WBD379 Audio Transcription

The Big Short Squeeze with Willy Woo

Interview date: Friday 30th July

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 accumulation by small holders, the recent bullish move and why this might be the last cycle.

“We’ve had massive amounts of little guys buying, they bought the covid dip, they bought this 2-month bottom, they’re like little geniuses; the hodlers are outdoing the so-called whale-trader conspiracy...the little guys are really nailing it.”

— Willy Woo

Interview Transcription

Peter McCormack: Willy, man, how are you doing?

Willy Woo: Good.  Good to hear you, Peter.  Good to hear you're with us.

Peter McCormack: Yes, man, and you too.  How's fatherhood?

Willy Woo: Oh, you know, not much sleep.  I'm up all manner of random hours.  I guess that's the norm, but probably doesn't impact me as much as mama, because she actually sleeps at night normally before the baby, whereas trading hours has me up all nights sometimes; so, it's a little bit more comfortable for me.  But, yeah, it's a lovely experience.  Babies are so cute!  The human species would be doomed if these babies were not cute!

Peter McCormack: Are you sat there with a baby under your arm, trading?

Willy Woo: It doesn't work.  She demands 100% attention.  I look at the trading screen, she'll immediately cry; I look back down and she's quiet again!

Peter McCormack: Well listen, man, after a rough couple of months, things are looking a little bit more bright now.  We got our squeeze that you predicted and it's looking pretty good.

Willy Woo: Yeah, finally.  I mean, it was getting pretty rough out there on Twitterland.  It was like, "I think Willy's lost his mind.  This thing's going to $20,000".  But, yeah, it was a pretty strong squeeze we experienced in the last week, being a sight to behold, really.

Peter McCormack: Well, listen, I saw the people calling for $20,000 and the comments on YouTube saying, "It's all nonsense", etc, and that's when I started to get a bit more bullish, because it kind of reminded me of that time that people were calling for, I think like $1,800 or something, when I think it was Tone was maybe calling for it, and Leah had a bet.  So, I was looking at the volume and the volume was pretty low.  We were struggling to get under and stay under $30,000, so for me it felt pretty bullish.  I actually went out and bought more Bitcoin.  I was thinking $30,000 feels like a base.

Willy Woo: Yeah, it was perfect.  Yeah, I remember that $1,800 call too.  But, yeah, it's a funny thing, because this thing was going sideways downish for two months and structurally, if you look at the fundamentals on chain, it was really a long-running accumulation bottom; yet sometimes, it doesn't happen very often, but sometimes price doesn't reflect what's fundamentally happening.

So, it just went grinding down, so everyone was fooled by price action.  I remember Peter Brandt was actually quite bearish too, and you know, the master technical trader for decades, and he said in one tweet, "This is going to be a real test between on chain, which is kind of new, and technical analysis", because all the technicals were horrible.  I looked at the technicals and they looked, just from the price action, scary!  But, yeah, it was very much an accumulation.

We've had two months of flows moving, not only off the exchange; you could see it, but not as strong.  More that coins are moving to long-term investors and they were mopping it up.  And we had just mega, mega amounts of little guys, by the gazillions, a very unprecedented number of small people stacking.  I think they were the ones that were registering as long-term holders, because when people come in and buy and they don't register a sell or coins leaving their wallet, they are immediately considered what Glassnode called "Illiquid", essentially a buyer and the history is just of buying.

So, we saw a lot of the stacking and I've got some new charts actually that I'll probably publish a little bit later just showing these little guys stacking, and they really tell a story of the bull market.  So structurally, we've been in a bull market long, even though price has been so far down and I was like, this is one of the few circumstances where the market is not only wrong, but ridiculously wrong.  The fundamentals right now are no different from when we were at $50,000, $60,000, so the price has been, I think, just artificially forced down by bearish traders.

When we had that massive plummet on Elon Musk and the China FUD, a lot of coins that were being sold off by whales ended up on exchanges, so I read that as the speculation players, the speculative coins went up.  So, traders had a lot of ammo; they had a lot of those coins.  They immediately absorbed it, because it ended up on exchanges.  It's been two months of them selling down and those coins being mopped up, and last week was the end of that, so no more coins; the supply's running short on exchanges, so the price squeezed.

Interestingly, it climbed to something like the mid-30s; it climbed about $5,000 before we actually got the squeeze.  It looked like a squeeze, but it wasn't until, I can't remember the exact -- I don't have the number right in front of me, but it just rocketed.

Peter McCormack: Was it the 26 July?  Monday, the 26th is when it happened.

Willy Woo: Yeah.  I mean, it was the morning for me and I had just got up and I was like, "Oh, my God, this is crazy!"  I slept on a few orders right there in real time while it was running up, and this thing just kept running up thousands.  I've never done a trade where I opened and closed it in 180 seconds and seen the gain at that kind of rate before; it was kind of crazy!

Peter McCormack: Yeah.  I mean, I was pretty bullish on that last, trying to push under $30,000 and it wouldn't go, and we saw that gradual climb up to early, low-30s, and I was like, "No, I think we're good now; I think that's it", because I always have in my head, Willy, I always have in my head that over time, we have a bigger distribution of coins into long-term hodlers.  I'm always meeting more people holding more; we know of more companies holding more.  So, the available supply for traders now must be lower than four years ago.  So, we naturally must hit a higher price point; the supply and demand fundamentals are in play.

So, I was actually pretty bullish, and I accumulated some more at around $32,500; it felt like a good spot.  But I went to bed and I woke up and I got a message from my producer saying, $40,000 and I was like, "What?  Jesus, what happened last night?"  But it feels strong and I'm going to quote you, man, "Fundamentals always prevail".  And it's quite interesting, because you said about the TA traders.  I've noticed some of the TA traders are kind of poking at the on-chain analysts; I've noticed a bit of that, so it did make me laugh.

But anyway, listen, you still think we're at a discount, right?  You think we should be trading at about, what is it; $50,200?  So, Bitcoin's at a 20% discount.  How do you calculate this, because people will read that and go, "Yeah, but…"; how do you come up with that price?

Willy Woo: Well, this one currently, if I were to look at the level of supply shock that we've got in the system; supply shock is just this word, but you can measure that quantitatively.  So, you look across blockchain, cluster all the wallets and then determine all the individuals by forensically analysing them.  And then you go, "Okay, who are the guys that hodl, who are the guys that are traders and speculative?" and then you run a ratio of how many coins -- supply shock is essentially the amount of supply of Bitcoin that you can get versus the supply that you can't get.

So, one view of supply shock is, how many coins do the speculators have; because, you probably can get the coins of the speculators, because they buy and sell.  But you won't be able to get the coins off the hodlers, the Michael Saylors of this world; he isn't selling, right?  So, it's simply a ratio of those coins you can't get to those coins you can get.  I flipped it so that visually, it tracks price.  It tracks price very, very closely, except this last two months, where supply shock's been ramping up and price is going down, which we call that classic divergence.

So, it's very seldom you see this at that -- I've never seen one at that scale before in the 12-year on-chain history of Bitcoin.  We had one October last year, and that resolved in a squeeze.  It squeezed from $10,000 to $60,000, so the splash shock now is at the same level as where we were when we were range-bound in the $50,000 to $60,000.  So, what we need is really the sentiment of traders who really determine the short-term pricing of Bitcoin to switch bullish to the same level of bullish FOMO that you saw pre-May, April, first quarter-type zone, where they started to price a premium into Bitcoin above the fundamentals. 

Normally, you see the price above the fundamentals in a bull market, and then it gets even more frothy towards the end when it just gets out of hand and it's way above what the long-term guys are supporting the price at.  So, once that flips the price, the current supply shock, we deserve to be in the $50,000 to $60,000 range.  Once we break $42,000, that's the long-term sort of line in the sand of the channel we've been playing at, and it's really just a big gap from there to $50,000.  $42,000 to $50,000 is just a gap, so if we break $42,000, it's not going to be much time to get to $50,000.

Peter McCormack: What, you think we'll consolidate again around $50,000 to $60,000 for a while?

Willy Woo: Yeah.  I think we'll take a little bit more time to slice through.  I wouldn't expect us to slice right through, but anything can happen.  But yeah, I kind of expect that we just retest some of that zone in there, because we spent so long playing around in that zone of discovering $50,000 to $60,000.  And then, if we break all-time high from, what was it; $64,000?  What was the all-time high, I can't even remember?

Peter McCormack: It was around $64,000, yeah. 

Willy Woo: Yeah, if we break that, then we'll be off to the races again.  And having done that we'll have a very nice, long, two- to three-month consolidation back down to test lows.  Yeah, it's a very interesting… 

It's definitely one of these things I've never seen before on the Bitcoin price action, where instead of a dump, a wick down rejects and it goes back up; the people dumping were just so capitalised that they dumped so many coins that the people that were buying the dip, which was the plebs, everybody, it took a while.  It took two months to absorb it to the point that the supply shock has started now.

Peter McCormack: It was $64,707, the high on Coinbase.  I've got a number of personal theories that I just pull out of the air of why this might have happened.  I mean, we did go up pretty quick.  Did we go up too quick based on a small number of very large buyers; you know, we had people buying billions, or hundreds of millions; is that something that happened?  And, are we seeing a lot more Wall Street and professional traders coming in who are buyers and sellers that don't really care about -- I'm sure not many of them are buying because they believe in freedom money; they see an asset that they can speculate on?

I think we saw, I can't remember the name of that company, the British company, the specialists in gold; so, they bought a whole bunch of Bitcoin.  I think they sold all theirs now.

Willy Woo: Was it Ruffer?

Peter McCormack: Yeah, Ruffer.  I'm pretty sure they've sold all theirs now.

Willy Woo: Yeah, they bought like $600 million and they dumped.

Peter McCormack: They dumped a bit, and I think they dumped the rest.

Willy Woo: Yeah, they dumped citing the kids are going to be no longer speculating on the in-coins, because COVID's coming to the end, or something.

Peter McCormack: Yeah.  So, there's that, and then we had a lot of FUD again, as we do every cycle.  It's still going on; thank you very much, Elizabeth Warren.  And we also, as even you mentioned, possibly a lot of coins being sold in China, maybe a lot of the miners were selling their coins off; we don't really know.  But your point, I think I wrote it down, "China is an urgent seller, while the West are patient buyers".

I mean, I was never upset, because I was like, "Come on, we were at $4,000 about a year ago.  We dumped to $4,000 and we're at $30,000".  The only reason to be unhappy is, okay, if you discovered Bitcoin two months ago and you bought at $50,000, $60,000.  Okay, I get it; well, be patient.  Or, if you're just a trader and you've got rekt, and I can imagine, I do, Willy, I imagine some people have got really fucking rekt during the recent dump.

Willy Woo: Yeah, there were billions and liquidations on that route downwards post-Elon Musk.  There was a lot of sell-off for months and what Musk did was he validated to many mainstream investors.  He holds a lot of weight for being somewhat smart in the stuff he knows.  He's supposed to know about energy, because he's got Tesla as a company, and he suddenly validates this stupid FUD that the mainstream press has been throwing at Bitcoin.

I can totally imagine, if you're a new investor that just decided to buy $1 million of Bitcoin, because you've got a family office worth $50 million, $100 million, and you just had a quick 2X to 3X, and Elon Musk says, "Yeah, this is not good for the planet"; I could see them selling on the authority of Elon Musk.  They always tend to follow the narratives of people who are supposed to know what they're doing, including hedge fund managers.

Then, straight after that, we had the China ban.  And then, we had the China ban for real; was it 60%?  40% to 60% of that network hash rate shut off, relocated.  So, major test for the network.  We've never seen that much securing hash power drop off the network in its 12 years; the deepest difficulty adjustment downwards that the network had to adjust.  And that adjustment was unseen before; it's never gone down that much.

So, it was a real test for Bitcoin, and the price held a 50% drop, which sounds horrific, right, but actually people who have been in Bitcoin long enough know that that's nothing.  We just saw that happen with COVID, right?  And then, it happened the year before, right, with the bottom of the bear market.  So, it's almost an annual thing.  And here, we've got a very powerful nation state banning Bitcoin and half the network dropping off, and it recovers quite well. 

So, I think it's ridiculously bullish.  I mean, if you've been in a long time, you're rubbing your hands together going, "Wow, this is an opportunity.  I thought $50,000, $60,000 was getting pretty expensive to stack more".  For people that have got day jobs and got an income stream, or they've got a bit of cash on the side, it's an absolute opportunity.  Or if you're a leverage trader that's countertrading everybody saying it's going to go to $20,000.

Peter McCormack: I think you can tell a lot from the sentiment on crypto Twitter.

Willy Woo: Oh, yeah, when have you ever seen everyone be right in the trade?  It's never been the case.

Peter McCormack: All right.  I just didn't buy it.  Once everyone got bearish, I've been here long enough now to see, when everyone's getting bearish and talking about getting jobs at McDonald's and changing their hat and calling for a price which would be a unique price drop, down to $20,000 from $64,000 would be a unique mid-market price drop, I just didn't buy it.

The other thing I did, I was looking at the chart from 2013 and one of the things I was wondering in my mind, because the chart does look similar to 2013, where there was that mini bear market mid-bull run; and I was wondering if one of the issues was that during this bull market, everyone expected everything to be the same as 2017 and there were lots of people trading, leverage trading based on that, and the market just couldn't support that price at that point, and that's why a lot of people got wiped out.

Willy Woo: Yeah, I think so.  We've got this cycle imprint, and now people are cycle imprinting 2013, now that we've got this big dent in the bull market.  I think everyone's now agreeing that it is still a bull market, and now we're cycling back 2013.  I'm beginning to think, I think I talked about this last time; I'm beginning to think this is not going to happen.  I'm actually siding towards this being unlike anything.  I think we'll go past the end of this year and a fair amount of likelihood that it won't come into a full-blown bear market like we saw in the price cycles.

Then, people start talking about the extended cycle theory!  I think this thing's just going to do a crazy wander around demand and supply, and that halving has less impact and maybe Michael Saylor's right; there is no top, it just keeps wandering and discovering.  You might have things like we just experienced, mini bear seasons, and we'll have to see.  We can only see what's happening so far ahead of ourselves.  We can't look next year or the year after and be very accurate, so yeah.

Peter McCormack: Deal with the data as it comes in, man.  Just react as it does.  Well, listen, I've got loads of questions for you as ever.  One before we get into the meat of it is, one of the important things for me is that I care about Bitcoin beyond just personal gains.  I actually care about what it can do for people, like what's happening in El Salvador.  We don't need to debate the details of that, but also with remittances; that's been a growing potential for people to use that to get more money in their pockets in countries that need it.  So, I kind of care a lot about what Bitcoin can do.

So, one of the things I'm really interested in is that, are the coins becoming more distributed?  Someone like Michael Saylor, and even Elon Musk, with the amounts they've bought, they create these little consolidations; but generally speaking, are you find that there's a whale concentration, or are we seeing a wider distribution of coins?

Willy Woo: This is great, because this is what I've been researching the last two to three weeks, keeping off Twitter trolls, hiding in research from the amount of bearish trolls out there the last few months!  But yeah, I have.  I tweeted a little bit of it and a lot of the analysis you see, particularly from Twitter, is really bad use of data and not understanding how the network actually behaves. 

They say, "The whales hold huge amounts and the whales are pumping and dumping and they're getting richer", so some of the things you have to do now, because the game's really quite sophisticated if you're going to do on chain; Glassnode do just a huge amount of data science and forensics to cluster all the addresses together to resolve all the tens of millions of individuals that they can see on the blockchain.  We can then measure their balances. 

The data is given out if you subscribe to their premium platform, so you can have a look at it.  And even that shows misleading visuals, because now you have to figure out, okay, the whales; well, the biggest whales I know, if you look at the blockchain, they are the exchanges that hold hundreds of thousands.  And actually, some of the exchanges only hold tens of thousands and some only hold thousands; and even one or two hold less than 1,000 Bitcoins in their hot and cold storage, which will just look like one whale.  So, we need to get all of their addresses labelled and backtraced and whatnot and then correct for that.

Then, you also have to correct for this new thing, which is Grayscale and Purpose ETF in Canada and 3iQ and these new ETFs coming in.  They're stacking coins as an instrument that's being held by many, many people.  So, I did a lot of work getting all of that data, scraping the web and reading financial reports from Grayscale, going back to 2013.  I got their balances and now I've corrected for Grayscale and all the ETFs, all the exchanges, all the miners.

When you get all of that adjusted for, you get this picture.  And the picture is whales and a ten-year downtrend of holdings.  They, at the very peak, held 58%, near 60% of the network coins.  Today, they hold 26% and it's just steady downwards.  And it goes downwards steeper every bull run.  So, they take the opportunity to sell against every rally.  I think you would if you were worth 1,000 Bitcoins.  Minimum is, what, $30 million, so these whales are probably $30 million, $100 million, multiple $100 million, and they're diversifying out.  Actually, there's not a lot of signal when you look at what whales are doing, because they're just selling out.

Then, on the other hand, on the other end of the spectrum, you can look at the shrimps, the less than 1 Bitcoin holders, and the crabs, which is under 10.  They're growing consistently and smoothly.  So, if you were to look at what I call the minnows, the people that hold less than 10 Bitcoins, they already now hold 13.7% of the network versus the whales that hold 26%.  So, they hold half what the whales hold, but that isn't the full picture, right, because the exchanges hold the coins for about 150 million people.  So presumably, most of retail hold coins.  They prefer to hold their coins on exchanges.  You don't see very large high net worth individuals putting coins on exchanges; it's just not done, because it's too risky. 

But if you add the coins the exchanges have and what we see on chain, already that's equivalent to the whales; and then you can count the ETFs on top and it's above the whales.  So, there's a fair chance the smallholders have more control of the network than the largest, the people with 1,000 Bitcoins and above.  And the guys in the middle, sort of in the 10 to 1,000 Bitcoins, they're sort of sideways downwards.  They're also losing their control to the small guys.

The interesting thing for this cycle is the 100 Bitcoin to 1,000 Bitcoin strata, and that's the kind of high-net-worth individuals and the small shared funds; they actually bought tons of Bitcoins and there's been an outlier bump.  That bump started around $30,000 in January.  Let me zoom in.  Yeah, okay, that bump we saw with dolphins and sharks, 100 Bitcoins upwards, but not the whales, that started to climb after Tesla started buying Bitcoin; it was very interesting.  So, it's interesting in that when Elon Musk threw FUD, there was a lot of selling as well.  But a lot of those guys didn't sell that much; they still hold a lot of supply. 

But overall, the trend is looking absolutely great.  I'm asking Rafael at Glassnode, CTO over there, to do a little bit of extra work in the counts of these different holders to get the populations.  If I can get that data, then I can run this thing called Gini coefficient across Bitcoin across the last 12 years, which is cool.  That's the wealth distribution that economists use across an economy, so we can start to calculate that once I get that data.  I think they're working on it now, so that will be really interesting, because from what I've seen, there's no other coin network that's even close to this level of distribution.

It's a really strong argument.  The distribution in Bitcoin, it's super important, because if you control a lot of the asset, then it ceases to be a decentralised network; it can be pushed around like gold.  Gold failed because it was too centralised in holdings.  The governments held it, they used it to back money, and then when those central industries lost control of their gold, mainly America, right, they lost control of the gold; and then they decoupled us from the gold standard and now we've got fiat.  So, weird stuff can happen when you've got large pockets of control of the coins.

So, yeah, Bitcoin's amazing right now, what I'm seeing on chain.

Peter McCormack: I was chatting to American HODL yesterday, I gave him a call, because me and him have a bet, another bet: 0.5 Bitcoin on $300,000 over/under.  He's super bullish, he's over and I'm under.  I'm feeling pretty confident I'm going to win that bet, but you never know, end of the bull market, frothy times when things go crazy and supply shocks.  And funnily enough, it's kind of the bet I want to lose because, yeah, of course for me, it would be great if Bitcoin reached like $280,000 and then ended because I win the bet; but generally speaking, if we overshoot $300,000, I'll be glad to lose that bet.

Willy Woo: You have to define the bet, because you can say end of the bull market?

Peter McCormack: It's $300,000 under/over midnight 31 December on Coinbase.

Willy Woo: Oh, okay.  That's cool.  It's good to do lots of these bets, because whatever you bet, you can hedge it on the options market and make a profit, no matter which way it settles!

Peter McCormack: Yeah.  We don't hedge though, because we think it's a bit more fun not to hedge!

Willy Woo: Right, yeah, okay.  But you don't have to tell the other person, right?

Peter McCormack: I know, I know, but I think me and him are just going to keep making these stupid bets.  And he was laughing, he was like, "I'm probably going to end up giving you 5 Bitcoin over the next few years".  I was like, "If you keep making these bets, you will".

Willy Woo: But it's better to bet on the negative, because if you lose the bet, you're always going to be happy; either way, you're happy.

Peter McCormack: Well, I was talking to my son about this.  He was like, "What's going to happen this year?"  I'll tell you who's pretty good at predictions is Pantera, and I think they've got it topping out about $115,000, $120,000.  I do think $100,000 will be some weird psychological battle, because I think there's some people who might be, "Oh, if I sell 10 Bitcoin, I'll have $1 million", etc, "I'll be a millionaire", and I think that, just for a number of reasons, will be psychological battle.  I could be wrong; we could just fly through it.  I mean, I remember $10,000 in 2017; we flew through it.  It's absolutely possible.

Willy Woo: I think Pantera, didn't they use the stock-to-flow ratio as their prediction?

Peter McCormack: I don't know, I just got a chart in my email.  But I'm thinking it's somewhere between $100,000 and $150,000 myself.  I don't know if you're still thinking $300,000 is possible, but I'm like $100,000, $150,000.

Willy Woo: Yeah, I have this model, right, which is the band in which it floats with in the upper bound, and all the past cycles, we hit the upper bound before it ended.  But of course, it's a moving target.  So, I have this great situation where I don't have to be exactly right, because it's a moving target; I can keep adjusting it, because it's just a model.  The upper band today is $162,000 and we just don't know which trajectory.  But the current trajectory is around -- because of this major pullback, and it does run on historic averages of price movements, we're really --

Peter McCormack: Well, you've just got to text me when we're done.

Willy Woo: $200,000, you know, we're at $200,000.  I was just thinking, you've got this bet and if it was at the top of the bull market, I'm going, "Yeah, that's contingent on a definition of the top of a bull market".  If we just keep wandering upwards, like Dan Held's super cycle; Dan Held's super cycle is really, I think, we skip a cycle and we just go to the next.  Well, if that actually happens and we go to the next, there's not going to be a next cycle, because the halvings won't mean squat.

Peter McCormack: Well, someone said to me that one of the first bear markets was kickstarted by Mt. Gox and that may have created a pattern for future years.  I don't know how much to read into that, but that was something somebody said to me.  But look, I don't care either way.  What will be will be.  I would just love personally this whole four-year structure to break and things to become a little bit more, in some ways I'm saying random, but a little bit more consistent as well.  If it becomes this predictable four years, every four years, I find it a little bit boring.

Willy Woo: Imagine in 50 years and whatever it is, the halving goes from 0.1 Bitcoin, or a block reward of 0.001 Bitcoin to 0.0005 Bitcoins; it doesn't mean squat to supply and demand on the system; you're not going to get a supply shock.  Really, you're going to be, you know, if Barry Silbert still controls, maybe by then 5% of the supply and he's chewing on his 2% per annum, the supply shock coming from him dumping on the market's going to pale to the supply dumped by miners.  So, it just becomes demand and supply.

Whether Mt. Gox created this four-year cycle, if you look at how it has worked in the past, when the halving happens, there's an impulse, a push.  Certainly, the constant supply and sell of miners have, and so it's a push one way.  So, the cycles are from the push, not the bear market; it's in the halving where the price just is wandering sideways and then it starts to gather steam as that collective push works its way into the system.  So, we get a shove every four years at a particular time, and then it moves up.

Where it tops, it's anyone's business.  I think maybe he's right; maybe Mt. Gox was the cause of that top.  Maybe 2017 was a top because that was the first major tax season.  People didn't really figure paying taxes in 2013, but in December 2017, I just had a lot of friends going, "Oh, man, we've got to pay taxes!" and they had to sell a ton of their coins, because they were flipping altcoins in that crazy 2017 era of hundreds of X, if you got the right coins, crazy, crappy Vertcoin, people making 100X over a few months.  It was like, "Oh, well".  I know someone who bought a house from their Vertcoin and then they paid more tax than they had left at the end of the bear season. 

So, 2017 top probably was the tax top, but who knows what the next top is.  I don't think there is going to be a well-formed FOMO bubble top anymore.  I just want to just do a little bit more research into it.  I've started to get some of the data behind it, like who are the sale pressure guys?  Exchanges are, especially derivative exchanges; ETF management fees are; miners are.  We just have to get all of that together and then look at how those movements wander and how it compares to this four-year sort of halving drop.  I really think it's a minimal thing now.

Peter McCormack: Things are changing, man.

Willy Woo: It will be really interesting to see.

Peter McCormack: So, the Grayscale lockup became a nothing-burger?

Willy Woo: Yeah, we kind of had a week of nothingness.  Oh, no, it did drop a little, we had a little bit of a scare downwards, and then we had this massive pump.  The date that I had, I read somewhere on articles, the 17th of the month, which doesn't sound right because that was a weekend, but maybe it was the 19th, the Monday or something?  I don't have a calendar in front of me.  Yeah, so the 17th was a Saturday.

So, the 20th to the 23rd was the first operational week where you could actually get your shares, redeem your shares, sell on the market; and a lot of people were saying that would result in billions of dollars of sale pressure.

Peter McCormack: Because, the only thing being sold is the shares.  Even when the shares are sold, Grayscale don't sell the Bitcoin, right?

Willy Woo: Yeah, they don't sell the Bitcoin, but you've got the shares; I think there was, I'm trying to remember…  JP Morgan translated that as actual sale pressure on the system, and I'm just thinking, that means you put the shares you've -- yeah, I couldn't figure out how they could get to that.  I saw a few analysts on Twitter saying you could do it through derivative markets, and I looked through it and I was like, "Actually, the opposite is true", because if you're in a really good, what you call "contango", where the futures market's at a premium above the spot, the fashionable thing to do was do this cash and carry trade. 

So, you sell the futures and you buy the Bitcoin, so you sell the futures at 20% higher and you pocket that money; and then, when that futures expires in six months' time, it settles at the price of the Bitcoin that you bought, so you made 20% on your US dollar cash.  But if you were to do this with Grayscale, instead of buying the Bitcoin, you would actually do another step.  You would buy the Bitcoin and then you would enter it into this Grayscale scheme; then you know, in six months' time, you'll get shares.  But you're kind of betting on those shares now being worth a premium and you've already got a premium on your futures, so you get a double-dip, right.

What actually happened was, those guys kind of missed out of the double-dip, because the premium on Grayscale went to a discount.  So, now you've got one winning bet, which is buying the futures at 20% above, and then you've got the Grayscale discount, which you've made also a loss, maybe it was a 10% or 15% loss.  You still would have netted out okay; maybe you netted out near zero; maybe you did a small loss, maybe a little bit high.  But essentially, you netted it out and you ran essentially a carry trade over futures and Grayscale ETF, which was double-dipping.

If that was the bet people were taking, then you'd sell your shares and then you'd buy back the futures, if they hadn't expired.  So, what I expected was all this buy pressure from the futures as those guys exited their position and unhedged essentially, if that makes sense.  So, there should have been a buy pressure, because there's no sale pressure, because Grayscale is not allowed to sell; they're holding a bag of those Bitcoins.  Yet, the buy pressure as they unhedge is being affected on the market, so you get a bullish impulse.

I looked at it earlier today and it wasn't that week that we talked of, which was the first week they could have done it, 20 to 23 July.  But let me just pull up that chart right now.  It was near the end of that week that we had this huge run-up in futures buying.  Yeah, it was exactly that 23 July that was this ridiculous amount of buying pressure on the futures; yeah, on the Friday.  So, that could have been the effect, because if you look at that under a technical lens, we haven't had a run-up of that amount of buying on futures, just in terms of the premium on the futures; that growth rate, we haven't seen that in a long time, I think all of this year.  So, yeah, I think last time we saw it was in January.

So, it could have been that unlock adding to the bullish price through the derivatives.

Peter McCormack: Interesting.  Well, so another thing I wanted to ask you about is, you'll see on Twitter people will say things like, "The bears are in control [or] the bulls are in control", but I always wonder, Willy, what does that actually mean?  How are bears in control; what are they actually doing?  Are there groups, so people just trying to push down the price because they've got, what, leveraged short positions and they're fighting against people who've got the opposite, leveraged long positions, and they're whales and they're just basically buying or selling, based on just trying to beat each other?  Is that what's actually going on?

Willy Woo: Yeah, it's a game, you know; it's a game.  I think I've said it in this show, I say it a lot; I think of the markets -- if you're a trader on the market, most people are sitting watching this game; let's call it a gridiron game, and you're betting on yards.  Most retail traders think that it's about predicting the price and then going, "Oh, this play's good up against that formation; let's put a bet on it".

But the real traders are actually the players and they're on the field and they've got weight and they've got ammo.  With Bitcoin, they're dealing with tens or $100 million dollars of capital.  Then, you can leverage that up; you might be able to leverage that up 5X or 10X, so now you can swing multiple $100 million order sizes on the order books.  And I could whack down a 500 Bitcoin buy order and I've never seen many people take that out.

If you see someone saying, "I'm going to buy 500 Bitcoins here", and you're shorting it, you've got to have sell power to sell and take those bids.  So, most rational traders will just bug out.  It's like a little spaceship flying along going, "I'm going in this direction".  You see the Death Star coming up at you, you just bug out; you're not going to take it on.

Peter McCormack: Are those bids just there to scare people off sometimes?

Willy Woo: Yeah, they're scare walls, right.  We call it "spoofing".  In traditional markets, they're called spoofing; it's been outlawed.  I think it still happens, but Bitcoin is a very much unregulated market.  In some terms, it's a fully free market; it's just rough-and-tumble games and everyone's got to deal with it.  Back in the day of BitMEX, when they had crazy leverage and you couldn't trust the engine and all this weird stuff was happening with that exchange, that totally controlled the short-term price of Bitcoin.

The price of Bitcoin in the short term wasn't price discovery; it was a random walk to take out the most traders on BitMEX.  You'd just swerve in the direction to liquidate the most people and now, we just closed the day at $40,000 and that was a really good pin to $40,000, because that was pretty much the target price a lot of options traders had put a lot of open interest on.  So, a lot of people were making bets at $40,000, and the price went and hit it.

So, there are impacts where how the markets work, because options actually back onto futures, and that impacts the buying and selling on futures markets.  But there's also this kind of game where you can actually push price in a direction to make sure you win on the other instrument.  So, yeah, I don't know if people think about that when they say, "Bulls and bears are in control"; I think it's just a nice thing that most people like to talk about on Skwawkbox, or whatever they say.

Peter McCormack: Well, listen, I'd like to talk a little bit and just finish off a little bit on the market structure.  Something you've said to me a couple of times is that bull markets are controlled by retail.  I read your most recent report, which by the way I tell everyone every week that they should go and subscribe to and it will be in the show notes, because I find it very useful.  And whilst you're not always right, you're right a lot of the time; enough for it to be something that I follow quite religiously.

So, you've got a chart in there, going back to when you were talking about the divergence previously, but we're seeing that, even during this drop in price, we were seeing an almost parabolic growth in new users registering on exchanges.  So, can you talk about how that's tracked, because I mean I don't understand it.  Are you tracking wallets; are you able to understand where those wallets are; whether they're on exchanges?  How does it actually work?

Willy Woo: So, this is the work that Glassnode do.  So, a lot of their data, their really good data is the pricey data.  But that stuff there, they cluster forensically.  So, they look at all the address bases, then you look at the flows of coins, the UTXOs moving between addresses, and there are set patterns that happen.  You go, "That bunch of addresses is owned by one entity". 

You'll see, under certain clustering filters, which is proprietary to their company, they can determine individuals.  They call it an "entity", because they don't say it's a person; it could be a hedge fund.  So, they can cluster that and then they can count those clusters, and then you can get a growth rate on the network.  You can see, "Oh, there are more clusters, or entities, essentially entities, or participants; more participants coming in per week".

Actually, when we talk about user growth, it's user net growth.  It's counting the new guys that have just appeared on the blockchain, and that's a new person because it's completely new to -- it doesn't go through an existing cluster, so that's new.  And then, you look at existing clusters and you go, "Oh, that dude just emptied all their wallets and it's all zeros".  So, that's one user lost out of the network, because they no longer hold Bitcoin, and new users coming in.  You take the net balance of that per day, and that is the net user growth.

Hardly ever do you see the user growth go below zero per day.  Usually, I think we're in the, what, 40,000 to 50,000 new users per day zone.

Peter McCormack: Wow!

Willy Woo: Then, you've got to multiply by three, because there's a ratio of people signing up to exchanges, like Coinbase, who never withdraw.  Maybe they install Strike and then they put their funds straight in from their ACH account, or whatever, and they just hold it in their custodial wallet there and they don't ever put it on chain.  So, there are a lot of people who actually have exposure to Bitcoin.  They might have it on Cash App, but they don't actually pull it to their on-chain wallet, so we never see that.

There's a 3:1 ratio, so you multiply that number by three roughly, and that's how many users.  You can assume that what we're seeing on chain is a shadow of what the real numbers are doing on exchanges.

Peter McCormack: So, it's millions a month?

Willy Woo: Yeah, totally.  It's millions per month.  We're at roughly 150 million users currently.  It doubles every year, rule of thumb, kind of like a Moore's Law.  So, yeah, we've got about 150 million people to come on board in the next year, at the current trajectory.  It's a fast-growing thing.

We were talking about Elizabeth Warren before the show, and she was really shitting on Bitcoin.  And I'm going, "Yeah, she might be able to get away with it this year", because depending on which survey you've got, is it Gartner?  One of the surveys said 6% of the America public have Bitcoin; New York, what is it, New York DIG, they came with 20%.  This thing doubles every year, so next year it's going to be 40%, or maybe 12% to 40%, somewhere in that zone.

So, next year or the year after, any politician that's shitting on Bitcoin, saying you know, "Let's compare it to drugs; let's compare it to money laundering", and half of the voting public understand Bitcoin enough to hold the asset themselves, that's just political suicide, right!  So, I can totally see that era of shitting on Bitcoin by politicians is going to come to an end, probably in the next two years. 

So, yeah, I think now is really the time when you'll get the mass of that.  You'll see it coming from central bankers, you'll see it from the politicians.  I think now is the last zone where they can make this argument, because Bitcoin itself is growing at a pretty striking rate, at a point where it is almost too big to just shut down with bad-mouthing.

Peter McCormack: Well, we've seen that, Willy; we're at $40,000 and we've had a unbelievable amount of FUD, way more FUD than we had in 2017, and it feels way more coordinated this year as well.

Willy Woo: Yeah.  The public's smart now.  We're so used to fake news, they're not believing anything the media says.

Peter McCormack: All right, a couple more things just before we go, just on the short-term on-chain stuff.  Can you explain dormancy?

Willy Woo: Dormancy is a measure of the coins that have moved on chain, the volume of it; let's put a measure on how much age it carries.  How many years or days does the average coin being transacted between investors age in wallets?  It's kind of like the age on wine before that bottle ships to the next guy.  And then, once that goes to the new wallet, you start the timer again.  So, it's a qualitative view of the volume interacting between investors.

So, if you have a day where dormancy's very high, it means that all the coins carried a lot of age moving through investors that day.  That's a typical pattern you see, because like I said earlier, whales dump.  If you're an OG and you bought 1,000 when it was $10 and you tend to divest slowly, so your coins hold more age.  Then, when you see dormancy dip, that means that those guys have stopped selling, because they don't sell dips; they only sell into strength.

You'll see the new guys that just bought their coins get freaked out and they'll dump, and you'll see their coins move to another investor.  And those are the newbs selling the fear; so, we will see this pattern where dormancy drops and drops and then creates a bottom, and that means that the newbs have exited; the new hands have been shaken out and those guys have exhausted, and it recovers.

So, we see a dormancy sort of make a bottom.  Wherever dormancy gets low, that's a very bullish sign.  Wherever you see dormancy as a high, that's just the OGs dumping their rallies and the newbs aren't selling.  They just bought and they want this thing to go to the moon.  So, it's one of these indicators that David Puell and Reginald Smith, I think his name is, he wrote a whitepaper on it.  So, it's been interesting and there are some interesting leans onto the on-chain data, qualitative views.

Peter McCormack: So, we're feeling bullish then; you're bullish, I mean?  I am!

Willy Woo: These are real classical.  Most of the classical stuff still works.  Nowadays, we've got much more exciting stuff with entities.  A lot of the stuff that was old was working, it's not very accurate, it's a little bit blurry around the edges; but with the latest stuff, with the entities, it's just sharp and clear; you can see coins moving in and out of exchanges; you can see whales selling; you can see little guys buying.

We've had little amounts of little guys buying lately.  They bought the COVID dip; they bought this two-month bottom.  They're like little geniuses!  The hodlers are outdoing the so-called whaler trader conspiracies.  So, yeah, I'm kind of rapt with what I'm seeing on chain.  The little guys are really nailing it.

Peter McCormack: Well, that's what we want anyway.  We talked about that distribution; we'd want that anyway.  Well, awesome, man.  I'm excited for the next few months to see what happens.  Where are we?  We've come to the end of the month, so July…

It's funny, my downloads are always a lagging indicator, so if you look, I broke through 1 million three months ago.  This month has been really, really dry.  I've had some shows, generally smaller shows, but I can tell and I've had probably about a 20% dip this month on the last three months, and I think it's just people like, "Argh, Bitcoin's boring.  I don't want to listen to a show about Bitcoin; I'm going to ignore it"!

Willy Woo: Did you ever get a leading indicator on that?  That would be interesting.

Peter McCormack: No, it's always lagging.  So, if I look at my chart here, if I go back to the start of the year and I look monthly…  Actually, if I go back another year, right, let me run that, so I'm flat from March to April, a slight rise during July, right, up to October, back down to November.  My big push up is basically from November to May.  So, if I then go and look at the BTC chart, the big push up went from October and all the way to mid-April. 

But, mine tends to work a out a month behind, because we essentially were February, March, April in that $50,000 range.  So you've got to think, from October to February is where we had the big push up from $10,000 to $57,000.  And then if you look, mine's November to, what's that; May.  I've gone from 300,000 to over 1 million, but I've sat around 1 million for three months and I've dropped down.  So, mine's about one month behind, interestingly.

Willy Woo: It's almost like the price action leads to interest, yeah?  I mean, it's not necessarily any reflection of the amount of new users coming onboard; we've seen that, they're coming in.  But maybe just the sheer amount of everybody tuning in to listen to the next halvings, because price is making new headlines.

Peter McCormack: Well, there are almost certainly a lot of new listeners, almost certainly, because I can tell by the emails as well.  During when we were really flying up to $50,000, I was getting 30 to 40 emails a day from listeners; now I'm down to about five!  So, there are all these different indicators, but they're always lagging!

Willy Woo: Are you seeing much from El Salvador, because I'm kind of wondering, because there's a lot of little guys and they're stacking like they've never been before, and I'm just wondering if this is the imprint of a nation state onboarding?

Peter McCormack: You know, I can look by country. 

Willy Woo: Because it's like, what, 6 million people roughly?  There must be millions onboarding right now, and that might be what I'm seeing on chain with the amount of new users hockey-sticking.

Peter McCormack: No, I'm not seeing a massive amount from El Salvador.  I did, after the President interview, it was the number one investing podcast in El Salvador, but I'm not seeing a massive amount of increase there.  Mine always tend to come from the US.

Willy Woo: Okay.  Yeah, I'd love to see IP addresses and location information on this data.

Peter McCormack: I'll send you my data at some point; you can have a look through and see if there's anything in there that's helpful, man.  Well listen, Willy, great to talk to you, man.  Well, we'll see where we are next month.  I think there's every chance we'll be over $50,000, maybe even $60,000; who knows, man?

Willy Woo: Indeed, let's find out.

Peter McCormack: Happy times, man.

Willy Woo: Yeah, great to chat .I'll catch you next time.