WBD429 Audio Transcription
Buy the Fucking Dip with Willy Woo
Interview date: Saturday 27th November
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 long-time friend of the show, Willy Woo. We discuss price forecasts, El Salvador's 'Bitcoin Bond', political attacks on Bitcoin, macro events, and comparisons to Ethereum.
“It’s a different game now, it’s more measured, a little bit slower, much more capital involved...Bitcoin has really crossed that chasm now to impact traditional finance very clearly in this year.”
— Willy Woo
Interview Transcription
Willy Woo: This is the halving channel, isn't it; the halving episode, isn't it?
Peter McCormack: Well, it was yesterday, yeah. Four years, man, can't believe it. Trying to think about it, it's so weird, because it feels like longer than four years. I don't know, man. I saw a photo from that first interview and I'm not grey, I'm in better shape. I look now and I'm like, fuck, grey, I've got fat. Bitcoin years kill you, man.
Willy Woo: Oh, yeah, it's on fast-forward. I look at SBF when I first met him, he was really lean and, I don't know; now, you can see he's aged an amount. I mean, the guy's kind of built an empire in the last two years, but yeah, this is crypto; fast-forward.
Peter McCormack: Yeah, it moves quick, but it feels like I've been doing this a lot longer than four years, but here we are, man, four years.
Willy Woo: And, we've got to talk fast, right, because this is a 30-minute episode since we're halving, right?
Peter McCormack: Yeah, we're halving the episodes! I can't wait, in eight years, I'll be doing 7.5-minute episodes!
Willy Woo: Yeah, while they're mainstream, you'll have to cut it down to the 15 minutes, or YouTube link, otherwise people won't be interested anymore.
Peter McCormack: What, 15-minute episodes with 6 minutes of ads? I don't know how well that will go down!
Willy Woo: You've got to pack it in, right.
Peter McCormack: Yeah, pack it in. 16 million downloads, I've done. I think you're probably -- I wonder if I've done 1 million with you?
Willy Woo: I'll be one-sixteenth?
Peter McCormack: You could be. When we play with the titles, we get the numbers up. It will definitely be at least 750,000.
Willy Woo: That's awesome! I'm looking forward to sharing one-sixteenth of your fortune with me.
Peter McCormack: Dude, you don't need my fortune, you don't need that at all. I need it; I'm in a lawsuit.
Willy Woo: Oh, yeah, you are. Is that being funded by the community or something?
Peter McCormack: No, I'm funding it.
Willy Woo: Wow, okay. Right, is it going well?
Peter McCormack: No. I can't even talk about it. Let's talk about that another time.
Willy Woo: Okay, all right.
Peter McCormack: His judgement's coming in the US probably on Monday and it looks like he might owe $200 billion, so I don't know what the impact of that will be; we'll have to wait and see.
Willy Woo: Okay.
Peter McCormack: Anyway, let's talk about the good shit. Willy, okay, so I think it's been a weird year, I think it's been a really weird year. Well, when I say "year", I'm going back to March of last year. I think the bull run started how we expected and then we've had this big dip earlier in the year, a mini-bull market. Then we got back up, we tagged $69,000, but it doesn't feel like 2017. It probably does if you're trading Solana and shit like that, but in Bitcoin terms, it doesn't feel like 2017 at all.
Willy Woo: Absolutely not. You can even go back to January 2020, because the first quarter, we had that COVID scare, and this thing whipped down like crazy. I think actually, the market, there's a bit of a hangover of that, because I remember seeing on-chain accumulation happening all through that COVID dip. It was a wicked dip, right; $10,000 down to eventually below $4,000, I think, on BitMEX?
Peter McCormack: Yeah.
Willy Woo: $3,700 or something crazy over 48 hours and actually, a lot of people were scooping up coins as an inflation hedge, as it turned out later, and that led us into 2021 and this explosion, and it's a different game in town and different players in town. They've bought in very high net worth people, hedge funds, the Michael Saylors of this world, corporate treasuries, the beginning of sovereign wealth, mutual funds, like New Zealand's mutual funds, retirement funds came in. So, it sort of hit the big leagues.
Now, we've got this mainstream adoption happening and very sophisticated markets that traditional markets are used to. We've got futures very well developed, we've now got ETFs, so all manner of different instruments; options, that's now very mature. So, that's not 2017. 2017 was very simple; spot trading. You buy on Kraken, you might sell into Kraken or Coinbase. Then, if you were to buy some altcoins, you would withdraw your Bitcoin and then you'd buy altcoins with your Bitcoins.
Even that's changed, because now that's all done on Ethereum and some of these newer protocols, and that's all done by smart contracts, so all that volume's gone. Just the whole behaviour's different and maybe the altcoins are pumping in a bull market like they always do, but even that's quite different and the stuff that is reaching the top ten has now legitimately got network effects and people building actually useful things with it.
It's completely different, where 2017 was full of -- it was like the dotcom bubble, pie-in-the-sky ideas, people were raising money off photocopied white papers. So, yeah, it's a different era right now and this is our mainstream year. We were across the chasm in the Western world. What is it, 13.5% of the population getting exposure? That's the chasm and I think the surveys show that in the States at least, it's well and truly crossed that, so now we're in the mainstream. You've got politicians talking it down and Hillary Clinton saying it might disrupt the US dollar as a reserve asset. So, even the politicians are bullish on it!
It's a very different year from 2017. 2017 was like geological age past. This cycle is the full monty of, welcome to Bitcoin meets traditional macro. I've learnt massive from these traditional macro guys, Raoul Pal, Preston Pysh, Plan₿; they all bring a little of the Wall Street games and institutional side of thinking to it. So, I myself have learnt heaps and there's been a real education this year. And also, the on-chain stuff's almost getting up there into the mainstream. It's just had the exposure on CNBC today or yesterday, so that's making waves as well.
Peter McCormack: Yeah, I mean you've got Will Clemente out there now, I mean what is he; 12? He's coming after you.
Willy Woo: He's a little bit older than 12.
Peter McCormack: Is he 13?
Willy Woo: Yeah, I think so. Something like that! Someone was saying, what was it? He was on with Dylan, right, you had him on the show and now he's --
Peter McCormack: Crushing it!
Willy Woo: It's like the two little ninja turtles having a talk with -- who was the rat, the master?
Peter McCormack: Splinter.
Willy Woo: Splinter, yeah. It's like ninja turtles and Splinter on a show. It's very apt! Yeah, it's cool, man, the new generation coming out. Good attitude too.
Peter McCormack: Dude, I love those two.
Willy Woo: Yeah, they're awesome.
Peter McCormack: They're so smart. God knows what I was doing at their age, but probably being a complete idiot somewhere. But it fills me full of confidence that there's this new breed of super smart kid coming in. They get it.
Willy Woo: It's more than just super smart; there's a lot of wisdom inside. There's just a lot of wisdom there from a young age. They've got their shit together. I don't think I had my shit together at that age. I might have been smart at that age, but I didn't have my shit together.
Peter McCormack: No, I was neither smart or had my shit together; I was a fucking mess. But anyway, I've got a load of things to talk to you about, as ever. The first thing I want to talk to you about is Plan₿'s S2F model, because it looks like it might finally break, unless we get a jump of about $40,000, $38,000 in the next, what is it, five days, I think the model breaks.
Willy Woo: I'd be willing to take a bet on that that's going to break, but it's not actually the stock-to-flow model that's breaking. That's very hard to break. It's a very long timeframe and it can swing high and low by huge amounts. This is his latest floor model, which he nailed the last few months in a row, and it's a technical model, I think he said it was a technical model, though it's mixed because he also sees on-chain in there. But I think it's using a lot of technical mean reversionary things. I don't know, he hasn't disclosed what it is. But I think that's going to break.
I had a floor model; that broke too. You put your reputation on the line if you have a floor model, "It won't break this". Well, when it breaks in all markets, markets can do anything, right. But fortunately, he's on a sailing trip with minimal internet access, so yeah, he doesn't need to respond to everyone going, "Are we going to do it?" I don't think we're going to do, what is it, $30,000-something maybe?
Peter McCormack: Where are we at? $58,000. $34,000, we need.
Willy Woo: It's not going to happen, guys. Sorry, but it's not; not from what I'm seeing. It would have to be a black a swan, or a reverse black swan, or whatever, to do that. There's nothing out of the norm happening here, it's just very constant accumulation by long-term investors. It's looking healthy. It's not like this thing's going to blow out of the water, and there's not enough shorts in the system to squeeze it that fast. We've got longs in the system that need to cool off, and has been. So, when you've got longs in the system, it's very hard for the price to rise quickly. Fast moves happen from short guys getting taken out and being forced to buy back.
Peter McCormack: I mean, I don't think, like I say and I've been saying for a while, Willy, I don't think this cycle, this whole market cycle breaking, is a bad thing; I think it's a good thing. We're here in that stage where we have a nation state and other nation states looking and large companies looking. I mean, volatility's fine, but I think the massive runups and 80% drawdowns over two years, I don't think they're helpful for what we need Bitcoin to do next.
Willy Woo: No, it would totally rek El Salvador for starters. I think the size of it now, it's a lot harder to have that kind of drawdown, touch wood. Everyone can be made an idiot by saying particular things and then it doing the other, but yeah, there's a lot of weight in the system. It's a huge amount of capital. It's not like 2017 where it was light and you could push it around. There are these different demand/supply equations in the system now and so, with the advent of futures markets, I think it's going to make it very difficult for us to have this sort of FOMO mania phase and a blow-off top, because you can short this thing now.
So, as this thing's going into over-heatedness, it's very incentivised for you to bring in shorts into the system. And, you're not even trading; you can just do the market neutral cash-and-carry trade, "I'll buy some Bitcoin and I'll short it". And, as it goes into FOMO, "I'll collect the massive demand for funding long positions, I'll provide the other side, and that will cool the thing off". What we just saw in the maybe February to May zone, where it had a sort of distribution top, rounded top, and then a mini bear, maybe that's more the shape of the future: a rounded top, mini bear and then another progression up, and we just keep doing that dance.
But I've talked about at least in the past many times that, if we continue like that in this kind of new world of very developed futures markets and ETFs and so forth, we'll probably just continue the way we have. We have different demand and supply with shorting, we've got a lot of selling down from different infrastructure players, like if you think of miners, they're an infrastructure component and they make money and then they sell it to realise that money to pay for their OPEX.
The same thing with an ETF; they provide a service and then they're going to make a fee and they're going to sell it down. Same with exchanges, futures exchanges, same with Grayscale, so all these different demand/supply effects now, and it's a new game. We didn't have that in 2017. Miners were the only game in town, and when they halved, the step change built a bullish run and then we went into FOMO mania and there was no shorting, no real way you could short, and cool down the heat of that runup.
So, I think it's very different, and I've been calling this the last cycle, as in a bit like Michael Saylor, "It's going up forever, Laura". It just keeps going and finds its price discovery in a random walk. We did a 50% pullback. You may have called that a bear market now, a mini bear market, that recovers in three months, rather than the standard Bitcoin bear market, which is like a nine-month cycle or more and 85% drawdown. Maybe that is the new bear market and we just had our first one. Yeah, so it's different, I agree.
Peter McCormack: How has the ETF futures that have come on to the market, how have they affected things at all?
Willy Woo: There's definitely demand, there's billions of dollars that went into it. And it's regulated, so all of that demand ends up on the CME, which is a futures cash-settled market, and they have limits to the CME. So, even though there's maybe a lot of demand, there's only a certain amount of long positions, which is what you're buying; you're buying a long position on Bitcoin when you buy the ETF. There's only so much you can buy because they have limits because it's regulated.
As that grows, what happens is what we call "contango", which is the prices that the futures contract sells above the spot price. That contango, that increase in value on that futures contract starts to push up more. As that pushes up more, it's very attractive if you're an institutional fund, or anyone really that wants high yield on their US dollar. They're not being exposed to the volatility of Bitcoin or any of these emerging risk-on assets, they go, "Look, I just want good yield".
Typically, we've had 15%, 20% annualised yield by shorting the futures, actually taking the CMEs, or the futures ETF through the CME, and taking the other side of that paper contract and buying Bitcoin to fully hedge, because those two eventually settle together once that expires. But effectively, the yields from these guys doing the cash-and-carry, the yield-making play, becomes very attractive. Instead of going 15%, 20%, you can go higher.
Back earlier this year, I think the cash-and-carry trade was around 20%, 25% on the CME, when things were really bullish. The cash-and-carry trade on Binance and FTX and those guys were even up to, I think, 30% to 35% equivalent. There was a 5% to 10% higher yield, because I think a lot of the funds that were playing that game were actually regulated players on the CME in the US, and they were taking the yield. But now, we've got this futures ETF coming in and pushing that contango up, and there's more yield to be had and that just translates to a lot more interest from institutional players that don't want to be exposed to Bitcoin, but they want to do something better than 5% from a junk bond, or even worse from a proper treasury bond.
So, I think that just draws more and more money in and again, that's going to provide dampening on that kind of FOMO we get in the bull markets traditionally. So, it's a different game now, it's more measured, a little bit slower, much more capital involved, really interesting if you're looking at bigger games like macroeconomics and macro finance, rather than just -- Bitcoin has really crossed that chasm now to impact traditional finance very clearly this year, going from very early to now really there.
I remember Novogratz was saying in, what was in, 2017, "The herd is coming", but we had no infrastructure. There were not good custody solutions, there were all sorts of things that needed to be ironed out, and in the bear market of 2018 and 2019, all that stuff got built and now, 2021, they're coming because it's ready and it's getting more and more interesting, like the volcano bonds. People are doing really interesting things with Bitcoin right now.
Peter McCormack: Well, I'm going to come back to the volcano bonds. So, are you constantly having to adapt your own thinking and strategy, and has this come as a surprise to you this year; have you been like, "Holy shit, this isn't what I'm used to"? Or, are the fundamentals still similar, just the performance is different?
Willy Woo: I said at the beginning of this year that I'm not making any -- they're saying, "When is the top?" etc, and I'm like, "I don't know, but I'll tell you when we get closer". So, my guiding light is just to look at the fundamentals, like on-chain fundamentals and the fundamentals of different exchanges and yields and that sort of thing. So, it's constantly changing. Actually, if you're an on-chain analyst, what worked one year doesn't work the other, because the network changes on its own. But now, we've got these other impacts, and you really have to take account of all of it and it's always changed.
Even calling the bottom in effectively the early part of 2019, that game had changed there already before all this stuff came in. The data had changed, and we were seeing it was weird; we don't have enough volume to call the bottom, and then had to figure out why there wasn't any volume and try and correct for it. So, even the network on its own, like SegWit came in and you had to account for it, so it's always changing.
I don't know if I'm surprised. I learnt a lot, I really learnt a lot about how other markets work, and how the futures, etc, and the arbitrage plays you can do within crypto; a lot of this stuff I've learnt. But I don't know if I was surprised. I had no idea, so when I think you have no idea, I don't think you can be so surprised.
Peter McCormack: Going back to Plan₿'s S2F model, did you see the thing that came out from Huobi Research?
Willy Woo: No, what did they say?
Peter McCormack: They suggested it's failed because he's not accounting for the impact of tapering and raised interest rates on market liquidity, that institutions and people will have less money to invest in risky assets.
Willy Woo: So, I don't think that is a valid argument, because if you really understand stock-to-flow, he's creating a valuation based on scarcity. And he defines scarcity as, "The limit of stock to how much of that is coming in", and then he can compare it to gold, silver, etc, and Bitcoin has its own stock-to-flow. As each halving happens, it gets more and more scarce, and he can show that these networks, or assets, all follow a continuum that's very predictable based on how scarce they are.
So, it's a supply side equation that, what's nice is it gives you an absolute valuation. A lot of stuff doesn't, it just says, "We're going up or down". A lot of stuff I do is, "We're going up or down", and when you start to introduce demand side to it, it's not stock-to-flow. You can't say this is a broken model, because it's a supply side valuation model. They're saying, "There's going to be tapering, etc, and there's going to be less money to go into it", it's not the point of stock-to-flow. It's absolute scarcity and how historically we have valued things through human behaviour.
If we print more money, then that will affect the stock-to-flow valuations of gold and silver and then Bitcoin, and so that raises itself, I would say. I don't know if Plan₿ is doing that, but once you double the supply of US dollars, then you've really got to recalibrate stock-to-flow valuation of gold, because it's just gone up and everything else goes up. But it doesn't invalidate the model. It's a pretty safe model in terms of what it claims to do and it never gives you a price target that's exact, because we're seeing huge overshoots. But it pretty much falls back onto that line.
So, I don't think that argument's valid from Huobi.
Peter McCormack: Listen to that, Huobi, Willy Woo said your argument's not valid.
Willy Woo: I haven't read the article, but if it's just they're saying there's not enough money to go into it so it's going to not make it… Maybe they're saying that price prediction won't be hit. Maybe they're not saying this model is broken; they might say that we won't hit that price, but that's fine, because it doesn't break the model, it just means that we're close enough. It swings either side, and eventually it might iron out another way.
Peter McCormack: I know, it's just it was following it so closely. It was freaky how closely it was following it. I think my bet with American HODL's pretty safe now.
Willy Woo: What was it again, remind me?
Peter McCormack: Under/over $300,000. I took under!
Willy Woo: Oh, yeah, I think you're going to win that by the end of this year!
Peter McCormack: Yeah. Do you know what would make that bet interesting to him, would be to offer him a double or quits on under/over $100,000?
Willy Woo: Oh, yeah, that's going to be interesting, because we know how Bitcoin can move. We've got 35 or so days to do it. Still, that's a lot. We're talking almost a 2X from here, just under. I think you'll be on the safe side of it.
Peter McCormack: I might text him!
Willy Woo: Yeah, live on the show. The pressure's on, American HODL!
Peter McCormack: Yeah, pressure's on. I'll think about that one. I just like taking Bitcoin off him, because I bought a football club and I've already had half a Bitcoin off him. If I get another Bitcoin off him, he's essentially bought the football club for me!
Willy Woo: Oh, really? That's awesome! You know, actually, he's on the right side of -- if he won, he'd be on the right side of you betting on Bitcoin, because if wins and then Bitcoin's at $300,000 instead of it ends up at $1 and he gives you $1 worth of Bitcoin, it didn't make it.
Peter McCormack: I know, but do you know what the funny thing was, it's one of those ones that I wouldn't have been so bothered about losing as, "Okay, I lost the bet, but Bitcoin's at $300,000. Happy days".
Willy Woo: Yeah, exactly, you win either way. That's good. I mean also, you can hedge out on the options market.
Peter McCormack: Yeah, I decided not to do that, because I didn't feel it was right. Also, I wouldn't have known what I was doing. I would have been phoning you, Willy, and saying, "Willy, how do I set this up?"
Willy Woo: Yeah, it's not that hard, but you can hedge it out.
Peter McCormack: Okay, let's talk about volcano bonds.
Willy Woo: Oh, yeah, volcanos.
Peter McCormack: This is so interesting. I was talking to Lyn about this the other day. She was like, "It's essentially what Michael Saylor did originally". But when you think about the game theory of it, it makes total sense, right. You raise $1 billion, you lock up for five years, you put half of it into Bitcoin and the other half into mining and infrastructure, and that further $500 million has to generate $65 million a year to pay the coupon. But either way, their bet is, "Will Bitcoin be higher than it is now in five years?" Your expectation is, well yeah, you would expect it to be.
Even if you're only at your most conservative, you would expect it to be a 3X from here right now. Even a 5X feels conservative.
Willy Woo: And on top of that, you have the Peter McCormack Football Club effect. Even if you're not interested in football, you're interested in backing Bitcoin, so you're going to sponsor it! So, I think to many bitcoiners, it's a big middle finger to the IMF, and they're just going to buy that as a vote against the IMF. So, you've got that community aspect to it.
Undoubtedly, it's very hard to argue that this is going to fail in this offering for El Salvador. I think there is risk, and the risk doesn't lie with El Salvador; actually, the risk lies on Bitcoin, because if, for example, Bukele somehow does something, like he's got dictatorship level controls of that country and then he becomes totalitarian, or does a bad act for a state actor, then all other nation states can point the figure to Bitcoin.
If you think about it, Bitcoin is a bottom-up technology and here, we've got the first time as top-down as fiat which, by decree, you have to take it. And then, we do all the stuff with Bitcoin that improves the welfare of that country, but then that country maybe goes through a different political shift, and we kind of saw this with other countries. We even saw it with China to some degree where it opened up and became much more free market and a lot of entrepreneurs made a lot of billions building infrastructure. Now, a lot of that power is being ceded back to the state and being very centralised. So, the entrepreneur class was given freedom and was used to build the infrastructure and then, thank you very much, we concede power.
It's the same with Bitcoin. Let's use this, but if Bukele changes his mind and concedes and pulls in the power and does something that's not acknowledged as good for its country, people are going to point to Bitcoin, and that's going to be really hard for Bitcoin to recover from as a reserve currency, or the solution for sovereign states. So, I keep that in mind while everyone's FOMOing over this as a great thing. I think there's risk for Bitcoin; not El Salvador, but the risk lies in Bitcoin.
Peter McCormack: I think some people are starting to realise that. I've seen some more dissenting voices that are coming up. I mean, Gladstein has been questioning things for quite some time, as you would expect him to; he is Human Rights Foundation. But there have been some other dissenting voices starting to question Bukele. I think we're going to see one of the questions answered soon, "Will he run a second term?" which I think almost certainly he will, which is from my view, I see both sides to it.
I think it's bad because the Constitution says you shouldn't; but I also think it's not a job you can do in a single term, and he's halfway through this Bitcoin thing and you don't want somebody coming in and ruining it. And I totally see your point. If it turns bad, it's bad for Bitcoin and has a reputational problem, and then it will give ammo to the likes of the IMF and the World Bank and the US Government to attack Bitcoin and say, "Listen, it's enabled a dictator", etc.
I see it, but at the same time, it could usher in a whole new era of bonds, which are Bitcoin bonds, because the game theory does work out. Look, if they did ten of these bonds over ten years, they'll be taking $5 billion of Bitcoin off the market.
Willy Woo: I'd be a lot more happy if Latin America takes that initiative and they all start to go on a Bitcoin standard, and now we've got a cluster of countries and it's more decentralised in terms of nation states, and they're doing different experiments. If you go bad, you go, "Well, these ones did well and these ones didn't, and these are the reasons why. It's not because of Bitcoin". So, that would be good. That would be a positive end of it.
I think also, I'd prefer him to have another term so that this experiment can come to fruition and we can see that experiment, rather than it just get deconstructed. So, that's good and I'm also thinking how things work in America now, which is actually bottom-up. You've got the hodlers, you've got the hedge funds and family office coming in, and then you've got Michael Saylor leading the charge with corporate treasuries, and then you've got the banks acknowledging the need to banking on Bitcoin.
Then you've got now regulatory acknowledgement and at least some sort of rules being made to account for Bitcoin, etc, and you've got senators that are backing it, and it's all bottom-up; it's not by decree. And it's messy and all proper democracies should be messy and chaotic, because everyone gets their say. I feel like that's almost more healthy. America is doing, I think, a pretty -- well, it's more compatible to Bitcoin. The US is very decentralised with all the different states, and each one has their own policy and I like that. It's bottom-up.
Right now, El Salvador's in a fragile position for Bitcoin. If this is not successful or something screws up in El Salvador and it goes bad because of political stuff, it's going to be blamed on Bitcoin. So, now that that's started, I think the next thing to get to safety for Bitcoin is for other nations to adopt it; see it's worked, they're going to adopt it, and then we can get back to that decentralised view of anti-fragile. And, that didn't work, this did, and it's not Bitcoin's fault.
Peter McCormack: Well, it might be their bond that does that, because I think their traditional bond rates are 13%. So, they're offering this bond out at 6.5%, which is half what their traditional bonds pay.
Willy Woo: Is that for small sovereign nations, or is that like bonds in the bond market?
Peter McCormack: Bonds in the bond market. So, their bonds in the bond market are 13%, because obviously they're seen as higher risk, so they have to pay a higher premium.
Willy Woo: That's corporate bonds and stuff, right, but this is different, this is a sovereign nation bond?
Peter McCormack: Well, I mean the Bitcoin bond is a sovereign nation bond, but they do traditional dollar bonds in the bond market, sovereign bonds, and they're traditionally at 13% and this is half of that. But Hanke went out on Twitter and questioned this, but obviously he doesn't understand Bitcoin. The reason you're more likely to buy this bond is it's a Bitcoin-backed bond, so they're going to be buying Bitcoin and they're going to be mining Bitcoin. So, the game theory says, if Bitcoin does its thing, it's quite a safe bond.
The interesting thing is, once the bond is issued for sale, I guess, or I don't know what you would say, but once it's out there in the market, how quickly it closes. If they close that bond within a few days, imagine that bond closes in a few days, they're oversubscribed?
Willy Woo: The Bitcoin ICO.
Peter McCormack: Yeah, but other similar-sized, smaller nations, might be looking at going, "Hold on a second. So, we can do a Bitcoin-backed bond, we can pay a lower rate, we can close quickly, and theoretically, if we hold half of it in Bitcoin, this will be a great investment for the country?" So, that might be the thing that leads to, yeah, they do ten and then who else does them? Does Ukraine do them; does Costa Rica do them; do other countries, like Paraguay do them? Then suddenly, you have this whole market, this Bitcoin-backed bond market build up, and then obviously things will go bananas.
Willy Woo: I agree. I mean, this bond will not outperform Bitcoin, but we've got 100 million, 200 million people betting for Bitcoin, and I'll buy some just to middle-finger the status quo and bat for the little guys. I think most of the guys that are backing this are in it for the change, they're in it for the freedom. And when we talk about yields, 13% versus this, it's going to be the bitcoiners that buy it. I don't know if we'll see, maybe I'm wrong, but I don't know if traditional investors will be looking at this as much as the bitcoiners, and the bitcoiners will say, "Give me a tranche, screw it, this is an opportunity".
Actually, it's like game theory, "If I do this and they win, then other people are going to follow, follow with this bond thing, other sovereign nations are going to take up the Bitcoin train, and then we get richer, because we're holding Bitcoin. And we get to middle-finger the status quo, which we detest".
Peter McCormack: Yeah, and it could break, it could really damage the traditional bond market, because those yields are so low. And, what are those backed by? A US Treasury 1.47%, negative yielding in real terms because of the inflation rate, and what is it backed by? It's not backed by anything. It's backed by the government that say they'll pay it, it's backed by the money printer.
So, do you want a bond backed by -- by the way, I might be completely out of my depth here, but do you want a bond backed by the money printer, or do you want a bond backed by Bitcoin? I'd much rather have a bond backed by Bitcoin that's offering me 6.5% versus 1.47%. It's a no-fucking-brainer.
Willy Woo: Well, if it's the US, it's a bond backed by a sovereign nation with the guns that are going to protect the oil that's backing it, which has just demonstrated they can't defend Afghanistan against the Taliban, so that's getting weaker; the US dollar's getting weaker on fundamentals.
Peter McCormack: But isn't the US Government buying up their own bonds; that's what's saving the demand?
Willy Woo: Yeah.
Peter McCormack: So, it's really the money printer supporting their own bond market.
Willy Woo: You know, it's really the endgame for the US dollar as it is, its construct in fiat, and then the push is really the central bank digital currencies, which leverage much more control over every individual, and that's the next step. Freedom is suffering immensely, especially this COVID experiment where so ridiculous amounts of freedom are being effectively taken off citizens.
I don't know, I just think Bitcoin has awoken and they see this thing is a vote for freedom. I think this is like an activist bond to me, I think, because the people that are going to buy it are the bitcoiners, they understand how the world works and monetary policy, and they're going to buy this as a vote. It's going to be a vote, rather than a yield. This is a volcano vote, rather than a volcano bond!
Peter McCormack: Fuckano vote! I saw Bukele trolling Sweden about this, I don't know if you saw. No, you did, because you tweeted; you tweeted about it.
Willy Woo: I retweeted someone.
Peter McCormack: Yeah, so the Swedish Government has come out saying, "We need to regulate Bitcoin, we need to end Bitcoin mining, because it's bad for the environment". And then, Sweden's own state-owned power company, Sweden's largest fossil free energy producer, they rejected the entire notion of this.
Willy Woo: Yeah, well they were saying, "Just help the environment. If you ban this, it's going to damage the environment". I think most of us realise that what they're doing is backing their friends at the European Central Bank to protect the euro.
Peter McCormack: Well, they're circling now, and it's really hard to take a lot of these people seriously. I mean, it was already difficult, but I don't even know; I mean for me, someone like Hillary Clinton, why has she got a seat at the table anymore?
Willy Woo: Yeah. I mean, the political class now, I do believe that the majority of people of social media, and maybe I'm in a bubble, maybe all bitcoiners are in a bubble, the likes of Will Clemente and Dylan, this is all gaslighting by the political class, and it's just playing a propaganda game and blaming it on other things like Elon Musk, "We've got to tax you. You're a scourge to society". It's like, "What the fuck!" What has the political class done lately other than print more money and create hardship and reallocate money from the poor to the rich; the rich unproductive, not the rich productive, actually.
Peter McCormack: Well, it's like Harry Sudock says, "The thing about Bitcoin is that it delegitimises the political class, whilst rewarding the productive class", and I think your point about the gaslighting is super important. Did you see Elizabeth Warren?
Willy Woo: Yeah, that's what I was alluding to! It's like, "What the fuck!" I think they've lost touch; they're so old, they've lost touch. That's what I think.
Peter McCormack: Well, they've got desperate, they've got absolutely desperate. I'm going to read the tweet, the Elizabeth Warren one. So, she's retweeted a Business Insider article, America's Biggest Companies Can't Stop Bragging to Investors, and she said, "Wondering why your Thanksgiving groceries are more this year? It's because greedy corporations are charging Americans extra to keep their stock prices high. This is outrageous". It's such a bullshit virtue signal.
Willy Woo: I'm interested to see Jeff Booth's response. He's the guy that says, "We're in a deflationary technology cycle". All of those corporations are pushing the boundaries of technology to deliver to you goods and services cheaper and cheaper every day. And the only reason why they stay the same or get more expensive is because the fricking politicians are print more money to keep that status quo. Everything should be getting cheaper because of these corporations and the productivity of our entrepreneurial class.
But it's total gaslighting. It's the opposite that's happening. I'm just hoping the public are like bitcoiners that are woke to what's actually happening.
Peter McCormack: I mean, I think we are in a bubble, so who knows, right? I mean, I try and talk to my friends about this and they're just not hearing it. They're seeing 4.2% inflation in the UK and they're just not seeing this as being a particularly big issue. I'm just struggling to get through to them. Whereas, us in our Bitcoin bubble, we're all, "This is bullshit. What's going on?" It's not even real rates, it's not even 6.2%; it's probably 15%.
Willy Woo: They keep changing the metrics, right. The CPI is not the same as the CPI in the 1970s. Is it Shadowstats that keep track of the same ways to measure? Shadowstats, that's a really good service. Someone posted a global heat map of the countries, and this looks very dire.
Peter McCormack: Dude, I was talking to him last night. Let me try and dig it out, because I know the guy you mean. I messaged him last night, because he put it up on Twitter. Where is he? Sam Wouters. And you know what, his commentary on it was kind of heart-breaking, because he said, "The saddest image I've ever made, I think. We need a Bitcoin standard yesterday", and highlighting inflation.
Willy Woo: I looked at that, and it showed these kind of poor, emerging countries, and they're maybe in the start of hyperinflation. I'm like, "Dude, the US is in double-digit inflation, if you're using the 1970s standards for CPI". But it's hidden, we're only seeing 4% inflation. I was like, "That's because it's cooked numbers".
Peter McCormack: Well, I'll tell you something even scarier. Two things that happened this week. Firstly, Turkey's inflation rate's up like 20%, Erdoğan's policies have absolutely failed, and typical dictator blaming everyone else. But they're targeting 5% inflation; that's their target to get to. So, their target is to get to a place where they're only stealing 5% a year. But even more crazy, this one came out today --
Willy Woo: Well, that's CPI, right, it's not money printing. It's higher; the money printing's higher. That's the stealing. The CPI's just the way to camouflage the stealing.
Peter McCormack: Yeah. But the news that came out on Poland. So, "Poland announces tax cuts to soften inflation blow. Poland will cut taxes on petrol, gas and electricity and provide cash payments to households in a programme worth up to 10 billion zlotys, ($2.4 billion) designed to help people deal with high inflation, the Prime Minister said on Thursday".
Reducing taxes and with that, hopefully reducing the size of government so you can afford to cut taxes, would make sense. But this idea of providing cash payments to households to help them deal with inflation, it's like, "Hold on a second. Where are those cash payments coming from?" Is this the early stages of the Weimar Republic? Printing money to deal with inflation leads to more inflation.
Willy Woo: Yeah, it's really nice, right? You cut taxes, it makes you popular, then you do the hidden tax, which they don't see, and you actually send cheques to buy their vote. But I think there's also a contrary side, is that if you're going to print money to stimulate the economy, I would rather them give it out to the public, retail. What's happening in the States is it's being printed, and the majority of those cheques go to the corporations. So, it's the Cantillon effect, right, the guys that are closest to the money printing get richer. It doesn't actually go to retail.
If it goes to retail, they will allocate that capital where they see fit, in a very decentralised manner. If you gave it to the rich, they're just going to build their protective lobbying power to defend their golden goose, whether you hold a monopoly and you want to maintain that, like banking, and then you're going to lobby for an Infrastructure Bill that's going to screw over crypto. That's the problem. If you were to print that money and then give it to the people at the bottom that need it, they'll allocate that capital more efficiently, because they're not about protectionism, because they've got nothing to protect.
Actually, that's what happens with crypto in a way, because if you were to destroy money, that value goes to everybody, because you've burnt your coins and once we get to that full supply, it's impossible for you to do that hidden tax. If we printed money and we distributed it to everybody, you're not actually stealing; you distribute it to your population, and that would still stimulate the economy. So, I actually think it's okay to pay those cheques out, but if you're going to do it, do it 100%, then you're not stealing.
Peter McCormack: But it's how you do it. Are you printing money to write the cheques to deal with inflation, because that becomes a cyclical problem?
Willy Woo: Yeah.
Peter McCormack: And if you're cutting taxes, like you're cutting income to government when you're already dealing with inflation?
Willy Woo: Look, I think when you're in inflation, you've got to let the thing run, and you've got to let the free market find its norm. If you keep fucking with it, you're just going to hype inflation.
Peter McCormack: They're going to keep fucking with it, Willy.
Willy Woo: Well, they are, because there are other agendas at play, including popularity and being in power, because that's the great thing about it. If you can print money, you get the popular vote and you stay in power to destroy more of the economy, because the way you got into power was to destroy the economy. So, it's incentivised destruction of the economy.
Peter McCormack: Motherfuckers. We should talk a little bit more about Bitcoin, because we always avoid this and it really is a Bitcoin show.
Willy Woo: I thought you didn't want to talk about Bitcoin anymore!
Peter McCormack: I do, just a little bit, and I know I shouldn't talk about this, but I do want to talk to you about ETH fees. I'm happy to talk about protocols if it rationalises why Bitcoin's design is best, or the approach is best, but the stuff with ETH fees seems a little bit crazy at the moment, especially I was following this happen with this DAO where they tried to raise the money for the Constitution, and basically something ridiculous like half the money was lost in fees.
I read something like the guy had to buy ETH and he had to turn ETH into something else and turn that into something else, and by the time he'd sent his $200 to the DAO, they had $75 or $100 afterwards. My numbers might be wrong. I'll put the advice article in the show notes so people can actually see it. But what is going on with ETH fees? Is this an existential threat to ETH? I saw people have been saying, "Well, if you use Solana, you have lower fees, but won't they eventually be in the same place?" Is this something you're tracking at all?
Willy Woo: It's a big topic, you know. Bitcoin went through this in 2017, the scaling wars, and we saw a spike in Bitcoin land, and then we built more efficiencies and now we've got Layer 2s, which are Lightning, and now you've got a nation state using it for payments. So, scaling eventually got solved, and I think scaling will get solved with ETH with their Layer 2s. ZK-rollup, don't ask me exactly what that is, I'm not a coder, technologist, but there are ways you can take it onto a higher layer just like Lightning did, but completely different ways for smart contracts.
ETH is in this very weird situation. It's both a strength and a weakness that it's a monetary asset that competes with Bitcoin, without the guarantees of security and monetary policy guarantees. But there's no questioning it does compete. I know plenty of family offices and even some corporate treasuries that hold ETH, so it is being used as inflation hedge. You've seen JP Morgan say it might be a better investment than Bitcoin and shit like that.
But while it's got this monetary property thing, it's got this other thing, which is it's a smart contracts compute engine with people building really interesting experiments and products that are useful on it that is demanding block space. It's pushing fees through the roof because of this, and then they've done this thing where they're going to harvest that fee and burn their own token to push the monetary side to create more scarcity, to push the monetary agenda.
So, they've gone on a rock and a hard place, because they've got this compute engine that is really skyrocketing the fees because of the demand on the block space; and then, you've got this monetary side that's yielding that demand to push the price up. So, I feel like it's Bitcoin in 2017, where you've got scaling wars and everything's congested and people are saying, "Bail to Litecoin", and shit like that. But meanwhile, you've got a lot of these Layer 2s that are coming on, and I think they're in a hard place right now, but I think they'll get through it and fees will drop.
Then we've got to figure out whether or not they win against Solana and Avax and Polkadot and all the competitors. And the interesting thing we're seeing is that apps are jumping. They're deciding, "No, I'm not going to build on Ethereum, I'm going to build on Solana", and they don't take this lightly, because there's billions at stake for them, and they need network effects on the other platform before they want to jump. That's the hardest bit, but this whole experiment has shown that Ethereum being a compute platform is like what we've seen in dev technology, where you have all of these technology platforms, and people will jump.
Twitter was built on Ruby on Rails, this language that was popular at its time, and now it's not, it's jumped platforms. But it's still Twitter and the app's still there and the users still use it, but we don't really give a shit what underlying compute is underneath it. I think that's happening and it shows that competition is wide open for that sort of compute layer for smart contracts. Computing the finance engine is wide open, Ethereum's both monetary and compute and any one of these networks that wins a lot of adoption will then become somewhat monetary whilst they're in that hybrid mode, and that balance will need to be struck.
So, that's my thoughts. I think that it's hard, they'll get through it. They're in the middle of forging the monetary side of it, which they really decided they'd go down with Ethereum Improvement Protocol 1559. That was just like, "We're going to make this monetary, we're going to make scarcity a thing, and it's going to be the detriment temporarily to our compute side".
Peter McCormack: All right. Seemed like a stupid idea, but fair. Okay, let's finish with some Bitcoin, because that's what people are here for. They'll be bitching at me in the YouTube comments complaining, but the general message is, "Buy the fucking dip", right?
Willy Woo: Yeah, I agree with it. I mean, I just see it as a consolidation. We're going to consolidate. I think that last dip as well was a consolidating dip. Consolidation means it comes down, it tests and then it moves up without crashing. As it's consolidating, demand's increasing, the hodlers are buying, the speculative guys are actually holding strong for their swing trade, while the hodlers are buying more. So, there's not a lot of selling; if anything, we're just waiting for the derivative guys that are just in it for the short futures contract to give up on their long position and then get out of that trade. Once they're all out, then the price can move up.
We're getting quite close. The derivatives data I'm looking at is, we're probably within a few days away from the next leg moving up. Just need to see the trend continue, but we're very close to that consolidation bottom. Undoubtedly, a lot of demand, a lot of coins being scooped off exchanges. It's also a weird time of the year. Tax season is upon us and people are starting to sell down to pay taxes. Also, hedge funds, end of year, they don't really want to do stuff, a lot of traders want to plan for their Christmas holidays. So, the fireworks look like it's really geared to the start of next year.
So, I feel like we're going to be in this consolidation most of December. I'll be very surprised if we do the Plan₿ $34,000 green candle in one month. I feel like it's going to fizzle sideways, and then January we start to pick up pace again. So yeah, I feel like we're again, a couple of days out, maybe even sooner, but days out from finding our consolidation bottom and could move up. It might have started already, but on-chain's always been bullish. It's like, "We're buying, we're buying", and the guys that can dump their speculative swing trade are not dumping.
So, it's all good, nothing to be worried about, and that's key; to know that this thing isn't going to cave. There's nothing in the on-chain structure saying the guys that never sell are suddenly selling, like we saw in May. It was like, "Woah, sea-change, these guys that have been buying are now dumping".
Peter McCormack: Bullish. Well, I might get in touch with American HODL, drop him a text and say, "Come on, you want another bet, under/over $100,000?"
Willy Woo: Yeah, if I can make a synthetic CDO and make a bet on your bet, I'd bet on your side! I bet that Peter McCormack will win. Can we do a bet?
Peter McCormack: So, you think we'll stay under $100,000 by the end of the year?
Willy Woo: Yeah, I'm pretty sure. We might have a rally, but I don't think we'll make $100,000. If anything, I think we're going to spend another few weeks consolidating to find the all-time high. Then, if we break, then things will move faster. But then you're into days to make $30,000 green candle and it's going to be tricky. Buy yeah, I'd bet on you winning the $100,000 one, which is more of a bet that could go either way?
Peter McCormack: Yeah, I think that's super interesting.
Willy Woo: You know, it can do it, like in January we had a move from $23,000 to $40,000, and that was over two weeks. It's doable. When this thing runs, if it runs, it's like chaos theory. It's one or the other; it's binary. People say, "What's your price prediction at the end of the year?" and I'm like, "Well, everything's gearing up to pop some time near the end of the year or early next year. And, depending on where you cut that day, it's going to be huge price difference".
Peter McCormack: Well, especially if we get the spot ETF.
Willy Woo: I don't think that's going to happen. I don't think the powers that be want that.
Peter McCormack: No, they don't. All right, well listen, if he takes me up on the bet, I'll let you know. That will make it more exciting towards the end of the year.
Willy Woo: Yeah, cool.
Peter McCormack: All right, Willy. Awesome, man. We've got one show we've got to do. We've got to do an end-of-year thing at some point, figure that out!
Willy Woo: It's going to be, "We won the bet!" Like, "You won the bet against American HODL", celebrations!
Peter McCormack: I don't know, because we might do it just beforehand, so we might resting on something like $90,000 and I'll be like, "Willy, for fuck's sake, I'm going to lose this bet now. This is your fault".
Willy Woo: You could throw a party, but they're best live. Online party with all of your guests!
Peter McCormack: Maybe, man. All right, well listen, good talking to you, man. Have a great month. I will see you in December.
Willy Woo: All right, you too.
