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MEMO W09 MAR 2024

Losing time is the single most expensive mistake you can ever make, because once lost it will never come back again. - xh3b4sd

Last week I shared the idea that we are roughly halfway through the bull market already. One follow up question resulting from that assumption could now be how to manage the approaching end of the current bull market. There are some major mistakes that people tend to make when managing their own money. One particularly costly and painful mistake is to get married to an idea. That means you may have a particular price target in mind for ETH. For instance, you say to yourself that you are not going to sell ETH until it hits a price of 10,000 USD. A similar form of that very same mistake is to have a specific portfolio value in mind, that you tell yourself you have to achieve during this cycle. For instance, you say to yourself that you are not selling your ETH until your portfolio value reaches 1,000,000 USD. The mistakes made here can be summarized like this. You merely express the desire for the world to become what you want it to be in the future. As far as financial markets are concerned, you cannot simply wish some asset price or portfolio value into existence. You cannot just say how much money you want to have and then expect to get exactly that. The world does not work that way. What we can therefore establish here is that the price of ETH and the value of your portfolio do not matter if you want to figure out at what point in time you should exit the markets. Maybe think about it this way. Every bit of information out there is one data point. You come across many data points every day. Some of them are important, others are rather irrelevant. Another way to frame this is the so called "signal to noise ratio". Most of the information out there is noise. But some of the information out there makes for a pretty good signal. What all of this comes down to is that you have to take the world for what it is, and not what you want it to be. Financial markets do not care about what you want the world to be. So you need to trade the market that is there right in front of you. And you need to adapt your ideas and your understanding of the current environment based on the signals that you get over time. With every new day, there is new information to process, and your mental models need to stay up to date based on what is happening in the world. The natural implication for what we just learned here is that you will either end up selling too early or too late. Nobody can time the market perfectly, and you should not feel bad about your disability to be any different in that regard. It is what it is. Somebody asked me recently for life advice. And I said this. Try to get the big things right. So if anything, try to optimize for good times and try to minimize painful regrets, so that on the way down you do not give back everything that you made on the way up.

We have to take note of geopolitical events now. The military conflict between Russia and Ukraine is about to be escalated further by western foreign policy. A short summary of how we got here. Shortly after the second world war concluded, the Soviet Union was perceived as a thread by western countries. To that end, NATO was established in 1949 to guarantee the mutual assistance and defense of western countries against the Soviet Union. Around the year 1990, the soviet union fell apart, which is now about a quarter century ago. The leftovers of the Soviet Union that we deal with today is what we now refer to as Russia. Over time, more and more western countries joined NATO and more defense capabilities were deployed ever closer to the eastern Russian border. The development of NATO was eventually perceived by Russia as acts of aggression. In response, Russia annexed Crimea in 2014. In due time, western foreign policy suggested that Ukraine may join NATO. With that, western foreign policy crossed a red line for no apparent reason. Subsequently Russia put its foot down by invading Ukraine in 2022. Here is where we get to the point at which blockchain technology becomes important. The global financial system is controlled primarily by the western world. After Russia's invasion of Ukraine in 2022 the financial system and thus the US Dollar got weaponized in severely impactful ways. Russian assets have been frozen and seized to the estimated extend of more than 300 billion USD. The headline is now to use these seized assets for Ukraine aid in their military conflict against Russia. If the objective of western foreign policy were to be peace and prosperity for all, then any evaluation of efficacy would have to deem our diplomatic efforts to be either incompetent, or malevolent. Neither of those outcomes is good. The free world is not all that free anymore. Money is weaponized in financial warfare. Conflicts are purposefully escalated without any voter consent. Bridges are burned beyond repair. And all we can take away from this life is that there is no rule or law, but what you can or cannot do. These are powerlaw dynamics dear reader. The promise of crypto has always been to be freed from the whims of corrupted backroom committees. Should the seized Russian assets be used to purchase weapons that kill Russian soldiers, then we are crossing into a new alternative reality without the option to come back. This is a one-door decision. When you go through, you cannot come back. And down that road there is more potential for harm than we have seen in a long while. Western administrations have completely lost the plot. And once again, citizens around the world find themselves caught up in systems, surrounded by the enemy within. Crypto was created to defend property rights of the individual against corruption from the outside and from within. With every single day we are losing time. Nobody will come to rescue us. And it looks like, once again, we have to innovate ourselves out of this situation using technology. Bitcoin and Ethereum represent freedom technology. Let us all be free.

Off to the numbers. L2Beat is a fantastic website to learn about the growing number of L2 rollups. There we can see a beautiful chart of Ethereum based transaction throughput over time. Just this week I saw Ethereum L1 the very first time on position number 4. That means there have now been 3 rollups to consistently process far more transactions than the Ethereum L1 itself. And that means, we are scaling Ethereum. Not only do we scale Ethereum in its available supply of transactions per second, but also in its natural demand of economic activity. On top of that, all of the Ethereum ecosystem combined was just seen to scale to the extend of almost 10 times of what the Ethereum L1 alone could process. The economic security amassed by the Ethereum ecosystem did now also cross 100 billion USD, of which the L2 ecosystem accounts for roughly 30 billion USD at this point. Onwards buttercup!

At last, I would like to invite anyone of my readers to reach out, if there are any questions or ideas for collaboration. I want to write about your startup, strategic execution and elegant mental models. My brand archetypes are sage, outlaw, magician and creator. If you would like me on your cap table as an angel investor, then feel free to send your pitch my way. If you would like my feedback or engage in an interesting conversation, then I am happy to chat or have a nice dinner over some sweet red wine. If you are a writer yourself, then I would love to talk about the art of writing and maybe get your feedback on my writings here. If you think we should work on something cool together, then please reach out and let's be friends.

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