Satoshi’s Bitcoin Moving the Market? How to Trade With Leverage, Technical Analysis Tips

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Hi everyone, my name is Giovanni. Welcome back to our weekly crypto market show live. This time with us, we have two very special guests. Veteran trader Scott Melker, AKA the Wolf of all street. And for the first time on our channel, founder at the crypto derivative exchange alpha 5, Vishal Shah. Thank you for being with us, guys.

Thank you so much for having me.

Thanks for having me.

So before we start the discussion, I would like to mention competition for our audience. So you need to guess the bitcoin price in one week from now. So on the 28th of May at 2pm Eastern Time, we are going to see the bitcoin price and basically you need to write it down in the comments below right now. And on the 28th of May we are going to see which one of you got closer to the actual prize. The one who got closer is going to win 100 bucks worth of credits in our merch store. So take your best guess. Write down your prediction in the comments below. Make sure in the comments below, not in the chat. And in one week in the next crypto market show, we're going to announce the winner anyway. The details are going to be below. So before we start, I also want to remind our audience that this is an interactive show which means that you will ask questions in the chat and our team will pick the most interesting ones and we'll ask our guests and I will ask our guests the most interesting ones. Okay, so now we can start. Scott and Vishal, I am very interested to know what is your take about the recent movements in the bitcoin price and what indicators and key levels are you watching at the moment? First, Scott?

Yeah, so I, you know, I think I'm macro exceptionally bullish always on bitcoin price. I'm definitely view myself as more of an investor and a holder than a trader. Even though, you know, I trade constantly most of my positions or buying dips and you know, with a very long time horizon. But in the short term I've definitely gone from being feeling quite bullish even till the beginning of the week to flipping yesterday to more of a sort of moderate stance. And then as of last night or this morning, we're bearish. Not because of the narrative of what happened yesterday, which I'm sure, we'll discuss. But just because of the price action and how it happened. I don't know if you want me to share charts. I know you had mentioned that, but I can show you a few things if you'd like. Of course. So let me share my screen here.

Also, Scott, if you can adjust a little bit your camera and put it a little bit lower.

Yeah, sure.

Thanks.

No problem.

I thought I shared my screen, but I'm not sure if I did. Yeah, you did. Okay, so here, let me. I'm getting the zoom controls instead. So it's hard for me to actually look at this, but I mean, on the monthly chart there's a clear level here. I can't really see it because the video's in the way. It's in the 92ish area. And I feel like, you know, when we were holding above that, Obviously we've got 10 days left in the monthly candle, so it's somewhat irrelevant. But if we do close below that level, I'm still watching the 7777 area, which I've kind of, I've basically been talking about that level, I feel like for a year. And I've traded it so often that it's almost becoming a meme. But I've been expecting a retest down there. If you kind of zoom in here to the weekly, there's a lot of kind of ugly indicators in my opinion. There's that clear supply zone up there that's been tested three times on the weekly, unsuccessfully. And now we're seeing a pretty strong rejection from it with tweezer tops as of now. Although of course again, the week isn't closed. So I think that that's leaning bearish. And so it wouldn't surprise me now to start testing those lower fib levels on the retracement of this move from 3008 hundreds up to the ten thousands. Zooming in even further, unfortunately, like I said, I can't really see my own chart here, but let me try to blow this up. Well, I mean, we're watching it dump as we speak, which I didn't even realize, but there's a potential bullish breaker here down around 8,000, an area that should have acted as supply and was breached. So I've been looking for retest. I've had bids there for quite a while. You can see that we've had multiple bearish SFPs here, meaning that, you know, we had this 10,030 high and on multiple days. And even if you zoom in even a four hour Never managed to close above it. So there was clearly a lot of liquidity and sellers above that. So that was a clear rejection in the 10,000 area at 10,030, which you expect to send price down. And then if you even zoom in further, you've got, you know, this trading range, it's broken down. I actually just tweeted moments ago that this was probably a good short retest of the range when it was happening, and you can see price dumping away from it. But we also had a bearish SFP right here at the top of the range, this slight wick above that previous high. So everything to me is pointing at lower targets. Maybe down here at the 200mA on the four hour, if you're an MA trader or those other areas that I sort of mentioned before. But if you look at those fibs on the weekly, these are the areas that healthy retrace. So that's why I say I'm still macro bullish. I mean, none of this is unhealthy, right? Even if you drop down to 6,000 here, that's a golden pocket retrace. That's completely normal and healthy after a move as strong as this. So that's my general outlook at the moment.

Cool. That's actually quite interesting because as far as I know, if a certain resistance level is tested multiple times, that, as you said, can mean that there is not enough strength to break through. But also sometimes it can be interpreted also as a bullish sign that the more the resistance is tested, the more likely is it to break through. But in this situation, it just didn't happen.

I think that's accurate. I mean, the more an area is tested, the weaker it becomes. A horizontal level in theory, but it's the way that it reacts that kind of tells you the information that you need. Like I said, each time it was a wick into that area and a clear rejection and clear close below. And now we see really strong movement down below it. And with the confluence of those other factors. Also, if you zoom in on the 4 hour, 6 hour, there's bearish divergence with overbought RSI, which to me is like the clearest indicator there is of a movement down. So it's just a confluence of a lot of factors that lead to that looking like strong resistance to me.

Thanks, Scott. So now I'm curious to know what spies take about this whole perspective.

Michelle, you're muted, buddy.

Sorry. Hey, I'd love to disagree, but, man, I'm looking for those points there right now. Okay, I'm A breakout trader. Normally, I think the risk reward always kind of pays you a little bit more to kind of see big levels kind of getting taken out. So when we were kind of up until about a couple of days ago looking at that 10250105 congestion zone, in my head, I thought this was going to be a weekend move, potentially go up through 11, et cetera. But the price action that we saw yesterday, very much that Scott points out, was a bit more, well, sobering. Right. And in that regard, in that context, I see we're testing a daily channel here at the moment right around 8,900, fully expected to kind of test a little bit lower, maybe towards 8200 or something. I'd be looking to buy back around then. I think the lows are actually behind us. We've gotten a reinvigorated macro tailwind over the last couple of weeks. And in that regard, I think what we're seeing in terms of now alluded more to the derivatives markets. What we're seeing there is a bit more encouraging. First case in point, when you look at say Bitmex, open interest remains very low. That's typically a good sign that there's not a lot of leverage long interest. Now when we say low, it's still on a pretty high base, you know, market cap of that roughly about what, $600 million or so. But it's not at the billion dollar marks that you saw in March. So the amount of liquidation power lower necessarily isn't as high as it used to be. Right. At the same time, we don't have the contango in the markets that you normally see on a run up that you would in the spot market. So this whole move that we've had from about 5 to 10,000, you've not seen futures go into 5 to 10% premiums, which normally would do on an unannualized basis. So that's a little bit more encouraging as well. All in all, you piece these things together and if I simply said to myself, hey, given what I saw in March and I walked away and I come back, where would this thing be? If I guessed 8,900, I probably said I'd be surprised on the top side. And for that reason the market is showing some sort of intrinsic strength here, that's the benefit of doubt I'm giving it and I'm not looking to get too cute. But I think that much like many others out there, the reason we want to see it lower is so that we can buy not for anything else. And that in and of itself is a lot of information.

Thanks Vishal, I just want to ask you if you can move the camera a little bit closer so we can see, we can see more of more of your head.

Yeah, great.

Thanks for your outlook. So actually I want to discuss with you another important indicator that we saw this week. So the traders, the community was waiting for this golden cross to happen, which is basically when a 50 day moving average is crossing over a 200 day moving average. So this is supposed usually considered a quite bullish sign and the last time that's not always the case though because last time we saw it on February 19, the Golden Cross that happened back then didn't result in any major rally. So what is your expectation regarding this week's golden cross? Scott?

First of all, when the community is expecting something, you'll probably get about a 90% hit rate counter trading it's.

So.

I would say that if everybody wants it then I most likely would go the other way. That adds confluence to sort of my short term bearish thinking. Golden crosses, especially as you zoom out to wider time frames, are extremely, extremely lagging indicators. They're almost exclusively a result of previous price action and not a predictor of future price action. A golden cross is more reliable, I would say, when it occurs directly under price. Like if the candle is actually touching both of those mas when the golden cross happens, you're more than likely to see it price react. But it's not even something that's ever on my radar because they always end up being lagging indicators. Of course you're gonna have a golden cross when looking at moving averages. After you've gone from 3,700 to 10, 10,500, the MAS are naturally going to rise. And by the nature of the way they're calculated, the shorter MA is going to cross up the longer ma. It's inevitable. So I don't think that it offers very much information. In fact, I mean I would look in this market especially, I think an EMA is probably a more reliable indicator because at least it weights more recent price action over previous price action, the exponential moving average. But the thing is all these lines only work in as much. Everyone's looking at them and trying to use them. There's no magic thing that happens when a candle touches a line. So the more people are looking at it, the more of a self fulfilling prophecy it becomes. And that's why I'll still look at even though I believe in EMA is mathematically superior, I'll still look at the Ma because I know that everybody else.

Is looking at it.

But like I said, I think it's a lagging indicator that I would personally be more inclined to counter trade something.

Like the bitcoin halving.

You know my opinion on the bitcoin halving, we discussed that before. But I'm just not, I am not a narrative guy. I do not care about things like havings and wallet movements from 2009 or anything else as such.

Okay, thanks, Scott. I just wanted to remind our audience that you can ask your questions in the chat and we'll pick the most interesting ones and our guests will answer to them. So don't be shy, write your questions. So I just want to know, I just want to know about the visual's opinion about this golden cross. Are you also considering it like a lagging indicator?

Yeah, I mean it's definitely lagging, right? It's in the math. So the numbers will tell you you're going to see that again as if you go from, you know, 8 to 3800 to 10, you're going to get that anyways. But you know, just looking at it very quickly, it's not only failed the last time until the last three times. In terms of if you're looking at mark to market P and L of getting in on the day that it crossed to what your max drawdown would be, you know, you're looking at at least I think about 25, 30% in the best case of the three that have failed. So I don't really give it much weight. But I would naturally think that on this move down that I'm expecting at the moment that it would probably serve that 8,250 8,300 region as a initial point of just, I guess resting just a little bit of calm. Right. So it provides some sort of barometer, but realistically, no, I don't think it has much credence at all.

Okay, so that's interesting because my next question is actually a broader question regarding the moving average, the utility of moving average as an indicator for traders. So of course, I mean mostly moving average are used to filter out the noise in short term price movements and try to like highlight the broader, the broader trend in the price. But on the other hand, they are also called lagging indicators that can trap some investors, some traders on the wrong side of the market. So what's the utility of moving averages if they are lagging indicators?

Scott?

There's a few answers to that, I guess, and I just alluded to one before, which is that the aspect of the self fulfilling prophecy, if everybody's looking at it, of course it becomes a thing because if everyone's talking about it, everyone's looking at it, then everybody's placing their orders on those moving averages and therefore price bounces or reacts at those levels also. I mean, I don't know how people are programming algorithms in crypto markets in general, but I know that a lot of quants use moving averages, certainly in legacy markets. So again, that's somewhat self fulfilling because they have to program certain levels that they're interested in and MAs happen to be levels that they'll use for that. But in that regard we saw mas that people have been talking about for decades fail as if someone was just throwing a bowling ball into a lake on the cascade down. When the markets crashed recently, not one of them was relevant, not one of them held on almost any equity on the SPY itself, on the spx, none of them. You know what I mean? They were just like water. I think the bottom line, there's a million ways to determine how to trade by looking at a chart. You can use any technique you want. There's someone who will tell you that you're an idiot for mas. There's someone who will tell you that Ichimoku clouds are stupid. And there's someone who will tell you that supply and demand are dumb. It doesn't really matter. We're all just looking for a reason to manage our risk and looking for some justification for a stop loss or an area to take profit. And I think the moving averages are one strategy for doing that.

What do you think about this issue, Vishal?

Yeah, I mean I tend to concur on that point. What I would say is that to go a bit more into what legacy market is, right, you have a lot of CTAs, commodity trading advisors, they have been set up historically to kind of use a lot of moving averages with a lot of some crossovers. You'd have, you'd have a 1030 crossover, a 9, 6 crossover. You have based on this, right, Your standardized tools. So the self fulfilling prophecy, the gravity around that is quite big in established markets, right? What happens though, what I think is that when you get a certain level of volatility, moving averages as lagging indicators become less and less reliable. And we've had that. So when you have high volatility, moving averages don't matter as much unless you kind of recalibrate them to exponential moving averages. EMAs, as Scott alluded to, whereby you're weighting the near term price Action way more than something that was a little bit further down. It's all about historical data and how quickly you're discarding it, refreshing it, recycling it, and making into something mark relevant. Really. So they hold a interesting. Well, they hold an interesting spot in investment cases. Right. Because we have this tendency to think about that past performance will always impact some sort of future performance, despite all the TV infomercials you hear telling you otherwise. Right. So I don't think that they can be ignored, but they have certain conditions under which they are probably more warranted than not.

Scott, do you have anything to add? Do you agree with Vishal's take about this analysis?

Absolutely. Yeah, I do.

Thank you. Okay, great.

I think he's spot on. Sorry, I know you want us to probably argue, but I happen to agree with the guy all the time.

You don't have to force yourself. Don't worry, guys.

Just kidding.

Let's see if the audience what's asking to you. So the audience regarding trading NRGSkill asks, what's your most favorite indicator? I don't know if that's a question that it's easy to answer, but Scott, maybe you can share with us what's your favorite indicator when you're trading? Maybe the one that you rely on the most.

I've vacillated between basically every strategy you can imagine over the past few decades or years or whatever, just more out of boredom. They all work and fail at any varying degree. As I said before, it's all about kind of the way you manage your risk. The one thing that I've always stuck with and never stopped trading is divergences with rsi, particularly when RSI is overbought or oversold. I just find it to be extremely reliable place if it's not ideal for breakout traders like Vishal kind of said. But if you're trying to have a good time catching lows and highs, which is not necessarily the most recommended, they are pretty good at finding at least.

Local bottoms and tops.

So if you're looking for a relief bounce at the very. At the very least, you usually can.

Catch one using that indicator, rsi.

Okay. So Vishal, what about you?

Wow. Okay, so I'm not sure I actually have a favorite. Right. Because I don't rely on indicators a tremendous amount. I tried to look at it as simple as possible. I have historically, right now my setup is very simple. Support and resistance and candle charts. Right. I mean, you could use a lot of different things. I think a candle chart in itself just gives you a lot of information. Right. The way the candle closes, what's happening? Where's the wick? Where's not the wick? Is it a repeat? Is it not a repeat? What sort of volume metric has gone through as a result of it? So when you look at my charts, you'll see simple stuff. You'll see a couple moving averages. You know, that I recalibrate according to the markets. You'll see volumetrics and you'll see supply and resistance and, sorry, supply and resistance lines. And I will support and resistance lines even. And I will draw them according to. Not where I actually have a market bias. I'll develop my market bias first and then I'll kind of look at it and say this is where the market setup is. What I think it's. What I think has changed a bit more though, is that historically you've tended to. There's been common belief that fundamentals drive the market and technicals provide the framework. I think we've kind of flip flopped a bit here where technicals, I think, are driving this market. There's one fundamental thesis in the market that matters right now, and it's reverberating through all the markets. And so long as that takes hold, almost every efficient market will kind of follow through. It's a matter of they'll have their kind of setup. But the question is, what happens in between? And what you're going to get are a lot of technical moves. The technical indicators that I'll look to sometimes won't be on the charts. Right. Especially in Bitcoin where we have. If you're trading a perpetual swap or future or something, we'll look at basis. Is the funding punitive? What does that mean? If funding is punitive for a very long time, does that have implications for how heavy it's getting to or how expensive it's getting to own a certain instrument? And does that mean that people need to sell out or vice versa? Right. We'll look at options. Right. We'll look at, oh, what is the market pricing in the future probability of X, Y and Z in terms of implied volatility based on what the realized volatility is. We'll look at where the market interests are kind of, you know, I guess disproportionately concentrated. Those are the types of indicators that really stick out to me. But it's not necessarily something I could draw on a chart, really.

Mm, okay, cool. So I'm curious because you mentioned that basically now the technicals are driving the market and the fundamentals are providing the framework While before it was the fundamentals that were driving the market and the technicals providing the framework. So when did this sweat, when did this switch happen?

Well, I think that's more of an art than a science, but I would try to. I would say that the moment you start seeing open interest become very large and you're at the behest of these exchanges where you have extremely high leverage, you set yourself up to technicals to be a driver in terms of positioning. Right. And let me clarify that, and I'm pretty sure we'll probably allude to this at some point in the future, maybe in this conversation as well, is that when you have a lot of people in one position and you can see that, and then you realize that an exchange that's offering you 100 to 1 leverage has 50 basis points of room to kind of liquidate your position. And if it can't, then it's going to move the market one way completely because it's trying to force liquidated position. That in itself becomes a massive risk and that becomes a technical driver. Right. So you could start looking at OI or open interest as a function of number of liquidations that are out there, that type of thing. When we started looking at these analyses, say roughly about a year and a half back, there was always this belief there's always a stigma around liquidations. But now the data has become a bit more refined. You can actually look into it a little bit more on a granular level and look at, okay, here are X number of venues where a lot of our interest is kind of, or a lot of the market's interest is kind of placed. And at the same time, here are, you know, how the liquidations are behaving, or, you know, here's something else how that's behaving. And for us, when we kind of look at it that way, I don't think that this probably gained much significance till about Q1, Q2 last year. I know that's a blanketing statement, but in terms of actually having a fundamental, you know, conviction that, you know, this is the story now, this is what's going to happen in the market. The question is where to buy, where to sell, and what's going to drive that. And these are the types of things that kind of lend themselves quite well to our analysis.

Thanks. And we are going to talk about the problem of liquidation a little bit further on in the discussion. But first I would like to discuss with you yesterday's news, which I think that everyone in the audience is already aware of. Which is basically the fact that a tweet bot called Whale Alert started spreading on Twitter the rumor that 50 BTC that used to belong allegedly to Masatoshi Nakamoto were moved from their original address to another address. And the address was dormant during the past 11 years. So that kind of rumor apparently triggered a fall in bitcoin price. Bitcoin fell by about 5%, so a pretty significant drop. And I was personally quite astonished to see that such a rumor could actually provoke such a significant movement in the bitcoin market. So I would like to know, guys, what's your interpretation of yesterday's events? First, I would like Scott to tell us what he thinks about it.

My mom sent me one of my research papers from high school and it came to my door. And then bitcoin price dropped. Who cares? That's my answer. I have no idea why it would matter. It was 50 bitcoin. It's a nominal amount. It's effectively insignificant. It went from wallet to wallet. It wasn't sent to an exchange to sell. It's such a indictment of the community and the way that they approach news and rumor and the age of the people who are clearly trading this, their immaturity as traders. It's such an irrelevant thing. I don't even understand actually how it's relevant. And even if it was, how you would jump to the next level of interpreting it as bullish or bearish. It's just stupid. Somebody sent some bitcoin from an address to another address, then they start jumping to, it's Satoshi. Okay, well, even if it is, who cares? Why does that mean price should dump? He's testing with 50 before he sends thousands of them to send to the market. If you were going to test, you would test with $150. You don't need to send $400,000 worth of Bitcoin as a test transaction. What I think happens always in this market is, first of all, you can see it in the chart. As we both just pointed out, nothing was looking particularly great. That solidified, I guess, a more short term, bearish view. But it's my opinion that when news like this happens, it allows the, whatever you want to call them, a whale operator, whoever, as people incorrectly always name it the market maker. Because that's not what a market maker is. It's a way for them to move price in a more frictionless environment. They see people panicking and like, well, if we needed to sell and we want to make sure we can sell through the order book, now's a Good time to do it and take advantage of news, whether it's stupid or rational or otherwise. But I mean, as Vishal was talking about, I mean, I think longs were high leverage. Longs in particular were extremely offsides at that point already. So it was a very easy time to squeeze some longs and send them down. I think it had nothing to do with that news.

So you mentioned the fact that these whales might have taken advantage of the situation. You mean that they took advantage of the situation in order to sell without causing slippage in the price?

Not really a matter of slippage. I just think that if you see a sentiment of panic in retail, then it's easy to push price in either direction. If you see fomo, you go the other way. But honestly, I don't think it had anything to do with the price drop. I'm trying to find a reason that perhaps it did because somebody could take advantage of it, which happens all the time in this market. But I think it's a complete non event that people have created a narrative around.

Vishal, how was your interpretation of this allegedly Satoshi Skuin event?

Well, the one thing I take away from it is really the message it sends, right? In terms of what Scott partly alludes to sophistication, but also the problems inherent in this system, right? You had a half a million dollar movement of coin roughly shake a quarter trillion dollar market, right? That's ridiculous. That shouldn't happen, right? It really has no reason to. But when we actually look at why that scares people is because the concentration of holdings is ridiculous, right? I mean, almost all the Bitcoin are owned by like 1% of the wallets. And the only way you take the power away, you can't take away the Bitcoin from them necessarily, unless they want to do it. The only way you dilute their power is by financializing more. More leverage, more derivatives. More leverage doesn't mean more. Greater leverage per trade. It means more ways of trading, right? Trading, more futures trading, more perpetual thoughts. In fact, when you look at every established asset class, say bonds, fx, whatever you want to look at it, the derivatives market is about 10 times the size of the spot market. The derivatives market really controls the market, right? In this particular case, what we saw is that even if this guy had the intention of selling or whatever it was, I don't know, let's give the benefit of the doubt that there was something nefarious, right? If that were to happen, that shouldn't move this market. That shows that we are still somewhat of a Gyrating toy and not really an established market class right now. Because when you want the big boys to come in and play, they're gonna look at this and say what, Wait, what just happened here? Right? Like it doesn't make any sense. And if you've got say a couple of hundred billion worth of physical spot market, you need, I would say, a couple trillion dollars worth of open interest in the derivatives market to make sure that this gets diluted over and over again. And that is the line of least resistance, the path of least resistance to enabling that. And so this is why actually I'm a big believer in the derivatives market in Bitcoin, because I buy the macro thesis. But type things like this kind of show us time and again that we have a lot of maturing to do yet.

Yeah, that's an interesting take, Vishal, because actually I might have found a point of disagreement between you two guys because Scott actually lives by high volatility. I saw just a tweet that he posted yesterday probably regarding this crash in bitcoin and he kind of rejoiced the, as far as I understand the moving in the price. So a lot of traders are enjoying this high volatility environment because it gives them more chances to make profit. So Scott, apparently Vishal is saying that there should be less volatility and that the price should not move in such an abrupt way like this. What do you think about that?

I agree with him as an investor. I disagree, I guess as a trader, because volatility is obviously a trader's wet dream. If you can catch a move and be 5% in profit three minutes later, you don't catch that in very many markets. But I certainly have to say that the underlying thesis of what he's saying is absolutely correct. Derivatives have a very specific purpose and in legacy markets that purpose has served very well. They're meant to mitigate risk, basically. I mean, the primary purpose of a derivative, to my understanding, obviously they make the market more efficient, as he said, they increase the volume. They help with price discovery because people are betting on what the future price will be. So it's setting a bar into distant points of the future. But for me, I'll only trade leverage or use derivatives if it's a hedge against my larger position of spot holdings. I'm always net long bitcoin, no matter how aggressively I short. I love the volatility when I'm trading it. But yes, I think if we ever want real, real institutional interest and for this thing to absolutely skyrocket with A humongous market cap and open interest. As you talked about the trillions then those investors do not enjoy 10% moves in a single hourly candle. Yeah, it's really fun.

Okay, now let's move to our audience questions again.

So.

Diomel asks, can, can you see the four month head and shoulder? I think he refers to a specific head and shoulder pattern.

Four month.

Four month, yeah, four months.

No, I have no idea what that means, but definitely not. Personally I don't know what he's talking about, but I.

Okay, Vishal, can you see that?

No, he might be talking about inverse head and shoulders that started at the all time high. But personally I trade by the book and I don't believe in inverse head and shoulders is a continuation pattern. I think it's only a reversal pattern. So I think it would be irrelevant. But also that would, I mean even if you tried to force one there, I don't see it. No, I really don't see it. Honestly. No, not even there.

Good to know. So I want to remind our audience about our competition. So as I said before, you need to guess the price of Bitcoin in one week from now, which is on the 18th of May at 2pm Eastern Time. And write your prediction in the comments below. In one week we're gonna announce the winner. The winner is gonna get 100 bucks worth of credits in our merch store. So write your best guess in the comments. Moving on, I would like to switch gear on another topic, which is actually you already started talking about it, which is bitcoin volatility, high volatility. So in a recent opinion article, Vishal, you identified a main problem that is still preventing traditional market players to enter the bitcoin market, which is Bitcoin's high volatility. And you said that this bitcoin volatility is artificially created by exchanges that are adopting too high of leverage. And also they have bad infrastructure. So they have these very aggressive liquidation engines. And so I would like to ask you why? How did you come to this conclusion?

Basically, yeah, so I mean we see the fingerprints of this everywhere, right? The liquidation data is publicly available and we see what happens. But really if, even if we walk, let's take an example, right? And we could see how this would kind of artificially inflate volatility, right? So assume you go onto one of these exchanges, you deposit $1,000 and you create a 100-1x leverage trade. So you're long $100,000 worth of Bitcoin right now, 1% margin you need, right? So say assume there's no fees for a second. So you put down $1,000. You create $100,000 worth of exposure. Now, if your account value falls to $500, right, which is a very, very small move, it's a 50 basis point move, 0.5%, right? If the position moves against you, 0.5%, what this exchange does. And say assume the price of Bitcoin at the time was 10,000, right? So you really need it to go to 9950 for you to lose, right? For what happens. So 99.50 is your maintenance margin level that 50 basis points. What they do is they take your entire position and they sell it not at 9950, but at 9900. You're like, wait, what? What's going on? And so they'll try to sell where, you know, below the current market rate. This is all the dogs, right? And you're saying, why are they doing it? Why? It's the way it's designed. People don't look at this stuff, right? So when you imagine these numbers are not 1,000 and 100,000, they imagine there are a million and 100 million. There are people playing that, right? All of a sudden you have these guys now trying to look for markets at certain rates not too far below, oh, I need to sell $100 million between say 8,930 and 8,900 a figure you're not going to do it right now. You're just not going to do it. And that snowballs, right? What we saw happen in March was a function of that. When we had that Black Thursday some people refer to is that you had all these liquidations happening and they were snowballing one after the other after the other after the other. And what we realized is that the engines couldn't actually, you couldn't sell out those prices magically and probably gratefully, at least retrospectively, that particular exchange shut down for a while. Everybody couldn't do anything. The market rebounded and stabilized a little. And then the next day, what you saw was that as the market was climbing, you had sell liquidation orders. You know what that was? That was orders they couldn't fill down there. If they had, I wouldn't be surprised if we cascaded below $1,000 because there's just too much to do. And it was. This is the type of stuff. This is what I mean by artificial volatility, right? Because you don't need that to happen, for instance, right? We're going to be. So, you know, we've got this exchange coming out called Alpha 5. We're using 4% initial margin, right? Because you don't need that if you're leveraging 20, if you're leveraging over 25x to 1, you really need to read up on some risk management because you're actually exposing yourself significantly. Right. What we do then is after 4 to 1, we go and say your maintenance margin is now 200 basis points, 2%, 4 times the industry standard. And if you hit our maintenance margin, we're not going to go ahead and try to liquidate you in the market and just say, you're done, you're done at 2% below the market, you're bankrupt. We'll take that money, put it in the insurance fund. What we'll do is we'll say, okay, you know what, we're going to take a part of your position. We're going to try to sell it. If by selling it your position, your value of your account rises above the maintenance margin, great. We'd like for you to have control of your account. Please stay alive. We want you to trade more and not be upset with us. We'll keep liquidating you in only small positions until and when we actually need to do the whole thing, which is unfortunately, we hope we don't, but we give you a chance to kind of stay alive. These are the types of things that I highlighted in the article. These are types of things that I think need to happen to adopt a big boy attitude, to embrace not only institutions to come and trade, but also traders that are quite upset. Right. They'll sit there and say, what do you mean? Like, how did I just lose that money? There's no transparency. And for that reason I think that one, you take down the overall level of margin and then you try to actually do it in batches. And if you do, then I think that nobody can cry foul. So that was really the rationale behind what we were looking at.

That's very interesting. And I would like to know what Scott's opinion from the point of view of a trader. So do you agree with Vishal when he says that these exchanges are over leveraged and they are basically harmful for the whole system?

I think they're absolutely horrid and they're destroying the market. He can't say the name, probably because he's building a competitor, but yes, Bitmex almost took the price of Bitcoin to zero. On March 12, there were 15 million in bids on the books and they conveniently Had a maintenance, unscheduled maintenance as opposed to, holy shit, we're turning this thing off before we destroy the entire market. You know, trading with 100x leverage and unregulated exchange is, I mean, it's effectively like walking into a casino in Vegas and them telling you you're going to play blackjack but they're going to put 20 extra sixes in the deck or they're going to play craps with dice that only have threes and fours. You know, I mean, it's literally a fixed market. It's a casino where the house can only win. And as I touched on earlier, the purpose of derivatives is not for retail traders to speculate with 100x leverage. It's for you to manage risk and to hedge against positions. When you have these perpetual swaps and people trading in places like this, it's just a way for gamblers to lose their money to the house. And like you said, they're so inefficient in the manner they do it. It's great to hear him talking about the way that they're going to do it because if you have lower leverage and you have a higher margin requirement, then obviously these things are not going to happen in the same way. People don't even understand that on some of these exchanges, if you even put your stop loss $1 above liquidation, you can save 30 to 40% of your position by stopping out $1 above your liquidation. Like you said, nobody really reads the terms and conditions. It's kind of comical, you know, everybody just checks the box except and moves on like you do with itunes or anything else. Yeah, I think that it's really 100x leverage should not be offered to anyone and the people that are using it are just inexperienced traders. And that's, you know, that's what's destroying, destroying the market for interest from bigger players.

So that's very interesting because I would like also to ask you, Scott, about your way to deal with leverage. So in your day to day trading routine, how do you use leverage? You said that 100x shouldn't be allowed anyway. It's for an experienced ones. Do you use leverage at all?

Minimally, I didn't use it for years. Obviously we can get into a whole other conversation about being in the United States, but your options are extremely limited because Big Brother likes to protect me from my own bad decisions. But we have very few options. I do trade, but understanding the counterparty risk of being on one of these exchanges, as an American I will use it, but as I touched on earlier, the only reason that I use leverage generally is with a small percentage of my holdings as a trade. But generally it's when I want to short, because 70% of my holdings are long Bitcoin. And that's the way I approach traditional markets as well. I've been shorting aggressively in the stock market for two months, but I haven't cashed out my retirement accounts or changed my investment strategy as an investor, which is primarily what I, and I believe anyone should be. You're still long in markets. Markets trend up over time. You want to be exposed. You want to not outthink yourself. Dollar cost, average, whatever your approach is. There's a reason that people have IRAs and retirement funds. But yes, I will short against that to mitigate some of the losses when I think that the market is going to drop. And that's how I approach it in crypto as well.

Okay, so as far as I understand, you use leverage just when. Just to mitigate losses when the market is going towards. When the market is going down. Using leverage can be a way to mitigate those losses.

Yeah, it's not like I'll never take a leverage long. I will, but like I said, it's with a very, very small percentage of my stack and it's just as a trader and I'm managing risk differently with that percentage of my portfolio and kind of irrelevant to, to my larger positions.

Great. So we have another question from the audience. So Dio Mel asks if you are aware of Paul Tudor Jones position on being bullish on Bitcoin and that this has caused major attention from hedge funds. And the question is, would a drastic correction scare this kind of investors away? Fishel.

Sorry. Yeah, no, of course. So it was very interesting when he disclosed that. So one of the first things we did was kind of look for the fingerprints. Right. Because this is a very small market. And he very much, you know, alluded to CME at the time. Right. So when you look at this, it's all publicly filed information. And when you can look on my Twitter, we post an analysis just, just a one pager saying, hey, this is where you've seen the volume happen. This is how you've seen the OI climb over these periods. This looks out of line, potentially suggesting some sort of accumulation. Because when you're trading on cme, you have certain reporting liabilities. You could go into non reporting category, but nevertheless, you kind of get to see it. Right. So you see, you know, our understanding is, is that, you know, this position was accumulated somewhere between, you know, six and $9,000. Right. In terms of dollar cost average, we could be wrong, but that's kind of our assessment based on the information that's publicly available. I don't think this would scare anybody outside of Paul Tudor Jones. There are a number, very large number, I would say, well, not very large, a good number of very rich macro hedge fund managers that are already invested in this market. Right. With their personal capital. LP capital is what we call when you actually use the funds, money to do it is slightly different, but depending on how you're structured, you can kind of do this. From the number of funds that I've spoken to, the bigger ones that want to get involved that don't. One of the big issues is liquidity. They simply say very simple to what Paul Tudor Jones said, which is that he's put in a small allocation. But these guys, it's like, well, this isn't going to move the needle for us. If we wanted to do 100 to $200 million worth and people figured out that we're involved, this is going to move the market. So it's not big enough for us to push our interest in there. Which is quite ironic if you think about it. So I don't think, you know, from just anecdotal evidence and also from what I'm hearing from other people that this is actually, you know, even if we fell say back down to 6,000, that really discourages anybody because the outlook with which a lot of these guys are getting involved is I can't put enough money in it anyways. So let me put something into and let's see what happens. This is not going to affect their standard of living, if that makes sense. And in that regard I think that it continues to be a funnel. In fact, the longer we don't go materially higher, the more I guess it looks like an opportunity to some of these opportunistic macro traders. So in that regard, don't think it's an opportunity loss. And I think that you'll still now continue to see, you know, greater and greater interest, especially on pullbacks and how.

Much of that investors confidence derived from the fact that now we are in a situation of crisis. So some people are saying that now investors are looking into more risky assets and they don't see volatility as such an abnormal thing anymore because of the situation of crisis we are in. So is that related to what you just said when you said that these kind of movements wouldn't scare the investors off? How much of that depends on the current turmoil in the world economy?

Well, to an extent. To an extent, definitely. Right. Because a lot of the value stocks are trading like red stocks. Volatility has gone up, broadly speaking, across most assets. So that does play a factor into it. But however, we still have to remember that bitcoin is a peripheral asset for them. We can all love to think about, hey, we can derive the most convincing thesis here on a macro basis and say it makes absolute perfect sense, allude to all the anecdotes that we want that bitcoin must go up. Whereas when you actually go and speak to somebody that's completely unexposed, uninitiated, they'll be like, I agree with everything you say about macro. What the hell is Bitcoin? Why am I not buying gold? Why am I not buying something else? And those are barriers that you're not necessarily going to get through. That's why bitcoin remains on the periphery. So even though, you know, value stocks have turned into growth stocks, right, in terms of volume and exposure, whatever risk parameters, it doesn't make Bitcoin that much closer necessarily in terms of how much better it is to invest in. So the marginal difference is still kind of there. What I think has changed simply is the fact that people are waking up to the idea or, you know, there's a group think going on that's working very hard to establish this escape velocity. Right. Because we can argue both sides here as to whether it's a toy or not. But if enough people think it's not a toy and it's an asset, then it's an asset. Right? So the real thing to measure is how many people are actually buying into that thesis because that will set the long term trajectory. Obviously we're biased in what we think of with that, but yeah, I don't think the current macro environment necessarily as a function of increasing volatility in other assets has made bitcoin seem more tame.

Scott, do you have anything to comment on that issue?

Yeah, I mean, I think he touched on the fact that even though he's exposed, it's primarily, I don't think that Jones is buying the underlying asset. I think that he's exposed to futures. Is that correct assumption? So it's not like he's hoarding Bitcoin. And I think that large players still probably are a bit scared of the custodians or security or how they're going to, how even if they could buy enough and there was enough volume, what do you do with it? So I think they're still sort of betting on the derivative and not on Bitcoin itself. I don't think that the volatility scares them off, actually. I think it'd be absurd to think that when we just saw price go from over 10,000 to 3,800 to 10,500 in two months, it's not like they're not aware that that just happened. So if they're coming in now, volatility is certainly baked into their decision already. Would going down to 3,000 again bother them when we were there two months ago? It shouldn't.

Yeah, it's pretty clear. So moving on to the last question. It's also related to the institutional involvement into the crypto space. So actually it's also related to the bitcoin option markets which as you said, it's driving more institutional interest. It's a sign of increasing institutional interest in the bitcoin market. So the bitcoin option market data shows that there is only a 9% probability that we will see Bitcoin reaching its all time highs by the end of 2020. So this is quite a small probability also compared to what most of the industry leaders we usually interview are predicting. So according to you, how, how much impact does the bitcoin option market data have on future price prediction like this? Like how reliable are these data in order to predict this kind of price movements?

Scott?

Probably about as reliable as trying to predict the weather in Miami at 4pm on a Tuesday in a month. Not reliable at all. I know it's math, but there's so many things that can happen now between now and the end of the year to affect the price. Honestly, I think it's just sort of a meme to even discuss the all time high and when we'll hit, if we'll hit it. It's just, it's not that important to me. I mean personally I'm more of like a level to level guy, you know. I'm happy if we conquer the next line of resistance and flip it to support and then I will reevaluate and see from there. I think there's a chance we hit an all time high.

I was kind of expecting this answer.

Sorry.

No, I mean it's nice, it's nice. So Vishal, what's your take about it?

Yeah, I mean listen, options data can be looked at in various ways, right? It depends on how you slice and dice probability. And I could take that same data and I could tell you that right now the market is pricing in over a 25% chance that we're above 10,000. Right. Which, which is like, okay, well what does that mean? Right. It's really left to our optics and as to how we kind of measure what those risks are. What I would say is that all time highs, we're talking about it doubling, right. A 10% chance of doubling in six months is basically what we're looking at, right? Six, six and change or seven months maybe. Right. It's a high volatility asset. It really is. If you actually, you know, if you take that probability and you convert it, right. Let's just take a very layman's observation here. We convert that probability into a volatility number, right? That implied volatility, what the market is pricing that enables that probability is something like 85%. Right. That is ridiculously high. If you look at any stocks, bonds, whatever, commodities, assets, etc. Over the longer. Yeah, you're a fraction of that. Half of that is considered very high, let alone, you know, you know, stocks usually, you know, the vix, which is that measure itself historically. Well, not historically, last few years around 15, 20. Right now we're in what, 30 or something like that. But that's giving you an idea, right, of the amount of option premium that's out there at the moment. The market is not necessarily cheap in those probabilities. It looks low, but from market perspective, from what other markets are doing, it's very high. Now we have a certain view on whether it's cheap or not. I can't really disclose that. But the point is that I wouldn't look at probabilities because what happens, you say 9% chance of being at an all time high. Okay, well how much money do you make there? You don't know because you don't know what the expiration on that is. You don't know what the strike is going to be for settlement because you don't know that yet. The probability of getting there is X. Right? That's the premium you pay. But you can't do a risk reward analysis on it because you can't. So you have to look at a slightly different structure to kind of determine is it worth me buying that option or is it worth me selling that option? But yes, very much so. Options are going to become a bigger part of this market. They have to, they literally have to. It's limited risk in a way. And it also naturally suits balance sheet miners, a lot of different guys. They have a cost of capital, lending desks, et cetera. We're seeing all these things happen right now, right the cat's side of the bag. And this all started maybe say about a year ago or so forth. This is developing and it'll continue to develop. And so options really have one way to go here. The only thing is, is that cme, I think, is going to become more consequential here because you're going to have a lot of these prop shops based in Chicago that are going to use that onboard through what we call fcms or clears to trade on the exchange. They have a lot of protections. Right. Whereas on the offshore exchanges, like certain options and so forth, it can get quite certain products. It can get a bit crazy at times. But nevertheless, the more sophisticated traders come in, the more real I think the options pricing will get. And we're well on our way there already. Yeah.

Awesome. Okay, guys, so I think we got to the end of the discussion, so thanks a lot, Scott Melker and Vishal Shan for being with us today. It was great.

Thank you. Appreciate it.

I hope to see you again on our show soon. And many thanks to our audience to be with us and for the questions. So if you like the show, don't forget to subscribe and to like the video. And my name is Giovanni. You're a host and see you next time.