WBD365 Audio Transcription
Is Bitcoin in a Bear Market? with Willy Woo
Interview date: Monday 28th June
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 interview, I talk to on-chain analyst and the co-founder of Hypersheet, Willy Woo. We discuss the reliability of on-chain data and TA, miners moving out of China and whether we have entered a bear market.
“Bitcoin’s now fighting the final boss in the video game, it’s really up against the central bankers, and much earlier than we ever thought...because El Salvador decreed this as legal tender the World Bank by their own charter have to accept bitcoin as payment of debt.”
— Willy Woo
Interview Transcription
Peter McCormack: Willy, we have a lot to talk about, mate. But firstly, congratulations on becoming a daddy!
Willy Woo: Thanks, Peter, yeah. She's so cute! I have new respect for women, what they have to go through to bring a baby into the world. I cannot believe there's been 8 billion people born this way!
Peter McCormack: Dude, listen honestly, I used to do that typical bloke thing thinking, "I'm at work all day, etc". When I had to actually raise the kids, when I separated, I realise how hard it is. It is the hardest job. Going to work is a luxury compared to being at home raising a kid, so big up to all the mothers out there; me and Willy support you. But, man, she's cute!
Willy Woo: Thank you. And also, I feel like I'm in esteemed ground. You're suddenly the famous man in the world right now!
Peter McCormack: Well, I can't believe you're so dressed down for this; you should have put a suit on.
Willy Woo: I know. You're used to being greeted with people in suits, right?
Peter McCormack: Dude, the whole thing's weird, man; I can't fucking make any sense of it. But now I'm back in Bedford after six weeks of weirdness and Indy races, Miami and presidents and I'm just back to normal life and going down to Tesco's and getting a loaf of bread and normal life. My kids are yelling at me and don't give a shit about anything!
Willy Woo: I think my favourite was seeing pictures of you in your Metallica T-shirt and tats and then Twitter doing memes of you appearing in meetings with the Fed and so forth!
Peter McCormack: People are so pissed off about that, like, "You're so disrespectful". Look, the first thing is, people didn't realise, I didn't just turn up in a Metallica shirt like a moron; I actually messaged the President's brother, because I didn't have any smart clothes with me. I'd flown from New York, I didn't have any laundry done and I didn't have a suit. I mean, I wouldn't have worn it anyway probably, but I just had nothing. I messaged the brother and I was like, "Is there a dress code?" and he was like, "No, you just wear what you want". So, as a joke, I put, "Even a Metallica shirt?" and he went, "Sure". I was like, "Well, fuck it, I'm going to wear it now!"
But they don't care. If you know Bukele, he doesn't care about this stuff. He cares about goals, he cares about delivering for the people, he understands social media. This is the guy who campaigned in a backwards baseball cap and did a selfie in the UN. He's in touch with real people. But anyway, the memers had some fun.
Willy Woo: Yeah, it was fun.
Peter McCormack: Anyway, man, we've got a lot to talk about. The first thing I want to put to you though, okay, I'm going to hit you with a surprise, but I'm also going to put some defence in there as well. So, I have to view all the YouTube comments, because there are so many spammers. If you just let it go, it ruins it; so, I just approve the proper ones and delete the other ones, so I get to see them.
There has been some criticism this month where people are saying, "Willy's said this was happening and now this has happened" and my interpretation, I want to put it out there, is if you're trading, knowledge is like a weapon; the stuff you're doing, the on-chain analysis. But it's not like a crystal ball. It doesn't predict future events. You can't predict a FUD narrative; you can't predict Chinese miners closing down, right? So, my interpretation of it, Willy, is you use this data as a guide, but if market conditions change due to events, then you have to react to that; is that fair?
Willy Woo: Yeah. The reads I do on chain, I do them typically with my newsletter at least, that's every two weeks, and what happened was I issued a bullish structure. It was kind of tentatively recovering and I thought it was going bullish, well I had flicked to bullish, and then Elon Musk famously did his energy fossil fuel tweet, which tanked markets immediately. I don't think it would have had the same impact if the market was with upward momentum and that momentum was strong; but it was just recovering from the previous few weeks of miners losing hash rate in China and we had a deleveraging, so that hit it.
Then, I came out with a forecast that was ridiculously bearish; I said, "This is just total waves of coins hitting the exchanges for selling", and I said would take possibly months to recover. But unfortunately, I thought a lot of people were leveraged and lost money. There was structured bullish and there was a gap before I said was bearish. And I think the price had slipped from $55,000 to $50,000, maybe $45,000. Then, it carried on down to $30,000, but the forecast did go out and it said, "This is heavily bearish". But a lot of people got rekt.
It's kind of interesting in that this bull market, like every bull market, brings in a lot of new traders and lot of new investors, and I had people say, "I lost money. This forecast is very, very inaccurate", etc. If you do the back-trace on it, it's 80% reliable. That means four out of every five forecasts play out. And most technical traders who are trading in the shorter time frames using just chart analysis, typically if you're right 60% of the time, you're really making bank. A lot of traders make bank 50/50 because they have good risk management. That's the key. If anyone is in the short-timeframe trades, you really need risk management.
I got a lot of flak over that rundown, but also you'll get flak anyway, because when price is bearish, the markets go very, very emotional.
Peter McCormack: Yeah, I know that.
Willy Woo: The 2018 bear cycle, I was the one saying, "This is bearish" and I got masses of flak for being right! So, you can tell the sentiment; just when people are hurt, there's going to be a lot of criticism.
Peter McCormack: I know, dude, I get it as well. I was blamed for the market crash for triggering Elon Musk, which made me fucking laugh; literally people going into my DMs telling me to kill myself and shit! But the way I take it, Willy, is that you know I love your email, I tell everyone to subscribe, I think it's brilliant; but I see it as, this is you telling what's happening on chain and based on historic performance, these are things you expect might happen. But I still expect market conditions to change.
Look, I've only started testing trading this year, small amounts here or there, but I am going to trade the next cycle, right; I'm going to take what I've learnt and do it. But I'm going to take maybe 10% of my stack; I'm probably not going to use leverage. If I do, it will be 1.5. I'm going to have proper risk management in there and if market conditions change, they change.
Anyone listening to this, I'm just going to say it, anyone listening to this who treats your email as gospel and puts everything on the line with it and loses a lot of money, that's your own fault. This is some analysis, which is knowledge that you can use; it isn't the gospel. It isn't Willy's guaranteed returns forecast!
Willy Woo: Yeah, it's fairly interesting to see a lot of people think that you can actually predict with 100% reliability. I find it ridiculous! If you can do 80%, I think that's ridiculous as well, and I think we can only do that right now, because on-chain analysis is only barely two years old, maybe say three; but publicly, it's only been two years old, so it does have an advantage right now. But I even think that's going to get less and less reliable, because it's just a new field. Not everyone's looking at it, but eventually the signal will start to be a lot harder to read, as the whole market… It's all about information asymmetry.
Peter McCormack: Well, listen, you say you think the recovery's under way. There are a lot of people claiming we're in a bear market, it's over. I guess both are possible, but you're seeing indications that there's a recovery under way here. This dip definitely anything I experienced mid-market 2017; there's a definite change in the structure to what's happened, but I've not sold anything, I'm still confident. Look, there's still too much good stuff happening.
Actually, do you know what it feels like, Willy? It feels like there's a lot of really good stuff happening and a lot of really nasty FUD, or big things challenging us. So, we have El Salvador making Bitcoin legal tender; at the same time, China seems to be doing an outright ban and all the miners have switched off. They're like two opposing forces at the same time.
Willy Woo: Yeah, and even that, that is bullish. That's like, "Great, the whole network got more decentralised". We no longer have 60% of the miners in China and can't take control of the network, which was always one of those outlier concerns. Imagine if the Chinese Government, by decree, claims all the miners and takes out Bitcoin through a 51% attack, that kind of thing? Now that's gone and even now, all those miners, those ASIC miners, the hardware's being relocated to all the sources of cheap and clean energy in different parts of the world.
So, all the underlying things behind the network; obviously, you're at the forefront of the El Salvador story, of it becoming legal tender and it's like Bitcoin's now fighting the final boss in the video game. It's really up against the central bankers and much earlier than we ever thought. The thing that was quite hilarious was, because El Salvador decreed this is legal tender, the World Bank, by their own charter, has to accept Bitcoin as payment of debt! So, at the very highest level, we've got institutions that need to face Bitcoin now, which I thought this would be another four years away.
Peter McCormack: I know, man.
Willy Woo: So, I don't know. I think that there's going to be attacks on it, very hard-out attacks. I even saw that with Tesla back when, remember when Tesla was the darling of the shorters and Wall Street and everyone was trying to take out Tesla, and there was FUD after FUD after hit piece on Elon Musk and Tesla during that time. I feel that's kind of what's happening right now with Bitcoin. That's on a sentiment base.
On chain, I can just see buyers, sellers, and sizes and to me, it's as simple as we had a lot of buying from about the January of this year really, and those guys were very, very large buyers, very high net worth, and maybe some institutional hedge funds, short time-frame kind of guys, or even family officers. The thing is, a lot of those guys took their money off the table from that $50,000 to $60,000 range and so, all those coins just ended up on the market. So, they were dumped out, ended up having the inventory on the exchanges, the speculative inventory just go up; so, for every coin that's sold, obviously, there's a buyer, so I guess speculators bought those coins.
Now, we're in a very speculative phase and those coins are slowly being absorbed by long-term holders; slowly, you know. And it's very much structured. On chain, it looks like the COVID crash and then recovery, which took eight weeks. We had a massive dump out of what looked like the long-term holders, those people that bought up to six months ago, and they sold for the very first time, unloaded their coins; and the buyers are smaller guys, it's retail.
The coins are moving to stronger hands, long-term investors, but we're not seeing the same amount of pure rate of coins moving off the exchanges into cold storage, like we saw in COVID. So, price right now is going sideways bearish. It's chopping along sideways bearish. It looks like what we call a Wyckoffian accumulation price pattern. So, if that plays out, then we should have -- that last wick down to the $28,000, $29,000 should have been the final test of the bottom. If that continues, everything on chain looks like it's in recovery.
In fact, we're getting a bullish divergence; on chain is going bullish. Coins are being sucked up into strong hands, while the price is driving downwards. The last time we saw that was in late January when we had the first dip in 2021, and on chain was diverging upwards as the price was going down, then we rocketed upwards. So, that may play out. I think that we still need to see what happens in the next two to three weeks. I do think, the next couple of weeks at least, we're in an upward trajectory.
But it's recovering; we just don't know what's going to have obviously in the future. If we get another round of people dumping coins, then that will destroy this accumulation and push us down lower. But in terms of the fundamental metrics, valuations like NVT or stock-to-flow, we're already heavily discounted. So, it's like a cycle unlike any that we've seen, and I mean that. People are templating this thing to 2013 where we had a double pump, but underlying structure is completely different; the market's completely different.
Peter McCormack: The bullish news is extreme, in the sense that we have a country making Bitcoin legal tender and Michael Saylor, well I think he bought all the Bitcoin! Then the FUD is super extreme, in that we have Elizabeth Warren complaining about energy, Elon Musk complaining about energy and Chinese miners being turned off. So, it just feels like the normal bullish and bearish news of a cycle, but just at extreme ends of it.
Willy Woo: Yeah. And the buyers that bought, that pushed price up, they were obviously very new and very prone to the FUD, no matter how bullshit it was. It was utter bullshit, but they bought it. I even noticed, remember Michael Saylor and Frank, what's his last name? There was a debate that they did on gold versus Bitcoin. Michael Saylor won that debate clearly on all points from logic and fundamentals, yet Frank attacked Bitcoin on, "There's no way authorities will allow Bitcoin to prosper".
I noticed that the FUD actually worked; the price dropped after that debate. And I think that a lot of these new buyers were, you know, you get an easy 2X to 3X, even 4X over a number of months, you're probably going to be sensitive to, "Oh, this is scary. I'll take the profit now", in a highly volatile asset. But I do like how it is the small guys that are buying it right now; it's very good for the network.
Peter McCormack: Well, a recovery feels good and, like I say, $30k seems to be defended pretty well. I'm not at that point where I'm thinking things are over; there feels like too much good stuff is still happening. And like you said about the China news; to me, the China news is positive, because it removes some of the FUD things that people talk about, "We're centralised around Chinese mining", so we get rid of that. One of the things I'm really looking forward to is a lot of the movement of the miners to be using this kind of clean energy, because I think all we'll have left is terrorists and drug dealers; that's all we'll have left.
Willy Woo: Yeah, it's really interesting; I've noticed this in markets. When the thing shakes out, something that's bullish is initially bearish before it goes bullish. So, for example, the 2008 Financial Crisis, all the banks were getting rekt and if you were a gold bug, you would be sitting pretty, because everyone's going to go onto the safe haven asset. But of course, gold sold off like crazy. You got rekt if you were holding gold, because these more urgent impacts happened, where everyone sells US dollars, deleverages and everything crashes. And then the thing recovers and of course, gold went on to a four-year bull run.
We saw that with COVID, right? Bitcoin was exactly what you want when the whole market crashed and the money printers started printing on overdrive. You wanted inflation head, but Bitcoin halved also, right, because everyone was at peak fear. The same thing now with China miners; everyone's selling off. But ultimately, the fundamentals are backing Bitcoin, because the whole network's becoming decentralised and stronger.
So, yeah, a dump before the pump; this happens a lot in markets.
Peter McCormack: Do you know what; one of the things I haven't actually, and this is pretty amateur, I haven't had a look at the hash rate since they turned off? I'm assuming there's been a bit of a drop. Yeah, okay, so look, the hash rate's down to what it was when it dipped in November 2020 and about what it was a year ago. Do you know, it's funny; when you look at the hash rate chart, yeah look, there's a big drop. But I feel like that will recover, because from what I've seen online, these miners are looking to pack up their equipment, their ASICs and move them elsewhere.
Willy Woo: I'd also be weary of the hash rate, because that's reported by the software and it's voluntary. When the hash rate dropped when China tripped over the power cord type thing, a while back when they did a number of shutdowns because of some routine maintenance, or safety inspections, Adam Back contacted me and said, "This stuff, really you can't rely on it, because it's not perfectly reported". But what you do, you look at how slow do the blocks get processed and so, you can look at that.
We did get a slowdown, but we're still waiting for the, what is it? We're less than a week left before the Bitcoin difficulty will adjust for that loss of hash rate. So, blocks are a little bit slower than normal right now. Let me just have a look at what it's saying right now. Yeah, so normally it's 600 seconds, or 10 minutes, right? Currently, it's closer right now to 16 minutes, the average block time. So, the whole network has slowed down a lot, but it hasn't slowed down to unseen levels. We got this -- yeah, I'm looking at it.
We had the same level of slowdown in mid-April when a lot of the Chinese miners shut down because of the power outage. We're at that level again, so yeah, but the network's fine. It will adjust. Another few more days; within a week, that will adjust down and by, looking at the reported hash rate, which is not quite accurate, but it looks like we were last at these levels a year ago, around June.
Peter McCormack: All right, so the big question, because this comes up all the time and people talk about it in different ways: Willy, does hash rate follow price, or the opposite; or are they just completely disconnected?
Willy Woo: I had it a while back, but I think the two are kind of -- they affect each other, orbit each other in different ways, different things. Price can lead hash rate and hash rate can lead price in different situations. Obviously, when the hash rate drops suddenly like we saw in April, price did follow it, because there was fear in the market. But then obviously, there's the other effect in bull markets; it's economically incentivised to turn on more miners because the premiums are so high when you mine Bitcoin at the higher prices.
So, the two are related. I wouldn't say one leads the other and vice versa; they both have their effect and they are in orbit. But I remember reading a tweet by someone who was much closer to it, he broke it down very, very well; but just from my view of it, I've seen both happen. But the hash rate follows price on slower fundamentals of price going up. Yeah, they're different mechanisms.
Peter McCormack: All right, well I spoke with Lyn Alden this week, and she said that the Fed may slow asset purchases and that the S&P announced they're dipping down and the dollar index is strengthening. Do you track these items at all; do you look into this? Does this affect any of your decision-making, or do you just purely focus on on-chain and narrative?
Willy Woo: I don't even focus on narrative. I focus mainly on chain. Very little do I look into the greater macro. Probably it will be more important in the future, but everything that happens in the macro world, unless it's sudden, unless it happens within a day because of some Fed announcement and stocks tank and then it pulls down Bitcoin and a trading correlation, but that stuff is very short-term focus.
What you look at on chain is the buying and selling that you see long-term investors doing. So, if there is fear in the market because of XYZ impact on the macro landscape, then presumably investors will sell; and you pick that up on chain. Typically, that happens and gives you a bit of lead time before the price follows suit, because those early sellers, you'll see that happening.
So hopefully, let's see how it works in the future. Up until now, I could just have my blinkers on. Some charters say, "I don't care about narrative or new cycle, I just look at what's happening on the charts and I know whether people are selling or buying". It's a little bit like that.
Peter McCormack: Have you looked at the Grayscale stuff at all; is that relevant, because 16,000 Bitcoin, just over $600 million, is unlocking in July? That's the biggest unlocking of Grayscale Bitcoin to date. Do you look at that, do you consider that, what pressure that will have; will that reduce the pressure to sell?
Willy Woo: Hold on, what are you saying with that; there's a window to unlock?
Peter McCormack: There's an unlocking, yeah.
Willy Woo: Grayscale doesn't unlock, or does not sell, other than for its management fee, right?
Peter McCormack: No, because that was how the arbitrage was played. But because it's not an ETF, it isn't instantly liquid. When you buy the Grayscale coins, there's a certain period they're locked up for.
Willy Woo: Are you sure? Grayscale has never released coins and that's in the prospectus, isn't it? Is this the first time ever?
Peter McCormack: Here we go. I mean, I'm on CryptoPotato talk! Let's try and get a better website.
Willy Woo: There are six-month windows, I think. It's where the insiders, the institutional guys, can buy Bitcoin and bring it into the fund, I think.
Peter McCormack: Yeah, so I mean it's not the coins unlock; it's the shares, right, and the shares become liquid.
Willy Woo: Yeah.
Peter McCormack: So, that's probably what it refers to. I'm a little bit out of my depth here, to be honest.
Willy Woo: Okay. So then, the coins stay put, because it's Hotel California for those guys, once they're in; but then, the amount of shares that are issued around it adjust. Yeah, got you.
Peter McCormack: I mean, the way it's put is that, "With the second quarter of 2021 almost done and July just round the corner, Bitcoin might be heading towards a highly volatile month and Grayscale could receive the blame. This is because one of the largest unlockings from GBTC will take place in the middle of the month, as accredited investors will receive access to over $600 million worth of BTC", but I think it's the shares that are unlocking; the shares can be traded.
Willy Woo: No, that's wrong, yeah. So, those coins will never be dumped down on the market.
Peter McCormack: No, but what I mean is the shares; the shares become liquid, right?
Willy Woo: Yeah, so what it means is that the premium changes; because right now, because there's a set number of shares, right now you could buy the shareholding to access a claim on those Bitcoins at great discount, up until just recently, but over the last few days it's closed. The discount on those coins is now closing and it was very marked. I think Cathie Wood hit the ice when she span the buy button that latest dip. What was it; $60 million? I can't remember how much she bought. It was a decent amount and the whole premium has closed.
What I look at is the premium really, because the premium was actually at a premium. It was more expensive to buy Bitcoin through Grayscale than actually on the open markets. But for the greater part of -- I'll just look at it right now; Grayscale premium. For the greater part of the last few months, we've seen a deeper and deeper discount.
Peter McCormack: Yeah, Meltem tweeted about it. So she put, "From mid-April to mid-June, 139,000 Bitcoin worth of shares are unlocked", so it's the shares, "and there's another 140,000 Bitcoin worth of shares that unlock through the end of July".
Willy Woo: Yeah, so the premiums have been dropping to a discount some time in late March and, yeah, that premium's just -- you can look at this as like, as institutional holders have been dumping Bitcoin on Grayscale, meaning they're selling their shares, so the shares were getting cheaper and cheaper and cheaper than the actual outright cost of Bitcoin that they represent, to a point where it was peak discounted at mid-May. That's been sidewise recovering since then.
Of the last three or four days, that's made a huge jump from -14% to now 4.8%, so it's like a 10% reduction in discount. So, that's showing demand come back into the market. As that discount was getting deeper and deeper and deeper, it just meant people were selling and selling and selling the shareholding, but those coins could not actually be unlocked out of the holdings and dumped onto the market.
So, you saw this effect where the sale pressure was being absorbed by Grayscale and their premium and it wasn't being dumped onto the market. But you could see institutional demand dropping. But now, it's done the other thing. Ever since we had this selloff, it looks like around when we hit $45,000 and started bottoming around the $30,000, it turned around, went flat and started going the other way. So, it looks like people are now buying the dip, according to the premium.
As for that unlock, I don't know exactly how that plays out on the market, what would happen; you get to sell your shares?
Peter McCormack: You see, because that's what I don't understand, because you can sell the shares on the market, right, but if you sell them back to Grayscale, do they then have to sell the equivalent Bitcoin back? Do they hold a perfect balance between -- you see, I don't fucking know how any of this works!
Willy Woo: Yeah, I'm not clear on the details and the workings of how the Grayscale stuff works. But, yeah, I don't want to comment because I'm not an expert on that stuff!
Peter McCormack: No. I'm going to leave it so the YouTubers go, "You fucking morons!"
Willy Woo: Yeah, you've got to be careful talking about stuff that you're not really that good at!
Peter McCormack: Hold on, I've made a career out of that! I'll talk to Lyn about it. Anyone listening who's pissed off that we don't understand this, don't worry; I'm going to talk to Lyn about it; I'll get the detail on it.
All right, so a couple of other things I want to talk to you about. I kept seeing this death cross thing; is this a real thing, or is this just one of those things that people talk about and isn't real?
Willy Woo: It's a real thing in traditional markets.
Peter McCormack: Right, can you explain what it is?
Willy Woo: I don't even use it, but it's two moving -- is it 50 and 200? I don't know. It's two moving averages.
Peter McCormack: Yeah, the daily moving average of the two.
Willy Woo: Yeah. So, there are two moving averages, right, and one's the low, slow one and one's the fast one. When the fast one crosses below the slow one, then that's a sign of the death cross; they call that the death cross. That's, "Get the hell out". If you're in a traditional market, you do that. If you back-trace it on Bitcoin, the market, the death cross is, "Buy the dip" more often. I can't remember the details; it's something like four times to one, it plays out as that's the bottom.
The thing is, Bitcoin's market is very, very different from a traditional market, because if you think about most markets, they tend to be at saturation, maybe with the exclusion of early tech stocks. Bitcoin's like an early tech stock, a really early tech stock, where it's at 2% penetration of its maximum saturation. So, this thing's growing exponentially. So, you get a death cross against a fundamental that's growing exponentially, the number of users this thing onboards doubles every year, even in a bear market.
So, these death crosses don't tend to work, because the underlying upswell is exponential growth. It doesn't really work on Bitcoin's price chart; that's for sure.
Peter McCormack: Oh, right. Well, fuck the death cross then! Also, another thing that I've noticed is that the meme-pool's -- sorry, meme-pool; I always say meme-pool, because I deal in memes. But the mempool's empty; the price to move into Block 1, the next block, is below $5 at the moment, which is quite low for a bull market, and that makes me think, is this part of the recovery in that a lot of the sellling's been done so those coins have moved? Should we not see the mempool filling up with people buying more and moving back off? Do you track the mempool in terms of trading?
Willy Woo: Yeah, I track it; I've got it up right now!
Peter McCormack: So, tell me what you look at with the mempool, because what I saw is we're seeing bear market prices; that made me think, "Has this all dried up?" Because, my expectation in a bull market, you see movement of coins both ways.
Willy Woo: In a bear market, mempool just bottoms, just completely sideways bottoms, because there's very little transactional activity. In bull markets, this thing blips up, it gets congested. Usually on a big rally, it congests; then, on a pullback, it zeros out again. And if I look at the 2017 picture of the mempool, you get these spikes on every rally and then it would zero out. In 2017, we zeroed out one, two, three, four times; and every time it zeroed out, it was the bottom of the dip, no one wanted to miss with it. Then, once it starts rallying, everyone piles in and mempool peaks again.
So, I do look at mempool as a really good time to enter on a dip, if you're positive you're not in a bear market. That's the first thing you want to determine, "Are we in a bear market?" If you're in a bear market, then all of your buy-the-dip indicators are going to get you screwed, like SOPR. There are all these indicators that say, "Buy the dip", but don't buy the dip if you're at the start of a bear market; you'll be a dick if you do.
Peter McCormack: If we're in a bear market now, that would be quite unique a situation?
Willy Woo: That's right, it would be. It would be a weird arse bear market, because we're not seeing the normal bear market metrics. People are coming in, we've got new users at a net all-time high; the user growth is net all-time high on the network. We've got all the little guys coming in to buy and stack; people that have holdings of less than 1 Bitcoin are buying Bitcoin furiously.
No one's selling. The whales are sideways; the people with 100 Bitcoins upwards, those dolphins and sharks, they're sideways. Anyone less than 100 Bitcoins, they're stacking; that's not normal. Normally, in a top, you'll see the whales have dumped; they started dumping maybe six months back. And the dolphins, the 100 Bitcoin upward guys, they tend to start to unload their coins, but they're holding strong.
Then, the retail guys, more and more of them are coming in and normally, that just stops; you go into this mania phase; price just starts to rip upwards beyond the fundamentals; goes up sheer bullish wall; and we haven't seen that, so it's just got all the wrong signs to be the start of a bear market. Maybe you'd call this a mid-bull market reset. It's not like a dip.
Peter McCormack: A mini bear market?
Willy Woo: Yeah, a mini bear market. It's like the 2013 where you did get that decent pullback and it took months and months for it to reaccumulate and then run up again. It looks more like that on the price domain, but structurally it looks like COVID. Elon Musk is like the COVID virus. He's teaming up with China to create COVID.
Peter McCormack: The other thing though, Willy, one of the things I think about is, if it becomes too predictable and everyone thinks this is going to be exactly the same as 2017, we're going to have six 30% dips, each one we're going to come back; if everyone thinks the same, then I almost think it can't play out like that?
Willy Woo: Well, it's not!
Peter McCormack: Well, no, but that's the point. It's because people think it's going to react like that and people think it's the same, then the market is reacting differently, because we can't all win.
Willy Woo: Yeah, I've been thinking about this lately and I've been thinking about Dan Held's super cycle, everyone saying super cycle, and I'm thinking maybe we should call this "the last cycle"; maybe not the super cycle, but the last cycle.
Peter McCormack: The last cycle; that sounds like a film!
Willy Woo: Yeah, I'm just going to pull a chart and see how many cycles we've had. We've had, in terms of halvings, the halvings have had a fear run. We had the first epoch; that ended, we kind of ran up. The second epoch was the 2013 bull market. The third epoch was the 2017 bull market. We're in the fourth epoch now, right, and the inflation rate is very low; it's the equivalent of gold. Then, in the next epoch, it's less than gold.
So, the sale pressure from miners is infinitesimal. A lot of people look at what the miners are doing; I don't actually do that much in a bull market, because their sale pressure is nothing compared to the full wrath of Michael Saylor's buying, or anyone's buying, for that matter. It just puts to bed any kind of sale pressure. It's 1.43%, is the inflation rate of Bitcoin. That's not much.
Peter McCormack: Well, dude, listen. Michael Saylor essentially owns 1 in every 210 Bitcoins now.
Willy Woo: Oh, really?!
Peter McCormack: Yeah, it's a little over 100,000. Something like the amount he's bought is something like not far off what the total amount that will be mined next year, or something ridiculous. What is it; is it 900 a day now? I can't even remember. Let me have a look at this. Yeah, so he's bought over 100,000; next year, only 164,000 new coins will be mined, right? We get another Saylor next year…
Willy Woo: Oh, yeah, and we'll get more than Michael Saylor; that's the thing. I don't even think MicroStrategy is that significant in the share buying and selling, because it's actually they're influencing people to buy. But, yeah, I'm just looking at the inflation rate. It's 1.43% and that's because the hash rate's dropped, so we're mining at a slower rate right now, which is doing wonders for the stock-to-flow.
But, you know, this is going to drop to less than 0.75% of inflation. That sale pressure is miniscule. Really, we're in an epoch where the sale pressure coming off exchanges, and I don't mean people selling on exchanges, I mean the exchanges; I mean Binance; I mean Coinbase. The revenues that they take when they convert that to cash to pay their expenses and salaries and their shareholders, that sale pressure is more than on miners.
So, we're in dynamics where the buying and selling of the market is starting to look like it's making the inflation rate from the mining less of a significant thing, so I think that's going to have a decent impact on these normal cycles we see, where we get this bullish impulse. I think that this is starting to get weak, and you'll see narratives, you'll see fundamentals of nation states doing their thing, and corporate treasury, and all of these macro impacts will start to shake the price chart more.
In a way, we could see these normal cycles, that we love to imprint on Bitcoin, start to go a little bit drunken; I think it will wind in a random walk, what will look like a random walk, upwards, but without the cyclical peaks that we've normally seen. And already, I'm looking at this long-term price chart, and since the 2017 peak, this bull market's all over the place. The price chart is not smooth. It's not anything like the price cycles.
Peter McCormack: I wonder if the whales are even like, "What the fuck is going on here?" or if they're all just sat there on their yachts laughing at us going, "Ha-ha"!
Willy Woo: Probably the latter!
Peter McCormack: Yeah, "You thought it was going to be a 30% dip; we'll just do another 20%, fuckers!"
Willy Woo: Yeah. I think any large whale doesn't really care at this stage. You just see it; they just sell. Whenever it rallies, they just sell a bit to pay for the next superyacht. The OGs sell. It's great for the network, it's really great; the coins are really distributing.
Peter McCormack: Well, you say that, but then Michael Saylor, like I say, sorry, it's even more than the 100,000; I think MicroStrategy's got 100,000. But he implied himself and entities he controls have something like 120,000 Bitcoins. So, that's a consolidation; whilst it's good to have a better spread of coins, but that's also a consolidation. Do you worry about that; do you think about it?
Willy Woo: Yeah, I think about it and I think it's a red herring. I that an institutional buy like that is just another word for coins owned by a whole lot of people. MicroStrategy's a publicly traded company. How many shares does Michael Saylor own? A decent chunk of it, right, but not the majority; not, by far, the majority. And of course, a lot of their holdings are debt-driven.
So actually, it's bought on leverage and the people who own that leverage, the other side of the loans, have options to take that shareholding in the company. So, if you look at the last issuance of that debt, junk bonds, junk corporate bonds, the people who bought those bonds were corporates. They wanted an easy access way to access Bitcoin, and I imagine a lot of that came out of conversations from his conference earlier this year, Bitcoin For Corporates. I imagine a lot of those conversations took place, and he did that one to allow CEOs of other companies to just say, "Buy my junk bond and now you've got an easy way in, because you can convert that to MicroStrategy stock".
The Bitcoins have moved into a new holding vehicle. It's kind of like the ETF for corporates right now. And so again, that's just coins held by a whole bunch of other corporates, which are held by a whole bunch of shareholders. So, it's not like Michael Saylor owns those coins. He's custodian of the coins, but he's not the owner. A lot of people like to say, "98% of the coins on Bitcoin are owned by 2% of the addresses".
Peter McCormack: Well, we all know that's bollocks.
Willy Woo: Yeah, that's like all the coins sitting on Coinbase and --
Peter McCormack: Binance, NYDIG --
Willy Woo: Exactly, by millions of people! Owned by 130 million people, those coins! Similarly, these publicly traded companies that own Bitcoin in their treasuries are somewhat like that. Now you just get down to the real whales that are individual holders that you can see on chain, that aren't the public companies; and they are diminishing over the long arc of time.
Peter McCormack: Which is good for Bitcoin.
Willy Woo: It's great for Bitcoin.
Peter McCormack: Great for Bitcoin. Well, look, there are two more things I want to ask you about. The first one's a quick one. Are the Rick Astleys back?
Willy Woo: Yeah, I guess that's fair.
Peter McCormack: "Never gonna give you up, never going to let you down", he's back.
Willy Woo: He's back, the national treasure is back. He'd abandoned us for a while.
Peter McCormack: The British national treasure; we love him!
Willy Woo: Of course, the Rick Astley is the holder that keeps buying.
Peter McCormack: He never gives you up.
Willy Woo: Never tends to sell much; that's what we measure; we measure that. And of course, Rick was very, very active over 2021 and then suddenly, all the coins moved away from Rick to the weekends, the speculative traders that buy and sell, and now we're seeing that cross back into moving to Rick. That chart, if you rehash it and make it less smooth and look at every movement, day to day, of coins between the two types of holders, you'll see that is the actual structure I'm looking at when this looks very much like COVID. We had a massive unlock by coins that used to be owned by Rick. He got out and now they're being mopped up again by Rick. So, he's back.
Peter McCormack: All right, the last thing I do want to talk to you about, because this breakdown in the price, $64,000 to $28,000 is a nice chunk over 50%. I can tell some people have got rekt in multiple ways, because there are multiple ways you can leverage. You can leverage on exchange with stupid 10X, 25X, 50X, 125X, or you can leverage by, I don't know, going to a service like BlockFi and taking a loan out on your coins so you can buy more coins, which gives you a liquidation point, which I imagine some people got hit when the price dips below 50% of the high. And you can also leverage a selloff in terms of just in life; you can take out loans, etc. There are loads of ways in which you can leverage yourself.
I just feel like we should just talk about that just to close out, because my amount of leverage is, when I did some CFD trading to test it, I literally put $2,000 in and I think the leverage you get on that is like 3X or something. And I took out a loan when Bitcoin crashed to $17,500, because it just felt like some cheap coins, which are still nearly 100% in profit. But I don't go onto exchanges; I don't go on a BitMEX and deposit a Bitcoin and go 10X long or 100X long.
I feel like some people, in some ways, are almost being taken advantage of by some of these exchanges, because all the pro traders I know like you, like Kobi, 3X is a high leverage to be playing with, and most people I know are like 1X, 2X, well 1.5X. 3X is quite high. So, can we just talk a little bit more about leverage, what you think is high risk, what you think is moderate risk, the kind of ways you think about leverage?
Willy Woo: Yeah, okay.
Peter McCormack: And, I know we've covered this before; it just feels like the time.
Willy Woo: Leverage is just cocaine, right. It's cocaine and razor blades. So, if this thing swings against you, at high leverage you can lose a ridiculous amount of money; so, you've got to have the risk protection in place. So, if you're trading 100X, go for it, but you've got to know that you've got to have tight risk protection. Normally, you can do it in many ways, you might say, "I'm going to risk 1% of my trade portfolio", or whatever. But every kind of trade you do, you need to have your risk strategy put in place.
I consider 1X high leverage from the trading I do. If it swings against me, suddenly I find myself in a 2X leverage position, because I'm trading very long timeframe swings. So, I can't really use stops, because stops you can get completely kicked out of the trade. Now, stops are something that most traders use to protect themselves from downside. If it swings the wrong way, you might stop yourself out at a 10% loss, or a 3% loss; whatever you calculate that is.
For me, I find these kinds of longer-term trades, 1X is plenty; it's absolutely plenty. 3X is ridiculously high for anything that's a swing trade for me, because if it goes against you, suddenly you're in a situation where you might be 10X and then you're liquidated. So, I often look at things like, you know, with 1X leverage, that means that the price can go to half before you're liquidated, and we've just seen that Bitcoin went from $55,000 to, what was it; $28,000 was the bottom. So, it actually did pretty much half. You would have been very close to being liquidated on that 1X leveraged trade, and that happened very quickly.
Peter McCormack: But 1X leverage now doesn't feel too bad, because I'd be very surprised to see us, in the next few months, hit $17,000.
Willy Woo: Yeah, I mean this is the other thing. Yeah, fundamentally, maybe not, but do you remember how Ethereum went to 10 cents on Coinbase?
Peter McCormack: Well, it wicked down.
Willy Woo: Yeah, it wicked down from, what was it; $900 to 10 cents? That's a liquidity failure.
Peter McCormack: Didn't they pay everyone back for that, though? I know they don't have to.
Willy Woo: They did, but they didn't have to. And remember earlier this year, their buy button broke. The sell button worked, but the buy button broke and the whole thing crashed. And then, that circled in on itself and all of the derivative exchanges went into selloff, because they were getting their price feed in part from Coinbase, and the whole thing just fed on itself. So, fundamentally we're fine. Rick Astley was buying, but the whole liquidity, the bottom fell out of it.
It's always the unexpected that kills you in markets and there are three types of traders really. The first type of trader is a genius, because they're making money in a bull cycle and they don't know that they're making money only because it's in a bull cycle. The second kind of trader is actually much more careful, and probably a lot more experienced. But then, that trader gets rekt in a black swan event, like Coinbase buy button breaking, which is not really a black swan, because that happens quite regularly.
But you have these liquidity failures, you get rekt, right. And so, the third one is the one that has that experience and has risk protection in place. Even if you throw some crazy event at that trader, they'll be okay at the end of the day; whether they've positioned themselves so that if it goes against them, it's not the end of the road for them.
Peter McCormack: I'm pretty sure that Ethereum 10-cent wick, some dude ended up getting $1 million of Ethereum for fuck all. They'd already signed the buy order.
Willy Woo: Yeah, someone killed it. I've seen this on order books, particularly I remember in the early days of Poloniex. There's always some guy that was buying a ridiculous amount of tokens for a miniscule amount and you're going, "What's the point of that?" But of course, that's the black swan strategy. No one's pricing in the risk of a liquidity crunch, but the payoff is really high and that person's not even taking any risk. Maybe you're losing a little bit of use of money, but you've got all those bids in there in case you get it. Yeah, it's well played.
Peter McCormack: All right, well listen, Willy, appreciate the update. I'm confident, man. I feel like we're in recovery. It's going to be interesting rest of the year; it will be an interesting month. I wonder what we'll be talking about next month; we've had some crazy -- last few months, we've had so much to talk about!
Willy Woo: I know, it's an unpredictable -- we've not been in these waters before; it's uncharted.
Peter McCormack: Yes, man. Well, I'm going to let you get back to your family and at some point, I'm going to see you again in person, hopefully!
Willy Woo: Hopefully, yeah.
Peter McCormack: When all this COVID shit's over. We'll hang out and celebrate. We call it "wetting the baby's head" here, I don't know if you have a similar thing, but you go out and get drunk to celebrate the birth of a child?
Willy Woo: Oh, that sounds great. We could maybe get Tequilas on the edge of a volcano or something.
Peter McCormack: Dude, one drink I cannot have is Tequila; I'll have anything else.
Willy Woo: Oh, really?
Peter McCormack: Yeah. It's that one drink. You know when you're 13 and there's one drink you get wasted on and the world ends and you vomit all night? That was the one I did and the smell of it, I can't go near it, dude. I'll have Sambuca, you can have Tequila on a volcano!
Willy Woo: Okay, it's a deal!
Peter McCormack: All right, brother. Listen, take care, all the best to your family and peace out, man.
Willy Woo: Okay, catch you next time.
