Widely followed on-chain analyst Willy Woo says there’s one thing making him worried about the future of Bitcoin (BTC).
In a new interview with Peter McCormack at a live What Bitcoin Did discussion, Woo says he’s concerned about the growing “financialization” of Bitcoin through the various derivative products being launched that he says have the ability to manipulate price and take liquidity away from BTC.
According to Woo, Bitcoin’s Sharpe Ratio metric, which aims to compare the return of an investment with its risk, has slowly declined ever since 2019 when BTC derivatives started popping up.
“Bitcoin was killing it. It beat every other asset on the planet. It was like three to four [on the Shape Ratio], that’s very high. Now it’s dropped down to around twoish, something like that…
Where we are right now is actually converging onto every other macro asset on the planet, similar to equities, similar to gold, bonds, and emerging currencies. It’s like all macro assets trade within a range, and Bitcoin is just into that…
That happened in 2018-2019. And the question is what happened in 2018-2019? It was the financialization of Bitcoin. We had the perpetual swap, we had calendar futures, paperization of Bitcoin. Say I’m the US government and I’ve got $20 trillion of capital out there – M2 money supply – you can make policy, you can print more money, you can incentivize particular markets.
And the reality is Bitcoin’s maybe a half a trillion dollar asset. There are 21 million Bitcoins associated with that. If I print $1 trillion, I can sell $42 trillion in Bitcoin. So that’s the issue right now is, we’ve got the paperization of these markets and Bitcoin is traded like any other macro asset on the planet. I think that’s a big worry for me.
Woo says the likely approval of a spot Bitcoin exchange-traded fund (ETF) may come with the catch of larger entities being able to influence price.
“We’re talking about a spot ETF, okay we can buy up to 21 million – well actually 1 million because that’s what’s available – but in the meantime you’ve got these paper markets that have this huge ability to control the market.”