On-Chain Analyst Willy Woo Expresses Concerns Over Bitcoin’s Financialization

Renowned on-chain analyst Willy Woo has raised a red flag about the future trajectory of Bitcoin (BTC). In a recent interview with Peter McCormack during a live discussion on What Bitcoin Did, Woo voiced unease regarding the increasing “financialization” of Bitcoin through the introduction of various derivative products. He believes these developments possess the potential to manipulate prices and siphon liquidity away from BTC.

Woo highlighted Bitcoin’s Sharpe Ratio metric, designed to assess the risk-adjusted return of an investment. He noted a steady decline in this metric since 2019, coinciding with the emergence of BTC derivatives. Back then, Bitcoin was outperforming all other global assets, boasting a Sharpe Ratio of approximately three to four – an exceptionally high figure. Presently, it has tapered off to around two.

He further emphasized that Bitcoin’s performance is now converging with that of conventional macro assets like equities, gold, bonds, and emerging currencies. This shift occurred in 2018-2019, marking the period of Bitcoin’s financialization. The introduction of perpetual swaps, calendar futures, and increased paperization of Bitcoin contributed to this transformation.

Woo expressed apprehension about the consequences of Bitcoin being traded like any other macro asset. He highlighted the significant disparity in scale, with Bitcoin representing a half-trillion-dollar asset linked to 21 million available Bitcoins. In contrast, if a government were to inject an additional trillion dollars into the market, it could potentially influence $42 trillion in Bitcoin transactions.

Regarding the potential approval of a spot Bitcoin exchange-traded fund (ETF), Woo cautioned that while it may grant access to up to 21 million Bitcoins (in reality, around 1 million available), the presence of expansive paper markets could grant significant control over the market to larger entities. This underscores Woo’s concerns about the evolving financial landscape of Bitcoin and its implications for market dynamics.

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