Bitcoin Analyst Explains Why Traders Who Want To Long BTC With Leverage Should Not Buy BTC Futures

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As a crypto investor with a background in tech and finance, I highly value the insights of experts like Willy Woo. His experience and deep understanding of Bitcoin and the broader crypto markets make him a trusted voice in our community.

As a cryptocurrency analyst, I’d like to share some insights I provided on July 6, 2024, via X (previously known as Twitter), regarding trading Bitcoin (BTC) using leverage.

Woo is a well-recognized name in the cryptocurrency sphere, distinguished for his detailed examinations of Bitcoin and the wider digital currency markets. He initiated his investment in Bitcoin back in 2013 and has since amassed a considerable fanbase due to his proficiency in on-chain metrics. These metrics entail scrutinizing data directly from the blockchain to decipher market patterns and investor actions.

As a native of Hong Kong who relocated to New Zealand during my childhood, I embarked on my professional journey within the tech startup sector. However, my career trajectory shifted towards finance, finding myself drawn to investing in gold during the tumultuous 2008 financial crisis. My curiosity about Bitcoin was ignited around 2013-2014, as its value underwent dramatic fluctuations. Intrigued by this digital currency, I began amassing Bitcoin and delved deeper into its intricacies.

In his recent discourses on X, Woo cautioned traders against purchasing Bitcoin futures contracts if they aimed to amplify their investments. He posited that engaging in such transactions enables any counterparty with USD backing to complete the deal. This action, as per Woo, generates artificial Bitcoin, thereby expanding the total supply without influencing the genuine Bitcoin circulation. This expansion of synthetic supply, he added, can weaken market sentiment by disrupting the natural balance between demand and supply for Bitcoin.

As a crypto investor, I’ve come across Woo’s suggestion that instead of using futures, we should consider buying spot Bitcoin using borrowed USD on margin. While this may seem similar to outright purchasing Bitcoin, there’s a key difference: when you buy Bitcoin on margin, you’re essentially purchasing it from existing holders in the market.

As a researcher, I’ve come across an intriguing observation made by Woo in the context of a thriving market. He brought up the point that funding a long position with borrowed USD or USDT is generally less costly than doing so through futures or perpetual contracts. This cost advantage makes margin buying a more appealing choice for traders during bullish trends, potentially amplifying their gains.

Another critical issue Woo discussed was the prevalence of synthetic or “paper” Bitcoin in the market. Despite significant liquidations of long positions, Woo observed that new long positions keep entering the market, preventing a proper reset. Woo used the Open Value (OV) Oscillator to illustrate how many bets are in the system, denominated in BTC. Woo emphasized that the market is flooded with synthetic BTC, with 170,000 new synthetic BTC created since the last peak. Woo explained that this influx of synthetic supply makes it challenging for spot demand to significantly move the price upward. He contrasted this with the 9,332 BTC sold by Germany, underscoring that the creation of synthetic BTC has a much more substantial impact on market dynamics.

According to Woo’s recommendations, it is more beneficial for traders to hold onto Bitcoin (BTC) instead of trading in Bitcoin futures. By acquiring the cryptocurrency itself, traders can help reduce its supply and thereby push up prices, generating a more favorable market situation. This method takes advantage of the fundamental principles of supply and demand, making it a potentially more profitable approach.

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2024-07-07 08:14