Widely followed on-chain analyst Willy Woo says there is one thing that worries him about the future of Bitcoin (BTC).
In a new interview with Peter McCormack during a live chat on What Bitcoin Did, Woo expresses concern about the increasing “financialization” of Bitcoin through the various derivative products being launched which he believes have the ability to manipulate prices and withdraw liquidity to BTC.
According to Woo, Bitcoin’s Sharpe ratio measure, which aims to compare an investment’s return with its risk, has slowly declined since 2019, when BTC derivatives began appearing.
“Bitcoin was killing it. He beat every other asset on the planet. It was four to three [on the Shape Ratio], it is very high. Now it’s down to about two degrees, something like that…
The current situation is converging towards all other macroeconomic assets on the planet, like stocks, gold, bonds and emerging currencies. It’s like all macro assets trade in a range, and Bitcoin is interested in just that…
This happened in 2018-2019. And the question is what happened in 2018-2019? It was the financialization of Bitcoin. We had perpetual trading, we had calendar futures, the paperization of Bitcoin. Say I’m the US government and I have $20 trillion in capital – an M2 money supply – you can make policies, you can print more money, you can encourage particular markets.
And the reality is that Bitcoin represents maybe half a trillion dollars in assets. There are 21 million Bitcoins associated with this. If I print $1 trillion, I can sell $42 trillion in Bitcoin. So here’s the problem right now: we have 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) could come with the capture of large entities capable of influencing prices.
“We’re talking about a spot ETF, okay, we can buy up to 21 million of them – actually 1 million because that’s what’s available – but in the meantime you have these paper markets that have this enormous capacity to control the market.”
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