Where Are We In The Cycle? | Willy Woo

We are seeing liquidity coming back into the market. It's late stage of a bull market, so that's when things rally the hardest. The market gets very, very volatile. When there's a little injection of additional liquidity, things can run really wild. And so that's the phase we're in right now. I don't have too much in the way of fears of this being a rug and a cycle top just yet.

Today, we've got a very special guest. We don't usually do guests because you guys hate it when we attempt to interview crypto founders and other protocol people, but today we have a markets guest that we can actually chop it up with: the one and only Willy Woo. This man goes deep into the weeds, and we need that right now because we're all trying to figure out whether this rally is sustainable and, if it is, where we're supposed to take profit—or, alternatively, if we're just supposed to get out of the way. So, Willy, thank you very much for joining us on the 1000x podcast.

1. Where Is Liquidity Flowing?

Thanks, Jonah. Great to be here.

Yeah, nice to meet you. I guess the first thing I wanted to ask you is, we've been ranging on the highs for a while, right? We were sort of ranging around $105,000 to $110,000 in Bitcoin. There was some fear, a little bit of jittery price action, but ultimately, you never really stabilized on the highs for too long, and we were assuming we're either going to puke or keep rallying.

So the rally continued, right? We had a big breakout about a week ago. Do you think this is going to keep going, or do you think this is just a pop to sell? What's your take on the current state of things?

If we're zooming out, we're seeing liquidity coming back into the market. We're seeing it as late cycle right now, just on the liquidity dynamics. Bitcoin is, out of all the global macro assets, the most sensitive to liquidity, and so a lot of our work now is to measure the liquidity within the network.

The structure is late stage, right? It's late stage of a bull market, so that's when things rally the hardest. The market gets very, very volatile, but when there's a little injection of additional liquidity, things can run really wild. That's the phase we're in right now, and that liquidity is coming in. So I don't have too much in the way of fears of this being a rug and a cycle top just yet. I could maybe share our screen.

Also, when you say “we,” tell us who we are. What sort of research are you up to, and who are you working with?

Absolutely. I have partnered with Swissblock. Swissblock is the most secret crypto trading firm within the industry that no one knows about, but they have done remarkable things. They are the founders of Glassnode, which was spun out in 2019, I believe, and behind it is a prop-trading firm that has been systematically trading since 2015.

The OGs traded using on-chain data in the 2017 cycles, and they said to me that was the bee's knees: just tracking exchange flows coming in and out so they could basically front-run the selling. It was so simple back then, right? These guys have been immensely successful, to the point that they're now branching out into a global macro and TradFi trading firm, because crypto doesn't really carry the capital they need within the trading frequencies that their strategies are for.

Yeah. What I was about to ask was, what is their time horizon? Is it minutes, hours, or weeks?

It's varied. They have hundreds of strategies, but I think it's really the medium-term swings where they do a lot of performance.

They have a standard model for crypto, and that's the Hawkeye product. The Hawkeye product is relatively sophisticated. It needs a lot of learning, but it's designed for global macro institutions, and there are only 10 seats available, right? So you're going to be a big shop if you're going to use it.

It's tracking liquidity flows across the whole ecosystem. You're not really diving down into one strategy; it's one systematic strategy. You're really looking at the entire ecosystem and where the liquidity is going across the ecosystem so you can get on top of it. Even here, you can see there's an alt impulse right now, and that was picked up here as an alt impulse. Everyone's going, “Is alt season warming up? Is it warming up?” They're picking up that liquidity is coming into the alts.

Sorry, just hang on a second. What do you mean by liquidity exactly? Liquidity—we all have different definitions for that word, and you were talking about it earlier in your mention of Bitcoin. What is liquidity to you, and how do you use liquidity to determine where we are in the cycle?

That's a great question. The classical term of liquidity is how thick the order books are, right—how much the market can take of my buying or selling of it before moving the price. There's another term for liquidity, more on the macro side of things, which is maybe you'd call the flows of capital.

There's global liquidity, which is M2—basically, how much fiat is being printed. When you print more money, more of it flows, and we're really tracking the flow of that capital going into the different markets. Each market is really just a bucket, right? It's just a bucket that's storing capital.

Yeah, because we've been monitoring M2 pretty closely. Bitcoin is basically just a lagged version of M2. When M2 skyrockets, some number of months later, Bitcoin usually tends to take off, and the lagged M2 chart tracks Bitcoin pretty closely. So is that what you're referring to here? As in, just global fiat liquidity has increased, so Bitcoin is due for a continued rally?

Yeah, you could say that. When you're looking at M2, that's liquidity in the global system. Now we can break that down: how much capital is actually coming into the Bitcoin network, how much of that is being rotated into altcoins, how much is being rotated into Ethereum, and then the big caps.

You can measure that through microstructure on the volatility. That's the best way from the pricing signal; it's the most immediate way. With Bitcoin, it's a bit different because you can measure it on-chain and get a very good readout from the longer-term investors, but it's not going to tell you the liquidity dynamics happening on the exchanges. So you will need to actually look at the pricing structure within the ticker and amalgamate it together.

You've got the long-term guys moving between wallets, and they're going to cold storage. That's long-term liquidity flowing in. Investors are taking it off the exchanges, really in a long position, or holding spot for many, many months or years. Then you've got the more recent pricing structure, which is volatility structuring of the recent stuff, and you can blend that together to get a picture. It's not exact, but you get a very good picture of where the liquidity is flowing.

So that's what I mean. It's just that fluid that's sloshing between different buckets that are storing the capital.

2. Ads (Kraken OTC, Katana)

Is it Bitcoin? Is it Tether? Is it real estate? Is it Ethereum? Is it meme coins? So where is it all flowing? That's generally the framework we use: looking at the flows of capital, being on top of that, and getting moving with it. It doesn't mean that the price is going to move with it immediately. It just means that's a general direction. There's obviously tactical positioning of traders and liquidations, and that sort of determines the local path. But once you've got an idea of liquidity dynamics, then you've got a very good idea of risk.

3. How To Track Market Cycles

Yeah, I agree. I don't really have a good way to track liquidity right now. I have an intuition for it, but it would help to have indicators. I used to use Glassnode a lot when I was running trading at Cumberland, but to the extent that all of the metrics are—as you mentioned—an amalgamated metric for Bitcoin, Glassnode's metrics tend to be pretty disparate between your exchange metrics and your on-chain metrics. You have to add them all together to get the picture.

Are you guys putting together a way to visualize how much liquidity is coming to Bitcoin versus real estate within crypto, how much is going into Bitcoin versus Ethereum and alts and other large caps? Do you have a good way to visualize that? If so, I'd love to dig into it with you and try to figure out whether we're in the early stages of an ETH supercycle or the late stages of a Bitcoin cycle. Let's look at it together and discuss.

Let me just finish this off. This is a partnership with Swissblock and myself. We're combining our models and presenting this as a framework to institutions, and we've also released a product called Bitcoin Vector.

We just released the lite version that goes out to retail on Substack, which is taking some of these frameworks and giving retail some information on when best to start, and to sort of navigate the cycle and navigate where we are within the cycle. So, to answer the question right now: are we in an ETH cycle? Yes, we are. This is the readout here.

So, how do we read this?

Orange is Bitcoin, and as of here, around the 9th—

Which date is that? I can't quite read it.

July 10th. Around the 10th, we switched to Ethereum.

Right.

Zooming out, the thing is, we really want to see a cascade: going ETH, then big caps, mid-caps, and low-caps. That's the signature for a proper bull run.

What is this reading? What are we looking at here? Obviously, this is the output of your model that tells you whether we're in a Bitcoin kind of move, an ETH-led kind of move, or another alt-led kind of move. But what's going into this? What are the inputs? Are you mainly monitoring coins sent to exchanges versus removed from exchanges?

The only way to measure this across, let's say, the top 200 coins is pricing, because the on-chain data is very noisy. It's not organic, and one whale can just impact everything. Generally, all of this is based on pricing data, and we're looking at the volatility structure and how it's moving relative to its volatility across a cross-section of hundreds of coins. Then you categorize each coin: Is it Ethereum? Is it big, mid, or small caps? Then you get a picture.

Here, in the bottom right, you've got the warming up and the recovering, so there are different zones there. You can see there are lots and lots of coins being tracked, and we're looking at how they work as a cohort. That gives you an idea of where the flows are going.

Okay. So, basically, your input is price and realized volatility, and your output is these sorts of trading signals, right?

Yeah. I wouldn't say realized volatility. By the way, this is Swissblock, and I didn't build this, so they would have a deeper insight into exactly what they're picking up on. Let's just say it's volatility structure. Sometimes it's micro-volatility structure; sometimes it's broader, but there's a bit of special sauce in how they determine this across the entire ecosystem. That's how you can track and pick up the rotations of capital going between the different cohorts. You can see here, this is the classic bull run, right? ETH launching.

Where is this? Go back to the beginning of it. What date did it predict the beginning of the bull run?

This is the tail end. Was it the 8th or 9th of November? November 9, 2024, and we ran up.

So, basically, it would have told you to buy after the election. This is an indicator, right? This is a model.

Oh, no, this is the price here.

What are we looking at?

This is the price of Bitcoin at the top. Then this is showing you the underlying structure of the crypto ecosystem, where—

The capital's sitting in Bitcoin, and then the returns are now moving into Ethereum. So, the capital's flowing into Ethereum, and now it's flowing into large caps.

Then it's flicked over to mid-caps, and then it pops, right? That's a classic signature of a bull run. You get the setup on Bitcoin, and then it goes bang, bang, bang, bang, all the way up to the higher-risk coins.

We're actually in the base of launching here, but it hasn't launched yet. Then you can look over to the alt impulse—it's launching, right? This is picking up on the micro-volatility structure of altcoins—

What do you mean by micro-volatility structure? Forgive me for prying, but I really want to understand. I was an options trader for many years. I'm a nerd in this stuff. So, it's not realized volatility. Is it?

I can't tell you the secret sauce. This is the proprietary model within Swissblock. It's what they carry their capital on. They carry very heavy-duty capital on these models, and the secret sauce won't be given out. I'm just painting a picture that this is a very broad, sweeping tracking of liquidity movements between the ecosystem. Here you can see that the structure is showing that, right at this moment, capital is coming in, right? It's de-risking; it's actually—

Coming into—

To altcoins. Altcoins—alts in general, right?

Okay. 100 coins or not?

The top 100 coins with positive impulse. That's a microstructure showing that there's a significant amount of buying and that there's an expectation of an exponential run coming in—not a pop, but a run, right?

4. The Growth Of Crypto Derivatives

Basically, on the basis of this model, you would say now is probably a good time to start rotating. Not financial advice, of course, but if you're holding mostly Bitcoin, which a lot of us are, it's an advantageous time to put some risk into ETH or alts, and that rally has only just begun. A lot of people are wondering: ETH/BTC has just popped 50% or 60% off the lows. Is the ETH rally—the ETH outperformance—done, or is it going to continue to run? It seems like your model would say it's probably the beginning of a longer-term move, less of a—

Yeah. So far, it's all been ETH that's been moving right now, but we haven't seen the large caps pop right below ETH. That's the expectation, because we've got this positive impulse coming on the top 100. It's highly suggestive of an altseason that's going to go full bore. It doesn't necessarily confirm it until it happens, but probabilistically we've got a risk-reward signature here: your reward is looking good, and your risk is not that high right now to try this trade because the underlying structure is good.

So, yeah, this is how we do the liquidity within the whole crypto ecosystem. Bitcoin's a special animal because it's a fundamental of all of crypto. The liquidity hits Bitcoin and flows into Ethereum, large caps, and so forth, so it is a foundation stone.

We can track this quite differently with on-chain models because it's so mature, it's organic, and there's a sea of participants. For example, you're normally familiar with things like MVRV, right? You mentioned that.

That's my cycle-top metric. I think if the MVRV Z-Score goes above 5 or 6, it's probably time to start really lightening up. The thing is, though, we were debating this last week. We don't really know if this metric is valid anymore, because let's say Coinbase decided to move $10 billion worth of Bitcoin back and forth between a few cold wallets. That'll look to this metric; that'll appear as transactions at the top, at current market prices, and so that'll artificially deflate the metric.

Yeah, exactly. It's also an observation of only 1, 2, 3 cycles going back—not even a handful. Not statistics, exactly. If you're going to build a robust trading model, you're not going to just curve-fit it onto 3 prior incidences and cycles. There's so much afoot that's changed. Here, this is the rise of paper instruments.

You're pointing at it, by the way. A lot of people listen to this on Spotify, so, just for the people listening, back in 2021, what was going on back then? Do you think MVRV was more or less useful in that era?

It still worked, but that was the first era—the first cycle—that we had a lot of paper in the system. Around the top, it did form; the top was actually formed by paper in the system.

And if you see the top, it's just money getting printed and shoved into—

Avi Felman

Oh, sorry.

—paper trading of derivatives: perpetual swaps, calendar futures, and options. In 2017, that bull market never had any paper—no derivatives. I think the CME launch was at the very top of what traded back then. But you can actually see on the price chart how everything would go exponential, then blow up and pop.

That's the curve you get when you've got this rare asset called Bitcoin, no one's selling it to you, and there's massive demand. You've got to convince someone who bought before you to sell it to you, and they bought it a year, 5 years, or 10 years prior. Very few people are going to sell, so there's nothing to quench that buy demand, and it goes exponential until there are no more buyers at that high price. Then it blows off, right?

5. Where Are We In The Cycle?

Then you'll notice that the last cycle, with the paper, that's the cycle where someone with a bunch of capital on their CME account can say, "I'll front $10 million, and I'll sell maybe $20 million of Bitcoin to you. I've got that collateral. Let me short Bitcoin," right? Now you've got this ability for anyone with fiat to actually quench the demand for Bitcoin or fulfill the demand for Bitcoin. We get these rounded tops, much more like traditional markets. That's a fundamental structure change there.

Avi Felman

Let me just quickly pause and ask you something about what you said earlier in the podcast. You said the current liquidity indicators that you track show this is late-stage bull-market behavior, and it seems like you have many of them here, which we should hopefully have time to discuss. Late stage meaning probably late in time: the bull market's been going on for a while, but not necessarily in price, because you mentioned that just now, as well as earlier, that in the late stages of a bull market you can get some of the biggest blow-off-top, sort of parabolic price moves.

So, in my former world of commodities trading, we used to say that 80% of the move in some bottlenecked asset—I guess Bitcoin could be considered one, but back then it was natural gas or oil time spreads or something—happens in the final 20% of the bull run. How do you think that applies to Bitcoin? How would you revise that statement for the parabolic, late-stage moves you just described in BTC?

It's very similar. I think the majority of the gains on Bitcoin through a cycle happen over about 2 weeks, I think—14 days. It's even more exaggerated.

Avi Felman

So you don't want to be sidelined for those 14 days. Otherwise, you've wasted most of the 4-year cycle, 6-year cycle, whatever it turns into. If you're out for that, and then you obviously can't pick the top. It's impossible, but—

Exactly. That's the rise of HODLing: just stay in it. Maybe you could trade against it and say, "I'll stay in my Bitcoin position, and I'll take small trades and add to the Bitcoin stack." That's one strategy.

But it's really tough to trade in and out, on a fiat denomination, in a bull market, because you might miss the move. You might miss those 14 days, or even the first couple of them, and then you feel like it's too late to buy back in.

Avi Felman

So where are we right now? This $118,000 per Bitcoin is kind of a crazy price for any of us who've been in the market for a while. It isn't, I guess, if you look at the previous cycle top in 2021: $69,000 per token or something around there. So we've rallied less than 100% since the November peak of 2021. You're here saying, okay, timewise, it's the later innings of this bull run, but price-wise, maybe it's an early inning.

Do you have price targets or indicators that would, on this chart you're sharing right now, show us some of the ranges that listeners and traders should try to think about for a top? I like to think $150,000 is a place to reevaluate. I've heard some predictions that Bitcoin is going to flip gold, which would be basically $1 million BTC.

There's a wide range of cycle-top numbers that people are discussing. It would be great to have some actual telemetry in your system that shows us how we should think about different price points and the risk-reward. Do you have any queued up here?

Yeah, I mean, when we're talking about price targets, no one's going to get that right unless it's a fluke, because the tops of these markets are very highly unstable, but very stable at the bottom, right? The bottoms, the bear-market bottoms, are very stable. That's when liquidity comes in, but the tops can go haywire, right?

I've certainly made mistakes in the last cycle by revealing models that say it points to this, but they don't hold any credence. So the ultimate target depends on how much time we've got left in this bull run, right? And that is again going to be determined by global liquidity, the M2. We need to see where that starts to pull back. Some people think we're going to print money and it's going to go even higher.

I know Henrik, the chief economist within Swissblock, has indicators on the business-cycle downturn that's coming. Bitcoin's never really had a proper downturn in the business cycle. It did have a very brief glimpse in COVID, but it wasn't really—it was very flash in the pan—and a massive amount of liquidity came in early and warded it off. We had this wick down and wick back up, and we had a bull run.

The last business-cycle downturn was the Global Financial Crisis of 2008, and so Bitcoin's never experienced a business-cycle downturn—not a proper one. If we think about that, he's saying the economic indicators are for sure saying we're going to have this. The Titanic's hit the iceberg. Stay on board; it hasn't sunk yet. So, you know, we're good. It's got time for a blow-off top before this whole thing starts to turn downwards.

In a business-cycle downturn, liquidity gets pulled out of the system. We have to think about that. Then it's about the timing of that, right? I think September or October is the earliest, but who knows how long that will last. Maybe it goes as far as some people think, the middle of next year, and then the targets go a lot higher.

But I'm going to be cautious and say, if it's early, then we need to start to think about taking money off the table in the $140,000–$160,000 range, something in that range, I'd say. If it's coming soon, if it's coming later, then let's just see how crazy it gets.

I tend to think we're probably not going to get an economic downturn until—maybe I'm going to end up eating these words; this is going to sound a little crazy—until the United States and other major economies around the world start electing proper socialist, redistributionist-type politicians into the position of leader of the country: president, prime minister, whatever. I think that until that happens, no politician will have an electoral mandate to allow the markets to crash, right?

Unless something totally exogenous happens, like a version of COVID that's super deadly, like Ebola, and just as contagious as COVID comes around—something that governments just can't control no matter what—any banking or financial crisis will be buoyed by stimulus money, the way that it was in 2008, again in 2020, again in 2022, and again in 2020. I guess this year when we, in the United States, voted to continue wartime levels of deficit spending despite all economic indicators suggesting that's not necessary.

Basically, my bet that I've been pretty public about has been that no politician has the mandate or the balls to take not just 2 or 3 crises' worth of medicine, but sort of all of them at the same time, and send us right back to the 2008 lows. Any crisis that hits will result in money printing and stimulus, and fiscal and monetary easing of money. All of that, I think, is quite bullish for Bitcoin until somebody like AOC or Bernie Sanders—or I guess in Europe they have their favorite versions of that, Mélenchon—comes along and just says, "All right, you know what? Assets are going down. We're going to change the way that the economy works," and sort of revolt against capitalism.

6. What Indicators Should You Use?

You're seeing the beginnings of that in the United States politically, but I'm just assuming no economic crisis or downturn until we see the political shift. So I'm sort of operating on the basis that unless a volcano comes out of the ground in New York City and another one in London and just wipes out the economy, something crazy, or Kim Jong-un starts going ham with his nukes, we're fine.

And so now, having ruled out these sort of economic crises, it isolates just the crypto variable. I'd love to send the ball back into your court here, Willy, and maybe tell us, absent some exogenous economic crisis—which we can assume doesn't happen—

Conditional upon that not happening, what indicators are you looking at? Let’s say Bitcoin just soars past $200,000 or $250,000. What indicators are you looking at, either on-chain or otherwise, in your dashboard that tell you, “Take it off, take it easy”?

When it’s global macro, no one knows the answer. Otherwise, everyone would be rich. The thing is, what we can do is measure that liquidity coming into the network, and that’s what I’ve put up on screen for the audience. It’s kind of an on-off chart. It hugs around zero, goes to 100, and then drops back down. I’ve got a smooth trace of that here. Let me get this on for the people who see the screen.

When this signal goes high, it’s based on a liquidity model underneath it, and it’s reading increases or decreases in liquidity relative to the size of the network—just how much capital needs to come in. It’s using price signals and on-chain metrics of how much capital is arriving into the network. We get a good readout of liquidity, and you can see that it’s a risk signal, right? It’s low at the bottom of the bear market; it drops from high as we sell off into the bear market, and as it drops to 0% risk, that’s the bottom that’s hit because liquidity has come in.

The problem with this one is that it’s too choppy. It goes back and forth between 1 and 0 too often to be, I think, super useful.

Avi Felman

It would help to have a moving average in there, just to help you get a sense of it. Instead of discrete gaps between 1 and 0, it would be helpful to have a more dynamic range between 1 and 0. That’s just my 2 cents. I’m sure you know what you’re doing more than I do.

Yeah, that’s probably a good suggestion. We would lose a little bit of the actual higher-value signal coming out of it. You can see here, as we’re ranging higher—I’m showing the 2017 bull market here—the signal fires early. It starts to climb into the 100% range around the $2,500-per-bitcoin range.

Avi Felman

What I worry about with this one, though, is that, like you said, time in the market beats timing the market. If you’re just constantly flipping long and short, or long and flat, using this binary indicator, you might miss some of those huge days. That’s why I suggested the smoother indicator: to help people hold on for dear life a little bit longer until the indicator gets really extreme.

Yes, I take your point. You might miss an early buy signal on the lows. The trade-off would be that you flip in and out of your positions less and probably hang on to risk through some of that final blow-off-top move a little bit better.

I like the look of this, though. This basically tells you, when it’s high, there’s too much liquidity coming into Bitcoin, so be flat, and when it’s low, there’s sort of not enough liquidity—

When it’s low, it means this is a macro-cycle risk model. What it’s telling you is the risk in the system. When it’s low, that means there’s liquidity coming in—lots of it—and when it’s high, it’s drying up for the rise that’s happened.

So what’s it saying right now for the listeners who see the chart?

We actually went into the high-risk zone around January 2025. We had a big pump from around the 70 range up to 100. We knocked off 100, all the laser eyes rejoiced, and then we had a sell-down, and then we recovered.

That’s signaling we’re now late stage. Late stage is—you know, if you go back to 2017, you could say late stage started in the middle of 2017. That’s basically late stage: it’s a full-on bull run and everything’s volatile, right?

In 2017, just for people not looking at the chart, when your little indicator started flashing late stage, the price then went on to double. Is that what happened over the course of—

Oh, no. It went from $2,500 to $20,000.

Right. We’re looking at a logarithmic axis here, and I’m struggling to see it.

Sorry. Yeah, it’s almost 10x, and then you’ll see liquidity returning. This is highly volatile and unstable near the tail end of the bull market, or you might call it the full-on bull run, right? Whenever liquidity comes in, you get another run-up, and it’s volatile—volatile to the upside. So let’s zoom in on 2021 next.

Okay, so we looked at 2017: the price 10x’ed from when your indicator flashed “go” to the end of the bull run, which obviously nobody can top-tick. Anyway, what happened in 2021? In January, it goes from kind of a nothing burger to warning signs flashing everywhere. That’s January 17th. Then, at the peak of the bull run, what was the price on January 17th?

It was roughly in this whole region. The price was chopping around $35,000 or $36,000 somewhere. It was highly volatile at this point.

But then we ran up to $70,000. It doubled—doubled exactly. But look at the timing signature, which is—

January to maybe April or May. We had maybe 4 or 5 months before the top. If we look at 2017 and how far before the top that was, it went from June to December—6 months. So, you know, 4 to 6 months before the top, if you use that as a timing signature.

Then, in the beginning of this year, you got an extreme uptick in that risk metric. We went from kind of nothing in 2024 to January 2025. It’s flashing every warning sign it can flash. We’re 6 months into this right now.

Yes, exactly.

Technically, if we use the previous 2 examples, that, in that sort of thought process, would suggest that Bitcoin has peaked here at $118,000.

Yeah, that would be a very simplistic conclusion, though, because you could see that in the last cycle, when paper was in the system, this was the spot top. First, we had a double top, and then the second run was actually driven by demand on paper. We didn’t actually top until around November. So we could say it took a full 11 months before we got a price top.

Again, it was very unpredictable, this cycle, because we had paper in the system, and we’re only 6 months into it since this risk started to climb.

But now that indicator is collapsing and saying, “Hey, you’re okay to buy again.”

Exactly. The liquidity came in here. See, the indicator dropped and we climbed. Liquidity started coming in well before the price blew out. I could take you through to the actual underlying model, which is tracking this liquidity.

Avi Felman

I’ve always been, in my career as a systematic trader, very skeptical of using models that I don’t understand. I’ve always had to build them myself from scratch or buy them from Glassnode, where they’re really well orchestrated, with README documents explaining every little piece of how the model produces its output. This liquidity index is proprietary, right? The function itself isn’t exposed, but—

Yeah. All I can say is that we’re measuring the capital coming into the network and building a pricing structure around the structure of the pricing. You can’t tell liquidity on the exchanges except for the pricing ticker, but you can measure the long-term liquidity in the capital flows of investors.

The point I wanted to show was that wherever you have this sort of reversal of liquidity dropping, this is where you’d say liquidity is starting to drop. Then here we’re in a zone where liquidity has stabilized, and that’s been the platform to launch again. We can look at past cycles here.

In 2017, liquidity was up and then down all the way down, and the rest was just paper. But 2017 was interesting because it was much more spot-driven. We’re actually more spot-driven this cycle because the public companies and ETFs bring more dominance back to spot markets. You’ll see that this was again where we talked earlier around the—well, actually, it was around the $1,000 level where we peaked in liquidity.

Back in 2017, we peaked in liquidity around $1,000 a token.

Yeah, right at the beginning.

See where it flattens out and picks up again? It’s enough to generate a run.

Same thing.

7. Trading Bitcoin Cycles

Okay, I see. So basically you’re saying that when this liquidity index starts to stabilize or decline, it tells you that there isn’t enough supply out there to meet the demand, and the price continues to run at that point. That’s sort of what we’re seeing now: a decline in this liquidity index.

Let’s say that the capital hitting the network relative to how much the market cap is running up is a little bit like MVRV. You could say that MVRV is comparing the market cap to the actual capital stored in the network. Here, I’m comparing the rate of capital coming into the network, the pricing structure, and how far it’s running up.

Generally, in these tail ends of the bull market, it’s just a lot of FOMO driving the price up and outstripping the fundamentals. In this case, the fundamental is the liquidity, and you see that deviation start to result in this thing coming down.

But every uptick in liquidity is enough to power this frenzied market upward. That peak is actually your timing signature of the late stage, and that peak happened around December, going into January. It's a matter of time, and generally, when we cross a certain path down into the drop, that gives you an idea of where, in the past, it signaled a bear market.

So, on this liquidity index, what would be a bear-market signal? What would you want to see the yellow line—the yellow liquidity-index indicator—do in order to tell you, “Hey, Willy, it's time to lighten up and sell a bunch of Bitcoin?”

I'm not going to use this to say, “Hey, it's right now,” right? I would go to much shorter-time-frame indicators, like something like this, where we're actually measuring the daily capital flows into the network. In times where the flows have peaked and are coming back down, those are times to risk off.

So, what is this Bitcoin network flows? What does this mean exactly?

What you're doing is taking the realized cap, which is measuring the cost basis of every coin that's moved into wallets. Another way of saying that is: how much capital got put into the network? Then you're measuring the changes of that, which is measuring the actual flows coming into the network.

Okay. So, basically, the fact that flows have been—that signal has been—increasing lately means that money has been coming into Bitcoin. People have been buying Bitcoin, so the realized value of Bitcoin, the money being stored in the network, is higher. Every time Saylor goes and buys another $1 billion worth of BTC, this line is going to go up, effectively, right?

No, it's actually measured in billions of dollars per day coming into the network. The fact that the line is going up means that the rate of change of the inflows is going up.

Oh, I see. So, it's not cumulative; it just measures the rate of change.

There's a fallacy that the media talk about, which is, “A billion dollars got bought by this treasury company, and the ETF got another billion here. How could price stay down at this rate?” In actual fact, when the flows are so high, you're creating the risk of it being lower the next day, because at a certain point, it's unsustainable to keep the flows that high.

It turns out price is a little bit like a skydiver in a wind tunnel. The fan is the flow of air, and it's just like the flow of capital. You rev this engine up and you've got a high flow. All it takes is for the flow to reduce, and then the skydiver is going to drop. The price is going to drop.

That's the behavior. That's a fallacy, to say, “Wow, we got so many flows. Price is going to moon.” It's actually the time we should be de-risking, when there are maximal flows. The flows are going to increase from here, most probably, so those are the best times for a setup. You see that here.

And this metric is aggregated across centralized exchanges and on-chain metrics? Is it sort of a combined metric?

It's purely on-chain, because you're creating a box around the whole system. You don't need to look at Michael Saylor's or the ETF's exchange flows. You just measure the realized cap, because we've got a UTXO model. We know exactly when those coins move.

So, it's very simple. It captures the entire system, and so I like this one. This is my favorite one so far.

Yeah. You'll find that the other ones are broader, taking similar approaches, but you're looking at where we are in the cycle to make decisions in the short term. If I know I'm in the late cycle, I'd probably be more wary of taking money off the table at any of these turnarounds.

When it's peaking around here, maybe it's fine to go to cash. When it's down here, it's a de-risked point to go back in. And you'll find, if you keep doing that as an active trader—this is a trading channel; I'm not saying that to hodlers—it doesn't matter. The cycle top is going to happen. You don't even know it's the cycle top until it totally gets wrecked, but you would have been in a cash situation at that point.

Basically, what this chart tells me is that we're due for a short-term pullback—not a huge pullback, but a short pullback down to $110K or something. But the other charts you showed me indicate that, because of the stage of the cycle we're in, we should try to remain as conviction-long as we can to catch that end-of-cycle parabolic move that will ultimately happen.

I guess the people who do well versus really well—it'll depend on whether they're in the right assets when that parabolic move occurs, whether they're in Bitcoin versus maybe the right lower-cap alts that really blow off, right?

I don't believe in short-term trading Bitcoin. I believe in maybe short-term trading alts. So, I would be hesitant to use this metric to sell $118,000 BTC with a view to buy it back $5,000 to $10,000 a token lower.

But I could certainly see this as a way of saying, “Hey, the fan's been pumping pretty hard to keep the skydiver in the wind tunnel up here. It's more likely than not to slow; it's more likely to slow down than speed up. So, maybe if I'm planning to buy some alts or rotate into some alts, I should wait for a little breather before I do that.” That's kind of what it tells me.

Avi Felman

Yeah, I mean, it depends on your strategy. Right now, I think it's dangerous to sell into cash if you're seeing this. We could dig into this, because I don't think this is a messed-up signal right now because of a weird event: those 80,000 coins moving right around that.

8. Who’s Moving 80,000 BTC?

Can you explain what you think those 80,000 coins are? Let's take the charts off the screen for a second. What is going on with the 80,000 coins? There's a lot of debate. Are they being sold? Are they just being moved? Is it an OG whale? What do you think is going on there?

The conjecture is that it's Roger Ver, right? He was detained in Spain, I think, for not paying his exit tax in the U.S. As far as I understand, he's under some sort of house arrest. The timing is interesting: some of these coins—some people are saying they're tracking back potentially to one of his wallets—could be his money.

It's suspect whether or not it's his, but the timing is interesting because he's in jail—house arrest, at least—with the U.S. government on his back about unpaid taxes. Now, about $9 billion worth of coins have been moving into Galaxy Digital, which is an OTC desk. Subsequently, 6,000 of those 80,000 coins have moved on to Binance and Bybit, presumably to sell.

We haven't actually seen that in the order books. The order books aren't showing any kind of frenzied selling or urgency to sell, so I'm not entirely convinced that they've started selling. If they are, they're selling very, very slowly.

It's certainly looking like a transaction where those coins are being sold, and maybe the rest is being held by Galaxy Digital to go to another whale that's buying it. Generally, at an OTC desk, you're order-matching between large entities, and the difference will go to the exchanges to make up the difference. I think that's what's happening.

But the coins haven't moved off Galaxy yet, so the buyer hasn't received those coins. When you see all this capital coming into the network, it hasn't actually happened as far as we know.

Avi Felman

I actually have a different take from you. I ran an OTC desk. I guess, over my career, I've spent 10 years working on OTC desks and 6 years running them. When you get a huge order like that—an order where somebody sells you 80,000 coins worth billions of dollars—you don't just sit on it waiting for another buyer to come around. You're usually bidding it at a price where you can get out as fast as you can on exchanges and other liquidity methods.

And basically, without taking too much risk, right? So, if Galaxy has bought $9 billion worth of BTC from Roger Ver—and I haven't been tracking the wallets, you have—but if Galaxy has bought $9 billion worth of BTC from Roger Ver and they haven't transferred it to exchanges, they're selling out of it as fast as they can, and they're probably still in the money versus the price they showed Roger Ver. If they haven't sent it to exchanges, then they must have shown a really, really low bid to justify warehousing 80,000 units' worth of BTC risk for some unspecified period.

Well, you've worked on OTC desks. Let me ask you this: If you're brokering a $9 billion deal, wouldn't you have a bespoke contract to say, “We'll do our best efforts to sell, and you're going to get the price that we can achieve for you because it's going to take us a while”?

Avi Felman

OTC desks don't work agency orders for clients. So that would be true if I were a broker. If I were, like, an IB and I said, “Hey, I'm going to work—I'm going to work best execution for you. I'm going to sell it at some reasonable spread to mids over the course of X days.” But an OTC desk—they're not a—like, they take risk, right? So they actually won't work an order while leaving the BTC on somebody else's balance sheet.

They will show a price. If the client says done, or the counterparty says done, they'll take it onto their own balance sheet. From there, it's their risk to deal with however they want. Ultimately, as an OTC trader, the transfer price that you quote to the customer or the counterparty is a price where you would feel comfortable warehousing the amount of risk.

For example, during the 2022–23 post-FTX blowup era at Cumberland, we would routinely quote bids on tens of billions of dollars' worth of coins from bankrupt entities that were auctioning them off in bankruptcy-related fire sales. You're expected to sit on that price for a couple of days while the counterparty thinks about it. You bake in enough spread that you're okay in most scenarios because you're expected to be firm on that price.

Then, once the counterparty says no—usually, the counterparty says no—but in the case of this deal, it sounds like Roger, let's assume it's Roger Ver, the counterparty has said yes. The 80,000 coins have been sold to Galaxy. I guess the real question is, is Galaxy holding the coins, or have they been sent to exchanges? You said most have been sent to exchanges?

No, 6,000 out of the 80,000.

Avi Felman

Oh, sorry.

Which begs the question: Why would they sit on that coin, having said what you've said? Could that have been—just thinking out loud here—could that be holding it until it's ready to be sent to the U.S. Marshals, if it is Roger Ver's coins? U.S. law enforcement could take those coins, and that's going to be part of the U.S. sovereign treasury because they're just going to grab them.

9. How Useful Are Onchain Indicators?

Yeah, I mean, it's a great question, right? Something weird is going on. Earlier, I misheard you. I thought of the 80,000 you said 60,000 had gone to exchanges. It sounds like only 6,000 have gone to exchanges.

So, if they're holding the rest, maybe they're just custodying those coins for the U.S. Marshals. That is a very viable theory. Another viable theory would be, basically, I don't think Mike Novogratz and Galaxy have the risk appetite, given that they're now a publicly traded company, to just buy $8 billion worth of Bitcoin and hang on to it, right? They're trying to get a decent P/E multiple from the market for expanding into AI and stuff. I don't think YOLOing 8 yards of Bitcoin on the highs is what they're paid to do here.

So, I doubt that Galaxy is actually hanging on to that risk. I think what's going on is they're either custodying it for somebody else, or there's some wallet—maybe they've put on basis some gigantic basis trade: $8 billion worth of spot versus short $8 billion worth of futures or perps, collecting some massive amounts of money. I don't think that's the case either because there's not enough capital floating around to do that. I think there's some missing piece that we don't know.

This is what Avi and I were worried about. We're worried it's screwing up our indicators to look at this stuff. But if that Bitcoin is going to hit the market, it's bad. If that Bitcoin ends up not hitting the market—maybe the U.S. Marshals seize it and then it gets added to the Strategic Bitcoin Reserve—that's bullish.

It's a very confusing price setup and market structure setup here. I don't really know what to think other than, hang on, Willy Woo says that we're in the late stages of the bull market. That's where most of the price action occurs. So hang on and bet on this thing doubling or so before year-end, or rallying another 50%. I think that's the best of all the outcomes out there. I think that's the most likely one, frankly.

Yeah. And also, you're right, it's screwing up all these indicators, including this indicator we're just showing. It's screaming that a whole bunch of capital came into the system. Bear in mind that just a few weeks ago, we were at a very steady rate of $1.2 billion a day entering the network.

$9 billion is less than a week, right? It's about a week worth of inflows. So that's the overall impact on the market: We've got a week of capital coming in or leaving, or in a transaction, and it's all happening all at once. If you spread this bull market over how many months we think it's going to go on for—you make your own guess—but if it goes into early September or October and it blows up early, then it's still a small impact relative to the time we've got left.

If it goes all the way through to next year, then it's not really going to make too much impact, because $9 billion is still a small amount relative to the time we've got left. So, we're seeing basically $1 billion to $1.5 billion a day flowing into Bitcoin?

Pretty much, on average, since Trump got elected.

So let's have a look at how much miner selling has occurred per day over that time period.

I'm not looking at the miners.

Yeah, I'm just trying to think: These are the inflows. The miners are the outflows, right? So what's a proxy? Do you have a metric for miner selling?

No, I don't use that because this is captured. All those details are captured in this.

Oh, I see. You're right. So this is just a net number. So net of miner selling, the balance of flows is just, let's look at all the cost bases of those coins and sum them up, and that's how much capital is in the system.

That's what always confused me. I thought a freshly mined coin wouldn't have—I’ve never understood how that filters into realized value, because it hasn't been spent yet, so there's no UTXO.

Well, when it's freshly mined, you'd have to assume that it's roughly the price of—roughly, the cost of mining a coin. That doesn't deviate by a factor of 10×. Sure, it can be plus or minus 50%, but generally it oscillates around it.

Okay, so this is a fair metric. Basically, net-net, we've got $1 billion to $1.5 billion a day worth of buying, and if that just continues—

Yeah. So currently, the average is $1.28 billion per day if you ran this as a 1-year, backward-facing tally. But if we're looking at the last 30 days, we were up around $1.2 to $1.25 billion in that zone, coming into the network per day.

Now it's run up to $1.83 billion because we just had an influx—probably a false signal right now—of $9 billion coming in in one hit. Some of this will be actual demand as well on top of that. But I would say that we're not actually at peak levels yet.

Peak levels currently are around $2.5 billion; that was the last 2 pumps ago. The last pump was $2.8 billion. I imagine we'll go even closer to the $3 billion mark. You'll notice that the influxes keep climbing over time as the network gets bigger. I'd be a bit worried if the flows get to around $3 billion a day. That's when it might pivot.

It's hard to see them increasing from there.

Yeah. So I'm not concerned. I do agree with you. I think that we could purge a bit of leverage out of the system and purge some of the open interest.

10. Final Thoughts

If you look at the 2 metrics here, that purple line is picking up on, effectively, the long-biased open interest. Taking account of funding rates and open interest, you see that oscillating, and we're at peak levels of paper FOMO—the drift of bets going to the long side. So I think it would do to purge some of that. Likely, when we're in these sorts of situations, we liquidate to the downside. We've got short-term down a little bit, medium-term up a lot.

So, I know you've got a hard stop. How do people access these charts? I'm interested to dig in more because I don't feel like paying for Glassnode anymore; it wasn't that valuable to me. MVRV is available for free on the internet now. What should investors who really want to dig into the on-chain world do to access this sort of telemetry? I assume this is better than what Glassnode has at this point, right?

Yeah. Well, it is taking Glassnode data but really applying systematic modeling to it and bringing in different feeds. If you're an institutional or advanced trader, go to swissblock.net. There's a handle called Bitcoin Vector on Twitter, and it links to Swissblock's institutional products. It's there—we have the—it goes much deeper into the Hawkeye product.

We also have live alerts on a Telegram channel, so as a trader, you can't wait for a report every week. You want the market shaping up in real time. The advanced plan is for those pro traders.

Then the retail product, where a lot of these models that I've shown on the show are, is on Substack. I also have an experimental place on my Twitter, so on X you can subscribe there. It's relatively cheap, and I'll use these models. It's a place for me to try new models and try things. So that's how you get access.

There are no actual live models. Some of them are live, like the MVRV and so forth, but the ones that we use inside the letter are proprietary. You can totally reconstruct these flows when I've told you how to do it, and you can probably do that on Glassnode.

But it's really a way of looking at the market, and the publications will be a good idea. It'll lead you into how we think about liquidity flows and how we read the markets, and you can check the track record of the accuracy through looking at the past publications.

That's good feedback. I've been looking for content like this, so thank you for bringing it to my attention and to the attention of everybody listening.

I guess the last question I have for you is: If Swissblock is actively trading, if they're managing capital and profiting from it, from timing the market, what do you say to users? This isn't a gotcha question. This is more just, in the wake of FTX and Alameda, and “trade with us, but we take risk too,” how do you justify to a listener why they should look at a proprietary indicator published by an entity that has risk on? It's not just a pure research firm with no ulterior motive other than to sell research.

Yeah. Well, first, you need to be a very large player to manipulate the market. Swissblock is in the process of being fully regulated as a hedge fund, and so there are very strict criteria. People are going to get incriminated if you start to manipulate the market.

The other thing you can look at is the trust in the system, where Swissblock has been a good actor since the beginning. You can also look at my reputation. We're doing this because we think that TradFi is coming in at a very fast rate, and we think that the data behind these markets will be offered by entities outside of the industry, like Bloomberg. We think it's a good idea for our industry to come up with the leading voice within the ecosystem and to represent the data with the original Bitcoin ethos. That's the main reason we're doing this.

We make our money through the funds. I run a series of hedge funds, and so does Swissblock. They run their prop fund, and that's where the money is made. This thing has got a lot of purpose behind it. It also works into our existing products of managing capital for other people, which is highly regulated. We're not some offshore entity that's trading like FTX with other people's money in an unregulated fashion. We are regulated.

Okay, that's good to know. Basically, I just wanted to have you address for the listeners a scenario where they would think, “Hey, you've got a hedge fund publishing leading indicators and systematic trading telemetry. Surely they will already be positioned in the trades that technically go out on these indicators.” Or maybe they won't be, but there's always some concern among a retail user of a systematic trading metric: “Am I just somebody else's exit liquidity?”

I wanted you to speak to that and sort of allay the listener's concern that maybe, if you're buying something—obviously none of this is financial advice; we don't do that on this podcast—but if the user was buying something based on an indicator inside of this dashboard, it wasn't a day late and a dollar short of what the fund had already put on in some sort of size.

Yeah, it sounds like your justification for doing this isn't to drum up exit liquidity for Swissblock's position. Swissblock isn't really—probably in the institutional world, there is a way to address that. I can't speak for Swissblock because Yan's not on the show right now, but I would say if someone wanted to run operational due diligence on all operations, certainly on the global macro hedge fund side of things, there will be operational due diligence happening.

That means an independent party is going to come in and look over every single piece of the operation, find the holes, and make sure none of the bad behavior is happening, and that the fund is capable of carrying other people's capital with high integrity. Those types of reports will be happening through institutional players. Potentially, that could be an interesting way to publish that. We could publish that, actually. I'd have to talk to Swissblock to see if we can get a due diligence report done by an independent party. But that's how you do it.

The idea, though, of having the industry—the crypto industry—lead the conversation about metrics rather than having TradFi apply some useless metrics to our space and then suddenly having them become self-fulfilling prophecies, I totally agree with you on that one.

Yeah, I think we've been in it for 10 years now. There's a decade of on-chain data, and we've been trading a market for 10 years. I think there's a little head start.

I've often seen the squawk boxes just take a superficial view, and the data is generally very shallow. So I think we've got a good shot at representing the industry and doing it to a high standard. So let's have a shot.

I appreciate it. Willy Woo, thank you so much for coming on the 1000x podcast. Thank you so much, and nice to meet you. It's a pleasure having you on.

Thanks for having me, Jonah. Been fun.