WBD456 Audio Transcription
Is the Bitcoin Bottom in? with Willy Woo
Interview date: Saturday 29th January
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 Willy Woo, on-chain analyst and Co-Founder of Hypersheet. We discuss the current Bitcoin price, why it doesn’t look like a bear market, the breaking of the 4-year cycles, and how he’s positioning his portfolio.
“Structurally on-chain it’s not a bear market set up; even though I would say we’re at peak fear, no doubt about it, people are really scared - which is typically…it’s an opportunity to buy.”
— Willy Woo
Interview Transcription
Peter McCormack: Should I be buying Bitcoin, Willy?
Willy Woo: Yeah, you should, of course you should, the bottom's in!
Peter McCormack: Happy New Year, man. That's a bold statement to start.
Willy Woo: Wait, are we recording? That's not meant to go out.
Peter McCormack: We're recording.
Willy Woo: I'm not a fricking oracle!
Peter McCormack: You just said it, the bottom's in, I'm holding you to it, this is going out, man? So, what was the bottom, $33,000?
Willy Woo: Yeah, something like that. It depends on what we're looking at. Yeah, $32,900, yeah, that was the bottom that we've had recently.
Peter McCormack: Did you read Arthur's Medium post?
Willy Woo: No, I didn't. I was sent something he said on a channel somewhere, but I don't know if it was what was in his Medium channel. What was that?
Peter McCormack: He said, "Have some dry powder ready". He said, "At some point, there will be the capitulation event, the point of ultimate pain, and that's when you need to be ready to buy".
Willy Woo: Oh, yeah, I saw that. Someone forwarded it to me in some sort of channel he was in. He was saying he could feel it, "It's going to be the final wick down". Of course, he would know, because with all his BitMEX times, which was largely responsible for those capitulation candles, yeah, he would know. But I don't know, I don't think it's looking that bad right now.
Peter McCormack: Nothing makes sense anymore, Willy.
Willy Woo: It keeps changing, right? We're in, I think, a pretty crappy situation if you're an old-timer bitcoiner who's purist and it's about freedom, liberty, cypherpunk; and now, it's becoming very, very financialised. We've had the ETFs, plural, multiple ETFs being release in the US, but they're not spot ETFs thought, they're futures ETFs, so they're back onto the Chicago Mercantile Exchange. So, the CMEs are now getting huge volumes and it's giving these institutional traders a venue to trade on.
If it's risk-off, well it's great to sell down on Bitcoin, because it's almost a leverage trade on risk-off, because that crashes when it's risk-off; when it's risk-on, it goes up. So, it's this kind of funny phase, where it kind of reminds me of mid-2019 to late-2020 where, remember it was trading, it pumped to $14,000 very quickly from bottoms of $3,000 to $4,000? Then it sort of went sideways.
Peter McCormack: That was from Bitcoin 2019?
Willy Woo: Yeah, 2019. It was just this euphoric sort of recovery from a $3,500 bottom and then a very short run of things. I think that was highly manipulated short squeezing that got it up there. Then we had a PlusToken scam billions of dollars, and they were dumping all of their ill-gotten gains onto the market, so 100,000, 150,000 Bitcoins were being dumped, maybe more. So, that marked the $14,000 top.
Then we were in the sideways chop, chop, chop downwards, from $14,000 down to $10,000 down to $6,500, then it went up again and then we got a little bit euphoric. Then COVID happened and it flipped down, then we got into this -- the whole world changed and everyone went risk-off for a while. We looked at gold as a safe haven. Bitcoin was being lambasted as a failsafe haven, and all it did was trade this correlation with equities.
Then it was kind of like now, in this track to sideways band, where it's just trading this correlation of risk-on, risk-off from macro traders looking at traditional stocks. And, back in 2019 to 2020, if you looked on chain what the investors were doing, they were accumulating, but you just couldn't see any impact on price, because the price was really dictated by traders on the futures exchanges.
Now that we're much more dominant in futures trading, particularly from institutions, on these regulated, or the regulated exchange, the CME, with huge volumes now going through it, the price of Bitcoin doesn't really reflect what hodlers are doing so much; some sort of impact, but it's like five times more diluted from where we might have been maybe early part of last year, where there was a lot of spot buying and that would determine the price.
So, yeah, it's kind of a weird phase right now, and it's the markets restructuring is what I'd say. The amount of selloff we had from $69,000 to, what was it, $32,900, there was not much hodlers selling, I tell you; that was just risk-off sell-down from futures exchanges, and those traders led the price. They were dumping their futures, their quarterly futures, and eventually the hodlers started selling down, ever so slightly, and it was quite different from what happened in May.
In May, you could kind of predict it. You could see the hodlers were starting to dump, and those hodlers were a lot of those guys that were buying in new hedge funds, institutional family offices, they were buying in from that breakup from $20,000 all the way up to $50,000, $60,000. It was a huge amount of buying that was underlying the spot buying, taking those coins off the exchanges, putting into cold storage for long-term investment.
But it seems like a lot of those guys sold off and dumped in May, and you could see that coming. But here, very little people sold; it was a very gradual slide down on on-chain demand, yet the price was sliding and kept sliding, and it was led from the futures, which is different from what we normally see, which is the on-chain demand supply tends to lead the price action. So, it's one of these weird times. I'm kind of interested to see what the structure looks like and how the dynamics work between all the different participants now we've got futures ETFs here.
Peter McCormack: Are you basically saying, the financialisation of Bitcoin into the mainstream has essentially changed the structure of the market?
Willy Woo: Yeah, totally. The way the price is behaving right now is so different from where it was the first half of last year, and it's changed so many times though. I feel like it's coming out of the $30,000 bottom, that was June/July, that rally was quite different from others, and I think that was a transition where, in that rally upwards, that was when the futures ETFs started to go live.
This is just my view on it, just seeing how the price is being impacted in relation to what the futures are doing, just looking at the two different movements. It's like the weighting has gone towards the futures a lot more now. And the only difference I can account for it in between that time is the ETFs that went live in between that time, from the last bottom to now.
Peter McCormack: Are those futures ETFs bad then for Bitcoin?
Willy Woo: Yeah, I think so.
Peter McCormack: You do?
Willy Woo: We don't need them, right. Retail can buy Bitcoin on Square Cash App, on Kraken, Gemini, Coinbase, Binance, any exchange you can buy it on; there's no need for an ETF. The only interface into -- the argument for ETFs is, it's easy access for effectively the stock traders. And you might say that might be the older generation, the Gen Xs, the boomers, they call up their brokers and whatnot. But in reality, I think it's a very good instrument, the futures ETF, if you're an institutional trader, because it's fully regulated. You can either trade the CME or you can trade the equities.
But if you were going to buy Bitcoin to hold, you'd be an idiot to buy the ETF that's currently structured, because it's so expensive to hold it, just the way it's structured. You might be losing 15% per year by holding that, because you're buying futures and futures is effectively holding Bitcoin by renting the house, rather than buying the house.
Peter McCormack: Would a spot ETF change that then?
Willy Woo: Yeah, it's a lot better. The rent you pay on that might be 0.5% instead of 15% per year.
Peter McCormack: But would the spot ETF take volume away from the futures ETF, because they've got an alternative and better product?
Willy Woo: I don't know if it would take much volume, because it would attract the hodlers. A spot ETF you would buy and you would be comfortable holding that and paying your management fee of 0.5% per year. Like Grayscale, you pay a management fee of, what, an eye-gouging 2%, which is highly ridiculous, given the size of that instrument. But then, if you were doing a futures ETF instrument, it depends on how bullish the market is. It might be 10%, 15%, even 20%. Sometimes, it goes to 30% annualised to hold that.
It's great if you're an institutional trader that's in for a three-day trade or a one-hour trade or a five-minute trade, because you don't care about the rent at that point. But if you're hodling, that's critical. Bitcoin's got to now appreciate at 10%, 20% per year just so that you break even versus holding Bitcoin through an ETF versus holding Bitcoin under cold storage yourself.
The most expensive is a futures ETF, the next would be a spot ETF, the next would be buying the underlying Bitcoin under a custodian solution, they might charge 20 bips, like 0.2%, per year to hold it for you, and then finally you can take the private keys under your own hands, which doesn't cost you anything.
Peter McCormack: Damn. So, Willy, big question, man, could we be going into a bear market; could we be in a bear market?
Willy Woo: Not if the past repeats, right. Every time we've seen long-term holders holding most of the coins, it's structurally setup for it to run upwards. Bear markets happen when everyone who's holding the coins are newbs. And when you say it long term versus newbs, it's basically how long those coins have been aged in a wallet. So, if you look across all the wallets on the blockchain and you go, "Look what's held of these coins before they move. How long have they been sitting in these wallets?"
It goes through cycles, and these cycles where most of the coins have been sitting there for more than five months, it's a very strong setup, which is what we've got now. It's at peak levels of these coins. The coins across all of the network have been sitting there, most of them, for more than five months; and people who do that, they've held on for five months, they're not selling, they're not selling at a loss. They will sell when there's profit to be had. And you'll see that whenever it breaks out of all-time highs and does a really strong rally, those guys that have been holding for five months start to take the money, and they take cash that's available. They cash out and take the profit.
Eventually, new guys that are coming in to buy the rally, they're the new guys, and they want to get rich too.
Peter McCormack: They're the bag-holders.
Willy Woo: Well, they're the bag-holders, but what typically happens is it's very vulnerable to a bear market, because some of them sell, right, they sell. The 2018 bear was at peak new guys holding the coins, and the cycle repeats. Those new guys either sell, or the ones that don't become hardened hodlers and they sell on the next rally when it goes even higher.
So it's like, old hands are out, new hands become old hands and it's this back and forth. And, we're in the old-hands situation. We went rallying from $30,000 to $69,000, and we did see a little bit of sell-down from those five-month-old holders, and they took some profit. And then as it crashed down -- no, let's say slide, it wasn't a crash; it slid down, slid down, lo and behold, at around about $40,000, low $40,000s, they just stopped selling. They've stopped selling for actually a number of weeks now, and now you could say they're accumulating, or some of the new guys have aged to the five-month zone and they're becoming old hands.
So those guys, there's an equilibrium, that cohort is now gaining, so it's actually strengthening again. So, structurally on chain, it's not a bear market setup, even though I would say we're at peak fear, no doubt about it. People are really scared, which typically is the time to -- it's an opportunity to buy and you don't often get this kind of pullback without it relief-bouncing even. You don't slide, slide, slide and then capitulate. We've come down from $69,000 to $33,000 and it would be hard-pressed to capitulate from $33,000 down to, say, $20,000 because that's retracing something like a 2018 bear market over two and a half months instead of a year.
Anyway, so structurally it's very, very strong and demand's started to come back in. The hodlers that were slightly being dispirited by the futures traders selling down have stopped selling, they're rebounding now and there's accumulation coming. The whales, and when I say whales, these are guys with more than 1,000 Bitcoins, so I term a lot of those guys as potentially institutional investors, they are starting to flick over to buying. They peaked their selling in December, so you could say institutions were selling down in December, which is part of their normal cycle. They sell down and redeploy in January. It looks like that's started. The whales are coming in.
The futures are coming off the CME and ETF and all the other futures exchanges, but I primarily think that the CME and futures ETFs drive a lot of this now. That demand has started to come in, it started to come in a few days ago, so most of this week, demand started to come in. And for weeks on end, it was just toxic, there was no demand, it was just divestment, divestment, divestment. So, it seems pretty cheap right now.
Peter McCormack: It takes me back to the Dan Held supercycle thing. We talked about that last time, and one of the things that he talked about, one of the things it might be is that cycles are lengthening. So, rather than having what we expected was a runup at the end of the year, cash out in January, pay the taxes and then a bear market for the next two and a half years and go again, it feels like this whole cycle could be one that's lengthening and the bull market itself, which is normally about a year, is maybe two, two and a half years, and then a longer bear market afterwards?
Willy Woo: Yeah, I don't know what the supercycle means, because I haven't actually read his article. Someone told me I had got the wrong idea about his supercycle; it's actually based on price. Is it based on price, something like that?
Peter McCormack: Well, he said a supercycle would be, I think, if we didn't drop below 50% on the drawdown, which is "ish", and we immediately rallied. It was something around like that, but last time I spoke to him, he said really what he's looking at is he thinks perhaps it's the cycles are lengthening, which kind of makes sense; because, if we don't do an 80% -- we've had a 50%-odd drawdown. If we don't go that 80% drawdown, then that kind of makes sense, because we're not going to go down, whether it's sideways or up, it is a lengthening cycle.
Willy Woo: Yeah, I've said that this is the last cycle, which is the end of the four-year cyclical thing that we're used to, based on the halving, and now we're in for shorter cycles, just to be contrarian. We hit a cycle starting May, and that was a run down, and we had another cycle that started in, what was it, November as we sold down through December into January. So, six-month cycles! But that's it, the last cycles ran random warps of demand and supply upwards to the final price discovery, so I don't think --
Peter McCormack: That was a film, "The last cycle"!
Willy Woo: The last cycle, yeah! I mean, it's just basic demand/supply dynamics between all the industry right now is much more complex and it's not governed by just the miners, who were the only supply side. You've got a lot of supply side. The futures ETF is supply side. You're holding the ETF? Well, you're paying rent, and that's earned by the landlord of the ETF and that's being dumped on the market; that's supply side. Grayscale, Barry Silbert, he's supply side and makes 2% on that 650,000 Bticoins sitting in his ETF. There's a lot of supply side that's more than making up for what the miners used to do.
Then, the miners are less supply side. Some of them are now becoming public companies and they don't sell, because that's the whole point, that their investors are effectively investing in them for their Bitcoin holdings as they mine it for cheaper than buying it off the exchanges. So, yeah, it's changing. So, no more four-year cycles, and also it means we were experiencing up to 60% drawdowns, but at least that's over two to three months instead of over a year.
My first bear market was the 2014 bear market, and that was the longest in Bitcoin's history. That was nuclear winter, it was so long for it to be over. So, two to three months is pretty good.
Peter McCormack: It must be making your job a lot harder then?
Willy Woo: Yeah, it is. I do on-chain predominantly, but I really now have to do much more work on what's happening on derivative markets, and that's starting to -- that's always been good for short term and reading when these crazy wicks are going to happen. But now what we've just seen is a very long-term move that's been two and a half months, that was driven by derivatives coming from these longer-term swing traders, which I think are institutionals, buying these quarterly contracts that expire in six months.
It's definitely a different dynamic. You can't just be blind to the derivative markets and all the other parts of the eco system. Options, that's another area as well, so you've just got to take into account all of it and now it's so macro-focused, so there's more of that. It's a lot more tricky, but this is what you expect when a market matures. It's very difficult getting the edge on, say, an equity market, where it's matured over 100-and-something years, maybe 200 years.
I was just talking to a traditional TradFi quant firm and we were all talking last year about this time about the cash-and-carry trade. Remember Plan₿ was talking about it, how you can get a good 15%, 20%, 25% yield off Bitcoin, but if you buy Bitcoin, you can get that amount of yield from it, even if you don't want Bitcoin. You can buy it and you sell the futures, and you can get that yield on USD, and that trade doesn't work in the traditional markets. It's been pushed down to nothingness.
That's happening in Bitcoin too, right. We used to get some pretty phenomenal yields. Some of the really good quant firms were doing maybe getting up to 80% to 100% annualised over the first half of last year. And since, say, mid-way through this year, that stuff's collapsed down to maybe 40%, so it's halved, and you can see the correlation between a lot of different instruments getting tighter as that inefficiency's been sucked out of the market.
So, I think that that trade which everything was excited about, I mean Preston Pysh was saying, "Yeah, that's going to be a really big blackhole to drive capital in". I mean, that kind of stuff is starting to get more and more efficient. Eventually, it will be not worth doing; only the best people can make money off that.
Peter McCormack: Makes it super-tricky for new people coming in, I think more so than ever. If you're coming in now, don't try and be a trader in this, because it's a tricky market to trade. I think there's more evidence now for new people coming in to DCA and hodl and just ride this out. My advice, Willy, is always listen. Every Bitcoin you buy, all the sats you buy, you should be thinking about holding them for a minimum of four years, and not thinking about the price; because, it's so easy now to come in now and the price drop, or the price go up, and have no idea where we're going.
Willy Woo: Even that statement was based on an old dynamic, where with a four-year cycle, you'd be in the bull again. Whereas, I don't think that holds true anymore. But yeah, certainly long term is the way, because if you're holding, you're immune to being squeezed out of the trade. So, this is a Bitcoin channel, and of course we hate altcoins.
Peter McCormack: You don't hate altcoins.
Willy Woo: I don't, but I'm saying this channel generally. The thing is with altcoins is that they're very easy to trade because they're not efficient, so they obey technicals very, very well. And once it's rallying, those things can go to the moon, because there's no real well-developed futures market to take the heat out of the market. So, they'll go fully exponential and they'll fully collapse like Bitcoin used to do before futures instruments.
Then, if you're an NFT trade, well hell, it's like going back maybe seven years and trading Bitcoin, because it's just to the moon. So, there's always new instruments and I see a lot of the Gen Zs and younger crew worth somewhat less capital, but if you want to trade and do all that stuff, certainly these altcoin markets are a good way to learn.
When I was learning the trade on crypto, it was Poloniex in the day, and they had all these markets, maybe 100, 120 markets, and right at the top was the Bitcoin USDT peer, and then below that was the Ethereum Bitcoin peer, I think. And then below that was some BitCap, but they would go all the way down to rank 120 to some tiny, little shitcoin. And the whole thing was a casino.
The big league was ETH BTC, that was sophisticated trading, and then you could go all the way down to the little shitcoin penny-coin type table and trade that, and you just know that the big sharks aren't going to be bothered to try and win a tiny bit of capital on that, because it's not liquid enough, there's not enough money at stake.
So, I think that still holds true now with the 8,000 altcoin markets -- I don't know what it is, what does CoinGecko have? There must be 10,000!
Peter McCormack: Altcoin market cap now, Solana's been savaged from the upper point. What's quite interesting is, in comparing the charts of these shitcoins to Bitcoin, they seem to have had just one big spike, and then they're coming back down. They look very similar to, like you say, what Bitcoin used to be. Whereas Bitcoin's kind of gone, it went up, then it came down, then it went slightly higher, then it's come down again. But there's not a complete correlation between them, but Solana's down to $93 from a top of what, $250?
Willy Woo: Man, if you go up from $2 to $250 in one year, you're going to -- if you're going to get more than 100X in one year, you've got to expect -- that's not that big a retrace after you've done 100X.
Peter McCormack: But for the individual, it depends when they get in. It's okay for the people that get in at $2.
Willy Woo: Yeah, well Bitcoin was like that in 2012, 2011. Do you remember the double pump and then it came back to, well even $1,200 to $150? And then it did a 130X, or something like that, from 2015 to 2017. So, Bitcoin's no different. But now, it's very different, because the difference between a shitcoin, a tiny little shitcoin market and Bitcoin is effectively the ability for a trader to sell what they haven't got today from the future, from these futures markets. So, as it's rallying, I can sell it.
When you can't sell it, then there's no demand and supply, it's just demand with no one really wanting to sell and the thing goes exponential and you get this parabolic. I see parabolictrav, who was well-known back in that era to really call these parabolic curves, but it's pretty difficult now, because Bitcoin doesn't do parabolics, it does straight lines. These fundamental new instruments have come in to impact the demand and supply, so it's a different era.
But if you're trading these tiny low-cap coins, it's like the early days of Bitcoin. I'm not recommending -- actually, if you really want to know how markets work, put a few bucks on the line and learn how these markets work. Trading's actually a good experience, just don't put big money in there, because you're going to lose, unless you're really good.
Peter McCormack: Doggy coin looks rough, man. That peaked at, when was it, 7 May. It looks like it hit about 70 cents, and it's down to 13 cents.
Willy Woo: It looks like the Elon Musk thing is not… But, do you know, I'm looking at a log chart across maybe eight years and it's not done too bad. It looks like Ethereum. It's like, gosh, when I got into Bitcoin, it was worth 0.04 penny and now it's worth 14 pennies, or something like that.
Peter McCormack: Yeah, but again, it depends when you get in.
Willy Woo: Yeah, I know. If you got in on the Elon Musk shilling, then you would have been rekt. But I don't know, it's an interesting thing. You know, if you would have talked to family offices, they may manage $100 million of high net worth family and friends' money, you ask them what they're invested in, they'll say Bitcoin and Ethereum, and some of them will say Solana. They might quote Avalanche, they might quote some of the top twenty coins, and that tells me that Plan₿'s stock-to-flow model isn't capturing the full situation.
It's a very maximalist view on Bitcoin and that Bitcoin is the only cryptocurrency to get exposure to a digital scarcity; when in fact, Ethereum came along and then now, in this bull market since 2021, we've got Solana that's come in, Cardano's really taken a lot, Polkadot, Avalanche, all these other coins, and the people with money are deploying into it, where they would have just bought Bitcoin when it was just Bitcoin.
So, if you look at the stock-to-flow cross model, what that is, is along the X-axis is how scarce it is, so he images that by stock-to-flow, effectively the inflation rate, how much new supply is coming in. Like for real estate, how many new buildings are being built; for gold, how much are we mining it; silver, the same. Then you look at the total market cap on the vertical and lo and behold, his cross model shows Bitcoin early stage in each halving, it's sitting on this trend line, and there's silver and then there's gold and I believe there's real estate and he's put diamonds in there, and it's just a straight line upwards going, "Okay, and that's why this is going to be the price of Bitcoin".
But actually, the last two clusters for Bitcoin, post I think the 2015 halving, it started to deviate downwards, so it did in the latest halving we had in 2019, it's even further deviated down. What happened in 2015? Ethereum came out, the first cryptocurrency that actually got a lot of liquidity and a lot of people did deploy money into it, and it was competing against Bitcoin. So, money did come out of the Bitcoin bucket into the Ethereum bucket. Or another way you could say it is, the bucket is not Bitcoin or Ethereum, the bucket is called crypto assets, crypto properties, online digital property, and now it's being split. So, we suddenly had new flow coming in.
Ethereum came in and it increased the inflation rate of the entire buck and then now, in 2019, we've had much bigger cap coins that have come in to compete, and you can see that deviation coming downwards. So, I think stock-to-flow works, I just think that it's too maximalist in a viewpoint, and that there are hedge funds and family offices and individuals that are deploying into this stuff; and the vertical is not Bitcoin, it's crypto assets as a whole bucket. And I think if you correct for that, I think it will be on that trend line. It's pretty hard to figure out what the flow is when they're not the same thing, Bitcoin, Ethereum or Solana; they're different things, so how do you judge the flow. But I think, if you can do that, it would be right on the stock-to-flow trendline.
Peter McCormack: Have you dabbled in the NFT stuff?
Willy Woo: No, not really. I think I'm getting too tired! It's just full on working on Bitcoin. Have you, have you looked into it, have you played with it?
Peter McCormack: No, because I have no interest in owning an NFT, I just don't care for it. I don't hate it, I think people should do what they want. I have no interest in owning one, I don't have a desire to say, "I have this bored cat [or] crazy donkey", or whatever it is that people are buying, I just have no desire. And I also have no interest in figuring out how to trade them, so I've got no interest in them at all. I can see some potential value if it was a ticket, but then can't you just do the same with a QR code? And I do understand that maybe for certain musicians, if you had the NFT and it gave you some benefits, I can see that, but are we just trying to find a problem for a solution?
Typically, with any of these crypto things, whether it's NFTs or ICOs, suddenly it sweeps across both the crypto community and wider culture and just becomes a thing. I was in Miami during Art Basel and it was just fucking NFT stuff everywhere and I just wanted to get away from it. So, I don't hate it, I just have no interest in it. But the thing I worry about for people who are buying these just as an investment, not that they want to own it, the one problem I think they've got, you don't have a market sell button. Even with the shittest of shitcoins, you can usually market sell and get out of the trade. Because I assume with an NFT, there has to be a buyer, right, there's no market sell?
Willy Woo: Yeah. I don't know, I think it's got merit because we have an art world and people still value on art, and I think it's shown that people do recognise that a claim of ownership on something that's even digital, to say, "I'm the special person, the only person that has brownie points, because I have the claim on that", even though anyone can enjoy it at the same quality, it's proven that there's value in it. There was an experiment run, I forget the name of the artist, but he did a run of real art and then he issued an NFT for each one of them, so you could buy --
Peter McCormack: Was that Beeple?
Willy Woo: I don't know if it was Beeple, but he did a run, it was a well-known established artist, and you could either have the physical or you could have the NFT. If the NFT was wanted, then the artwork would be destroyed, and you'd get the NFT; and vice versa, the NFT's burnt and then you'd get the artwork. And it was interesting, because not everyone wanted the artwork, significantly people wanted the NFT. So, there's an experiment that show's that's proven now that that's a thing.
I don't know how to trade it and I don't want to learn how to trade it right now, I'm too busy, and I remember the learning curve of Bitcoin and going down that rabbit hole. I guess if I had nothing else to do, that would be a fun rabbit hole to go down, right, especially if I had a few bucks and I wanted to make hundreds or thousands or millions.
Peter McCormack: And I see the temptation, Willy. I've got a football club now, I've got a squad of players, can people buy the NFT of the players and own the player's NFT? I'm not going to do it, the consideration didn't even exist. But in my head, I was trying to work through, "Why would you?" I can see why people do it, because it's a chance to, I think, exploit people to make money, and I expect this to happen through other football clubs, I expect this to happen through artists and they're not going away.
I just imagine that it's going to be a massive oversupply of these things and we're going to get down the road, maybe four years down the line, the majority are going to be worth nothing. And maybe that's like the traditional art world; there's going to be a few big players who have done very well, like Beeple, and I'm sure if some other big artists did it. But I can imagine that 99% of all the value created will go to 1% of the artists or something, and the rest will just be this long line of useless, worthless shit.
Willy Woo: Yeah, I mean that's standard. That happened with the internet too, right. When the bubble burst in 1999, was it, or was it 2001? I forget.
Peter McCormack: 1999.
Willy Woo: But it took like a dozen years before it came back again, and this was after the iPhone was invented and everyone was on Twitter and Facebook, our whole mobile lives revolved around the internet, our whole lives revolve around the internet. It took 12 years for all that to be built before the real internet, that was invasive into every nook and cranny or civilisation and people's lives. Then it was valued at that 12 years earlier when it was just cobbled-together home pages practically, and GeoCities.
Peter McCormack: GeoCities!
Willy Woo: So, I could see this -- when Yahoo was two guys out of a caravan created a web page that listed all the known web pages they'd heard of, that was when millions of dollars was being poured in and the thing was valued at close to the Nasdaq decades later!
Peter McCormack: Can you imagine that?
Willy Woo: I think that's what we're looking at.
Peter McCormack: Imagine that in your garage with your mate, "This new internet thing's cool. Let's create a list of all the pages we like. What shall we call it? Let's call it Yahoo. Right, we're billionaires", what the fuck?!
Willy Woo: Yeah, it was liked someone knocks on the caravan and says they want to give you $1 million because they think there's a thing in this, and then that became Yahoo! And then all the finance guys said, "How do we value this shit?" How do you value something like this?
Peter McCormack: Look, the ICO kind of died, right, it's not a thing anymore, it's a poisoned word in some ways. I know there are similar things, but the ICO is like a poisoned word, it died. But I don't think NFTs will die, I just think -- the main problem I have with it, Willy, is right now a lot of this stuff, for those who don't understand the whole nature of the crypto industry, it all gets lumped in together. So, if you're a bitcoiner or you're an NFT person, you get lumped into the same bucket.
I've had it with people who are looking at my football club and they think I'm the same as the people who tried to buy a team by selling NFTs, or the fan token people. I'm like, "No, we're not, I care about sound money. You don't have to buy anything, we're not selling anything, we're not selling any token", and sadly we get lumped in it together, and I see them as two different things. And that whole Bitcoin, not blockchain and that Bitcoin, not crypto thing really stands out now.
Willy Woo: I don't know, the whole ecosystem is so diverse now. You could be in any, I don't know, there must be thousands of Telegram groups, all before each coin, one for each coin, and the culture behind each one is totally different. You have the scientific guys, you have the pump-and-dump guys, it's all sorts, every community is different. But the maxi Bitcoin community is different from the Ethereum community too. So, yeah, I mean I don't know what to say to that, but yeah, I see it. But look, I've got it in front of me now, these 12,913 coins on CoinGecko.
Peter McCormack: What's the last one?
Willy Woo: There'll be a plural because a lot of them probably don't have a market price or something.
Peter McCormack: You can usually find something for any word you can think of. Think of an animal, pick any animal, let's see if it exists.
Willy Woo: A tuatara.
Peter McCormack: Oh, fuck off, Willy.
Willy Woo: There you go, no, didn't get there. Someone out there can do a tuatara coin!
Peter McCormack: Let's go with, let's see how many cat coins there are. Cat Token, CAT --
Willy Woo: There's a lot of doggy ones.
Peter McCormack: What was the animal that was meant to have started the Wuhan virus because it kissed a bat.
Willy Woo: Wasn't it a bat; I thought it was a bat?
Peter McCormack: Was it a pangolin?
Willy Woo: What the hell?
Peter McCormack: Yeah, it was a pangolin.
Willy Woo: There's definitely a PNG coin, Pangolin. There's a lot of Pangolin; there's two of them!
Peter McCormack: There is!
Willy Woo: There's a Pangolin Swap and PNG, which is Pangolin, so I imagine they're very related.
Peter McCormack: Let's see if there's a coronavirus.
Willy Woo: Oh, there's definitely; there must be meme coins.
Peter McCormack: COVID coin. Yeah, Covid Token, Covid Slice. This is why it's so fucking meaningless, because you can have a coin for everything, but they don't do shit! Elon, your stupid fucking doggy coin, you didn't help us.
Willy Woo: Yeah, it's funny, yeah. He's such a smart guy, but he doesn't really get crypto.
Peter McCormack: Well, I think he likes to troll and he didn't realise what he was doing, and then it was double down with doggy coin, double down.
Willy Woo: No, when you look at some of the deeper comments he was saying like, "We can use Layer 2". He just didn't get decentralisation, what the vulnerabilities of when you put things on Layer 2 is. He was also talking about, "You just increase the block size without ever considering --" I think Adam Back corrected him. There are speed of light considerations, which mean you can't have the blocks too big, you can't have the block time shorter. There's only a Goldilocks Zone where the whole thing falls over if you're outside of that zone, and he just didn't know all of this stuff.
He's kind of the guy that will read a stack of books on rockets and figures out how to build a rocket, and I don't think he's done the time to figure out how all of this stuff works.
Peter McCormack: Yeah, I think it's Marty Bent that says, "You've got to do the work", and he's not done the work. But I also think, at the same time, it was part doubling down. To turn round and admit, "Yeah, I was totally wrong about doggy coin, and everything lemming I led off the ledge, I was wrong about, I'm very sorry".
Willy Woo: Did he actually say that.
Peter McCormack: No, that's me saying what he should say, but I can't see him doing that.
Willy Woo: That would crash the price!
Peter McCormack: Yeah, it would be over. So anyway, the rest of the year, man, what are you thinking? Where's Willy's head at, where's your head at?
Willy Woo: What, marketwise?
Peter McCormack: Yeah, how are you playing this, man? The listeners are going to be, "Willy, what am I doing, man, am I smash buying?"
Willy Woo: I have a lot of people that ask me, "What's my plan for the top of the bull market?" because they're used to nuclear winters, right, four-year cycles, and my plan is always in operation, which is to take money to cash consistently, because I don't believe in bull/bear four-year cycles and nuclear winters. I think we're just doing more of the same. It's the second time we've gone up and we've retraced more than 50%, and then we're going up, and it's just choppy times. You don't want to be overexposed, you don't want to be all in and then on leverage, because when it pulls back 50%, you're going to be freaking out.
There's a thing about freaking out, is the most tragic thing about freaking out is not the pain of freaking out, but the loss of your IQ. When you're freaking out, you don't think straight and you do the stupidest things, like sell the absolute bottom, because now you've got to cover the pain you're under and the sleepless nights because you were overexposed. So really, I've always got a chunk in cash, even though maxis -- I also could consider myself a maxi when I talk about Bitcoin as a monetary standard, but us maxis like to think all in and never hold that dirty, sinking fear. But I'm just practical.
I think it's like, my minimum is always have 10% in cash, and that 10% in cash, I know that that's self-preservation of my ability to think. So, that's my strategy, is to have between 10% to 20%, I probably want to ramp it even, 20% to 30%, maybe even 40% in cash as we go into this year. But I would say that it's because cash, we can currently yield on cash and we can beat the monetary dilution that the Fed's printing. So, I'm looking for high yield on USD and honestly, that's better than real estate growth.
So, my thing now is to go two liquid buckets. One is crypto, Bitcoin predominantly. Actually, the only thing I hodl is Bitcoin, and then I have stablecoins that are yielding, and then I have this speculative thing called an Exchange Account, which holds any number of shitcoins and trades or leverage instruments, and that's my exposure to the exotic stuff, including altcoins. If I ever buy Ethereum, I'm only buying it on the exchange. Maybe that's wrong.
Peter McCormack: You're not cold storaging it?
Willy Woo: I never cold storage, unless I'm playing DeFi, then you have to use -- that Ethereum Network's going to take me to the cleaners every time I click some MetaMask wallet. You know, it's like $200 per transaction doing some weird thing -- sorry, some very interesting, innovative smart contract. I mean it too, it's cool experiments, but gosh, you've got to be trading a lot of money before that gas fee is worth it, compared to doing something on the exchanges.
So, that's how I'm playing it. I'm putting more into cash, because I don't see us being so cyclical and so easy to read these cycles. Who read the top? Who read $69,000 and said we were going to go to $32,900 within two months?
Peter McCormack: No, Willy, we were going to $100,000, dude, we were going to $100,000.
Willy Woo: I think it even surprised institutions, who were responsible for the initial selloff, but then the whole thing went risk-off even more, and then the people that really just stepped and waited were like, "Woah!" So, yeah, I think I'm not timing it as much, even though I time it in that exotic exchange basket. I'm just up the cash, sit on yield, and let's be honest, Bitcoin's not doing a 2015 to 2017 ever again. That was 133X. The only way it's going to do that is the Armageddon, financial Armageddon, where you don't even care what the US dollar is worth, because it's hyperinflated away. And I don't think that's going to happen.
So, I'm thinking longer term, "Here's my cash exposure, here's my investments in companies, here's my house, here's Bitcoin, here's cash yield", and it's just sensible allocations; sensible for me, it's probably a bit risk-on for most people. I'm well overexposed to tech and Bitcoin, but it's less, it's not 100% Bitcoin, and I do want to go more balanced. So, that's how I see it.
I looked at the stock-to-flow model and the next four years, if it plays out, and we're underperforming and I don't think it's going to hold because of this new flow coming in, that's about 110% annualised. And if you're in cash yield, you can get from 20% to 50% annualised. So, US dollar's got us placed, because if you're in cash yield, what's your maximum drawdown in any one month? It's positive, it's never a drawdown, unless your instrument is highly exotic and it breaks down, like you're yielding off a DeFi Network that's on Ethereum that just completely got hacked, or something. But that's not what I'm talking about.
We're coming to a point where Bitcoin's growth, going from a $1 trillion asset class into $10 trillion, the rate at which it's going to go, if you're into exotic investments, which Bitcoin's kind of in that basket, you can now look into early-stage seed and VC baskets that can reach that kind of performance. You see the success of Coinbase floating for over $100 billion. That was an investment, was it in 2011, 2012, or something? The guys that invested in Coinbase did not outperform Bitcoin. They would have got twice as much money if they'd just held their Bitcoin, and that was the most successful float we've seen so far of a crypto-based company. So, it's always about, just keep it in Bitcoin.
But now we're in this phase where 110% annualised in an exotic instrument, you can do that from VC if you get the right bet, so it's an interesting time. I don't think we're in that era now, where how we thought about it in 2012, 2013, 2014 where this thing, when it goes, it's life-changing money. It's just a very sensible investment that's high volatility, it's high gain and certainly should be part of most people's investment portfolio, just to balance up the other things, but it's not a go-to-the-moon vehicle, like $1 turns into $1 million. Those days are over for Bitcoin. Maybe if you got a punk and minted it for free and now it's multiple millions, that's your vehicle for that, and I think the kids know that.
The young ones are trading these things and they're really getting into it and I think, "Good on them!" why not? That stuff is there.
Peter McCormack: I'm not any clearer than when I started! Who knows, man. I'm thinking of stacking sats, Louis. I keep calling you Louis. Why do I keep calling you Louis this week?
Willy Woo: I've no idea. Have you slept enough?! Does the football team take a lot of time?!
Peter McCormack: Dude, honestly, you think about it. I was already busy enough with the fucking podcast and now I'm doing this, it's keeping me busy. Have you seen the shirts?
Willy Woo: No, I have not. Or maybe I have. Show me, have you got one on?
Peter McCormack: No. Oh, one second, I'll get it.
Willy Woo: Okay.
Peter McCormack: I can't show you the whole shirt though, because I can't reveal certain things on it. But this is the home shirt.
Willy Woo: Oh, the sponsors you can't. Oh, there you go.
Peter McCormack: Sorry, that's the training shirt, this is the away shirt.
Willy Woo: Nice.
Peter McCormack: This is the home shirt. Something cool, check this out. On the back of each one, check this out, "Running Bitcoin"!
Willy Woo: Running Bitcoin, there you go!
Peter McCormack: Satoshi, 21.
Willy Woo: Are the players being paid in Bitcoin, by the way, that makes me think; is that part of the thing?
Peter McCormack: Not at the moment. They don't have to be, it's totally optional. But one guy I'm signing today, actually, he's a Bitcoin guy, works over at Spiral, plays football. When I announced him, he says he wants to be paid in Bitcoin, so of course he can be and he will be.
Willy Woo: That's awesome.
Peter McCormack: But we retired the 21-shirt today for Satoshi!
Willy Woo: Okay! Who's that going to be?
Peter McCormack: Nobody's ever wearing the 21-shirt, dude. So, listen, am I going to see you this year, are we going to get to hangout in person?
Willy Woo: Yeah, I'm going to travel. We're already starting to plan to go to Europe at least, maybe the US. It's time to get moving.
Peter McCormack: Yeah, man, well let me know, because I want to hang out. I want to do a show in person.
Willy Woo: That will be good. I'll let you know when I'm in the neighbourhood.
Peter McCormack: All right, man. Well, listen, smash buy as you said, keep stacking, have some dry powder, figure it all out, man.
Willy Woo: I never said smash buy, but yeah!
Peter McCormack: All right, man, well listen, have a good month, Louis! Always good to talk to you, dude, and hopefully the next few months I'm going to see you.
Willy Woo: Okay, Bob McCormack, will see you then!
Peter McCormack: See you then, mate, bye.
