The third halving is coming, analyst Willy Woo: Exchanges will become the main force for Bitcoin selling

As the halving event approaches, cryptocurrency analyst Willy Woo released a series of tweets on the 9th, stating that after the Bitcoin block reward halving, miners will no longer be the biggest sellers of Bitcoin, and cryptocurrency exchanges will become the biggest source of selling pressure.

• Exchanges are akin to tax agencies, and their revenue (fees) will decrease after the halving
• The popularity of futures contracts has slowed down Bitcoin's long-term upward trend and increased volatility

Who is Willy Woo?

Willy Woo, with over 130,000 followers on Twitter, is an early cryptocurrency analyst who introduced the Bitcoin NVT valuation model (Network Value to Transactions Ratio). NVT is a metric that estimates Bitcoin's value by considering the overall network value and on-chain transaction volume.

Exchanges as Crypto Tax Authorities

Woo points out that exchanges act as the tax authorities for traders, collecting taxes in Bitcoin transactions and converting these fees to fiat currency in the market, similar to miners selling appreciated Bitcoin due to halving, which requires time for the market to digest until new demand emerges.

You can think of exchanges as tax agents on traders. That tax, extracted in fees in BTC, gets dumped onto the markets and sold for fiat. It’s similar to miners where coins gained by diluting the supply get dumped on the market that new demand needs to absorb.

— Willy Woo (@woonomic) May 9, 2020

Woo emphasizes that unlike typical trades where each buy or sell order is matched with a counterparty, the trades he refers to are conducted by professional and savvy traders.

Here, we can understand the two main selling pressures:

• Miners selling due to halving, which is an implicit tax caused by inflation
• Exchanges taxing users and selling in the market

Profound Impact of Futures on Price

Aside from selling pressures from miners and exchanges, Woo also mentions the significant impact of Bitcoin futures' high trading volume. He estimates BitMEX's fee income and the current Bitcoin supply and demand:

• Pre-halving: Miners produce 1800 Bitcoins per day
• Post-halving: Miners produce 900 Bitcoins per day
• Exchange fees: 1200 Bitcoins per day

His argument suggests that post-halving, if Bitcoin price remains stable and miner selling decreases, exchange fee income will be impacted, leading exchanges to sell Bitcoin to cover operating costs. Apart from exchanges and miners' selling pressures, Woo believes the biggest selling pressure comes from futures exchanges, explaining why futures affect spot prices. He states:

For short-term trading, it's simple for a $500,000 margin account to generate $400 million in monthly futures trading volume, resulting in up to $80,000 in fees for the exchange, equivalent to a $50 Bitcoin account selling 8 Bitcoins' worth in the market that month. Futures trading brought liquidity to Bitcoin markets, but now it poses the biggest selling pressure on Bitcoin.

How Can Bitcoin Go Mainstream?

Woo mentions that Bitcoin's asset size is still small and discusses the impact of widespread futures adoption. He explains: assuming everyone believes Bitcoin's price needs to rise linearly to exceed $1 trillion or $10 trillion in market cap to have a global impact (as I do), then futures trading appears, slowing the price rise and greatly increasing volatility. He adds:

Inflation continues to erode people's wealth, Bitcoin is a hedge asset against endless fiat money printing, but it needs to surpass the market cap of gold to be considered a large enough asset with sufficient liquidity to achieve this goal. It's just too small for any mutual fund or even billionaires.

Woo admits he is also involved in futures trading and believes that "spot investors" and "HODLers" are the angels driving Bitcoin forward.

While routinely summarizing insights from well-known analysts on Twitter, investors should have their principles in trading. In fact, Willy Woo, in May last year, launched the cryptocurrency hedge fund Adaptive Capital, which shut down after the March market crash, emphasizing the importance of excellent fund management and a steady investment mentality over speculation or blindly following trends.