoin has some sort of scheme in their tokenomics to push the price up and so all I need to do is read Bitcoin and get very, very, very good at trading at one asset and I leverage it. Then I'm good, right, I don't have to buy Ethereum.
If I buy Ethereum and I'm trading Ethereum, I still have to know what Bitcoin's doing because Ethereum orbits Bitcoin and every altcoin orbits Bitcoin; so if you're trading altcoins properly, you need to know what's going on in your asset class, or your asset which is the altcoin of your pick, and then you're really looking at Bitcoin. It's like two planets in gravity lock, in that the little coin is in gravity lock with Bitcoin's movements and so it's much more of a complex -- it's two degrees of investigation there; it's much more complex.
I can do this really simple thing which is read capital flows into Bitcoin and get very good at it and I can go up or down on that. For Ethereum, I can do on-chain analysis on that, and I could read capital flows into Ethereum and it won't obey it, because suddenly if Bitcoin's going in the other direction, it doesn't matter what the capital flow into that coin is, it's being pulled down Bitcoin or being pulled up by it. So, it's simpler for me to trade a long position on Bitcoin and I don't need an altcoin anymore.
Peter McCormack: Can I ask you, in terms of your strategy, you might not want to share this, but what percentage do you sit there as a stack and ride out the market and what percentage is your trading play, leverage, try and outperform the market stuff; or is it all that?
Willy Woo: It varies. The minimum is 15%; the maximum is 30%, maybe just above 30%. When it gets above 30%, I pull out and recalibrate and I bring it back down to about 20% or 15%; so it's like my profit take and then I put it back into my stack.
That's not recommended for new traders, by the way, and it's not recommended by normal technical traders. I think the norm is 10% to 20% but I trade differently because I'm trading what I do, which is on-chain capital flows, and they're very long-term trades over multiple weeks. It's demand and supply based from fundamentals and it's pretty much around 90% reliable and that 10% where it's not reliable, it doesn't swing the other way quickly. I can check on it on a daily basis, and then I can reduce my position or whatnot.
The leverage is very low, I don't usually go much more than 1X which means that the price can go to half and I don't get liquidated. Basically, it's got to be a black swan event and then I'm in danger of liquidation, but yeah, I just sleep at night with this thing going. Typically, when traders trade, they go, "Well, I think it's going to go up and if it goes against me, I'll stick my stop loss here, and I'll exit the trade; but if it goes up, I think I might get a 3X gain versus a 1x loss, so a 3:1 ratio, and I'm going to enter that trade".
There have been very successful traders who just don't care which direction, they'll just go any old direction, set their stop loss and they'll lose one third, and if they win, they gain; it's a 3:1 ratio.
Peter McCormack: They've got to be right once in three.
Willy Woo: Yeah, exactly and usually it's 50:50 right, so in the short timeframes it's 50:50. So, as you get into the shorter and shorter timeframes, it's just a gamble and you need the risk protection to stack the odds in your favour. What I do, it's not about gambling as such; it's fundamentally understanding where the market is moving based on the amount of capital coming in. I have to be careful, build models around that, I have to be careful when the market is so speculative that it's above where you put the organic price that the fundamental investors are coming in at.
At that point, you've got to be careful because if you're 30% above the fundamental floor of what investors are putting the price, it can fall back 30% and so that's a lot of losses. I have models around that too, which are currently trading around 80% above that today.
Peter McCormack: It feels like Bitcoin really does reward conservative strategies, but it rewards it well.
Willy Woo: Yeah.
Peter McCormack: If I could go back two cycles and start again, my strategy would be just work hard and have a revenue-generating business, keep stacking during bear markets, just keep stacking, putting it into storage and then once the bear market's coming to an end, it's like just long from each significant dip, 30% dip, and then ride up that 10X to 20X gain you're going to get and then just rinse, repeat.
That seems to be like a good conservative strategy that can give you life changing money. Yet, it seems like some people want super life changing money, and they're willing to YOLO in on some crazy investments and wreck themselves.
Willy Woo: Yeah, it's true, it really is true. I think it's also this genius effect of bull markets where people think that they're geniuses, "Oh look, I made this amount of money, I'll make even more", and, "Wow this is easy; it must mean I'm a genius". You can tell the real geniuses once the bear market hits and they've figured out how to exit that position and then actually even make money on the downside, so they're trading two types of environments and it's not just luck.
Going back to your strategy of buying the 30% dip and riding, that's actually a very smart strategy but very few people can follow through on it, because they'll see this thing run up and then they'll see the little turning point and they go, "It's going to come down, it's going to come down", and they want to capture the gain that they've got without just leaving it alone, so they'll sell out. Then it runs up higher, because they've got that short timeframe thing which is always a gamble wrong, and they're buying back higher.
Certainly, this strategy where I'll buy the dips and I'll just run that up, it turns into a day trading environment where you're overly emotional about the trade. Ultimately, this goes back to the psychological barrier. Everything's just emotion but, "It can't possibly be worth $100,000; that's wrong" and so it impacts the market.
Peter McCormack: There is that thing also Willy where you feel obliged to make a trade, which I've been quite good during this bull market. As I said, I'm just playing around on this Plus500 account and I essentially doubled the $2,000 I put in and it was just play money. I've lost about $500 again but that was more because each of these contracts you take out expires on a week and I didn't renew, so I had the recent one, I dropped down, I didn't renew it.
I went into the trade at the wrong point; it wasn't a 30% dip, I was just certain it was going to go up, I didn't renew, and I dropped down and I should have renewed and I would have taken up to the $64,000, well where we are now. I've missed that one and right now, I think it's going to go up, but I'm not entering because there isn't a 30% dip, so I'm just waiting. I accept there's like five, six maybe trades in 12 months on that, but you get itchy fingers. I just want to make a trade; I want to make a fucking trade!
Willy Woo: Yeah, it's like crack cocaine right; it's crack cocaine!
Peter McCormack: It is man.
Willy Woo: I want that feeling.
Peter McCormack: Yeah, give me the run up.
Willy Woo: That's the big thing, a lot of traders say is that it teaches patience. It teaches patience, Pete.
Peter McCormack: It also rewards patience, I think.
Willy Woo: Yeah, it rewards patience; it rewards being zen, detached from your emotions. Sometimes I think I still enjoy the days that I make money over the days I lose money, and I go, "That's a warning sign". It sounds funny but it's a warning sign; that means that that's a weakness. If I really didn't care if I made money, I lost money, that's as strong as you can get as a trader, because you're totally rational, you're not influenced by emotion. A lot of it's just human emotion.
Peter McCormack: Fear and greed and too many people have been wiped out by that. I could have been completely wiped out in 2018, I had enough left over to keep going and it's definitely in a more healthy position now, just being patient.
Willy Woo: This kind of translates to investors who aren't even trading. I can tell a new person in Bitcoin because first they go, "What price do you think it's going to go to?", and thinking, "I'm going buy here and I'm going to sell there", so actually they bought it as an investment, they put it into their wallet, but they're already thinking, "I'm going to sell at this point", so it is actually a trade.
Then you get to this maturity, you'll see this from all of the long-time bitcoiners, and they really understand fully what they've bought. They'll go, "No, this is the real deal. I'm in it till the end game because I'm backing this technology". Then you know that they're making a rational play and they're not swayed by emotion. They're the ones that are going to win big time, yeah.
Coinbase went IPO just yesterday and Difan sent me a screen capture and he bought ten Bitcoins at $155 back in 2015, I think it was.
Peter McCormack: Good lad.
Willy Woo: Or was it 2013 or 2012; 2013.
Peter McCormack: No, I think that might have been 2012.
Willy Woo: It was early 2013, so he bought it for $15. Say he went big, it's 2013 you'd maybe put $15,000 into it and you bought 1,000 Bitcoins at that price.
Peter McCormack: You wouldn't get it for $15 in 2013, maybe 2012.
Willy Woo: Maybe it was 2012, was it?
Peter McCormack: I think I bought my first one at the end of 2012 and it was $80.
Willy Woo: $80, really, wow.
Peter McCormack: That was to buy drugs.
Willy Woo: Yeah, that's the thing, I often joke, I got into Bitcoin because of drugs; I thought it made a good story! Yeah, you're right, it must have been. At the very beginning it was $13 in 2013.
Peter McCormack: Really?
Willy Woo: It might have been right at the very beginning, yeah.
Peter McCormack: Maybe I missed it.
Willy Woo: Before the first of the double pumps, yeah totally. There wasn't much difference between late 2012 and 2013. Say you spent $15,000 buying a 1,000 Bitcoins, and say he's going to hold that for a good proper dozen years, so now it's year 2025, so 12, 13 years. He'd be a billionaire for a $15,000 investment, he'd be a billionaire because stock-to-flow models, what we're projecting, the amount of adoption, $1 million Bitcoin will happen in the next four or five years. I guarantee you, 99.9% of people that bought $15,000 of Bitcoin at $15 each would not hold that through that years; they'll take profit all the way.
Peter McCormack: No chance.
Willy Woo: There's no chance, so you see these photos of people buying this stuff, and you just know that a majority of those coins have now been sold off and it's been redistributed, which is also a good thing for the network, right. You want a good distribution of coins. How many of your coins did you keep?
Peter McCormack: None from there.
Willy Woo: I guess you bought them and spent them immediately, yeah.
Peter McCormack: Yeah.
Willy Woo: Because you were using it.
Peter McCormack: Back then, it was purely because somebody introduced me to The Silk Road and I was buying it to buy drugs and then when The Silk Road went down, I had a certain amount on there. I couldn't tell you, it might have been one or two, so they were gone and then I was just trading some CFDs, and I forgot about it, just no interest, just forgot about Bitcoin. It did that run up to $1,200 and then dropped and then I used to keep checking the price and thinking, "Oh this shit's dying", but I'd never really looked into Bitcoin, I didn't really know what it was; it was just this internet money thing.
Then it started to go back up and it was only when I had -- I've talked about this a million times, but buy something for my mum, that I got back into it, but I've admitted this. I used to keep this spreadsheet, maybe we talked about this on our last one or with somebody else, but I had, in terms of Bitcoin and altcoins, peak 2017, I had 182 Bitcoin in value and then just lost most of it because I ended up in low liquidity shitcoins.
Willy Woo: It was the altcoin season.
Peter McCormack: Yeah, just in 2018, I had things like Neblio and Storj all these stupid -- you'd be on these low liquidity exchanges trying to sell them and you just get nothing for them and so you're like, "Oh it'll come back", so you hold it longer and then, yeah, blew it all. Do you know what, it taught me so many lessons, Willy. Of course, I don't have as much Bitcoin as I had then, but I've got enough for what I need, and I certainly won't make that mistake again.
Willy Woo: If you make your money and keep it, it's just luck, mate. If you make your money like that and you manage to -- I don't know, it's almost like you need to lose a lot of money before you learn in this crypto game. I haven't been scammed, or maybe I did get exit scammed; one exchange that went down, they exit scammed. I never got like, "Send me a Bitcoin, and I'll send you two back". I haven't done anything outrageous like that.
But I invested in Giga Watt, which was a mining outfit, and it was the biggest outfit in North America. I even flew there, checked out everything, and that to me was going to be, "Okay, it's like real estate, I'm buying mining infrastructure, I can collect rental on it because I need to get out of Bitcoin at this top", at the 2017 top. "I'm going to need to get out" and stablecoins were, I don't know if they were just starting to come out, but they weren't trusted, so I thought what better thing is to buy essentially mining real estate. That just went to crap, the whole thing went bankrupt.
Peter McCormack: Badly, badly.
Willy Woo: All of these projects went to nothing and they floated a token, so you buy it through the token; but lots of lessons learned by losing money.
Peter McCormack: You need four years, man. That first Bitcoin lessons takes four years, it really does. You do a whole cycle and you're like, "I get it now", but you have to live it.
Willy Woo: It's a tuition fee. It's a tuition fee, you're paying.
Peter McCormack: A four-year tuition fee. All right, man, I do know people are signing up to your newsletter because of this, because they told me, which is good. That's great, but tell them as ever where to go, man.
Willy Woo: Okay, probably the best and easiest is to visit me on Twitter @woonomic, it links from there on my profile page, it goes to my newsletter feed. It also goes my Woobull charts site where a lot of the models that I tweet are; it's on that site if you want to check the live charts.
Peter McCormack: Sign up people, it's $50 a month. I have it, it's the best $50 I spend a month in terms of anything I subscribe to. I'll put that on the show notes, Willy, appreciate you as ever man, very exciting. I'm expecting next month we'll be talking, and we'll be over $70K.
Willy Woo: Let's hope, let's find out.
Peter McCormack: Fingers crossed, bro. Take care, see you soon, bro.
Willy Woo: Okay, Peter. Catch you next time.
