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MEMO W10 MAR 2024

Being yourself might be the worst strategy in an ever changing system. - xh3b4sd

This time is different, because of the ETF follows. And here is the context within which those flows occur. First, a gigantic cohort of the always online generations X, Y and Z have become more financially literate than any other demographics before. We know about everything that is going on, basically immediately. And today, we manage our wealth accordingly in real time, causing the wildest price-time compressions on vertical charts. Second, we are coming out of a zero interest rate environment. We are still working through the overhang of endless money printing. There are 6 trillion USD earning 5% interest rate in American money market funds today. That is twice as much as 10 years ago. The pockets are full, and they want to earn. Parts of those 6 trillion USD will go out on the risk curve eventually, as soon as rate cuts hit throughout this cycle. Third, we just made technological breakthroughs in machine learning applications. That is the AI hype for you right there. People have reason to believe in a bright future and its tremendous upside. The animal spirits are certainly back in venture. Those animal spirits are spilling over into the crypto industry. And over the long term, machine learning is most likely to create a structural need for blockchain networks in monumental proportions. Sam Altman has a plan, and I wouldn't bet against it. Fourth, we are going to repair and replace the global financial plumbing using blockchain technology. Tokenization and Real World Assets are the hype now, but champions like Chainlink have been working on the frontier of it all for years already. And we shouldn't forget that Blackrock is here now. Larry Fink has a plan too, and I wouldn't bet against it. Fifth, we have to realize that we are just coming out of a bear market and that the people really want to get going now. Sixth, we had a great earnings season with over 75% of S&P 500 companies surprising expectations to the upside. Admittedly, the prior bear market might as well has kept expectations lower, which made it easier to beat them, but that is market psychology for you right there. Absolute terms do not matter here, but rather the realized rate of change on a relative basis. Seventh, this is an election year, which means that there is quite the political motivation to make the economy appear strong and healthy. Whether we deal with causation or correlation doesn't matter, because it's working. Eighth, we are in expectation of the upcoming Bitcoin halving. Admittedly, the more halvings we get, the less of an impact do they have on a structural level. Understanding that, it is even more so important to understand that effective structural changes do not matter that much in the grand scheme of things. Because the dream is alive and well. And then ninth, the American spot Bitcoin ETFs, causing constant 9 figure inflows of external capital every day of the workweek. Put all of those factors together and it becomes hard to argue against this simple idea. We are witnessing a sea change unfolding in front of our eyes. And chances are that all the crypto native traders that fail to understand this sea change, will end up selling low and buying back in high. I think many will get it wrong this time around, because the people apply an old rule book to the wrong cycle. BTC is hovering around its all time high of roughly 69,000 USD. And funny enough, BTC did already break all time highs in various fiat currencies that are less hard than the US Dollar. As we reach and breach those psychological levels, the crypto natives become cautious and start asking questions. It might very well be that many of the seasoned crypto traders sell and rotate early, because they are trained to anticipate breakdowns that would otherwise take their hard earned paper gains away. From here on out, this is what I see happening. The people trying to capitalize on anticipated weakness, in the world of today, are not likely to get the prolonged weakness that they are trained to anticipate. And the reason for that are the constant inflows of external capital into the new American spot Bitcoin ETFs. Just early this week we experienced a market wide shakeout in a crypto typical magnitude of some 15%. BTC and ETH wicked to the downside and at least ETH quickly rose beyond its prior level within a matter of hours. The steady buy pressure that we do already see is slowly but surely trickling down the risk curve. And in my mind, what we experienced early this week is only the beginning of a sea change that is very likely to accelerate in the coming quarters. Every week we will now hear from financial institutions and capital allocators that they are enabling their clients to participate in the spot Bitcoin ETFs as well. Last year the recommended crypto exposure globally was exactly zero. From this year on forward the recommended crypto exposure is at a minimum between 1 and 3 percent. American financial advisors have almost 50 trillion USD in assets under management. Their clients will be allowed to tap into that crypto exposure over time. Potential future inflows amount to the extend of roughly 1 trillion USD. That is about one third of all the degenerate crypto market cap as of today. Anyone selling too much too soon will likely end up in the uncomfortable position that there will not be any good entry anymore to come back in. Those mistakes will in my opinion inevitably create forced buyers. So I say, higher for longer! I am not saying there will be no drawdowns anymore. It's gonna be a big wick! Shakeouts like seen this week will happen in crypto typical fashion, but they may be structurally different and they may not materialize over longer time horizons. Shakeouts will happen, and in the context of all of the above, they are likely to make a fool out of those who do not see the signs. If you, dear reader, are allocated in the hardest fucking assets out there, then do yourself a favour and ignore all the noise. Zoom out, and try to get the big things right. Buy-and-hold has outperformed almost all contenders in the history of finance. And when we are posed with a decision of utmost importance, then we should try to resort to the few things that we know to be always true. Here are some things that will always be true. The world will always become more digital. People will always want to make progress. People will always want to remain free. And people will always want to own the hardest fucking assets out there. Higher!

The meme coin casino captures the smartest and the dumbest money. Anyone gambling here makes a random walk down the slot machines. There is nothing here but liquidity, and that liquidity is simply chasing the most compelling stories. Everyone involved should understand the kind of game they are playing. Nobody here is reading white papers. Everyone is simply looking for a greater fool to sell to. And I am not going to lie, there are many fools out there. I could not find reliable numbers for the amount of people engaging in any form of speculation. Speculation here includes any financialized short term game like lotteries, betting and trading. My very rough estimation would be that about 50% of any given population engages in any form of speculative activity over the course of any given year. Meme coins are the modern lottery. And admittedly, they helped to keep this industry alive throughout the cycles, because they sold hope to the desperate. In turn, the desperate became giants, on which shoulders we stand ad infinitum. The meme coin sector as a whole gained over 170% within 7 days. And due to its fragile nature those numbers might as well be twice as high or literally zero by the time you are reading this. The top 5 meme coins by market cap are currently DOGE, SHIB, PEPE, BONK and WIF. SHIB is the second largest meme coin here and was running the hardest, with over 300% gains within 7 days. WIF is the only thing that created an immediate emotional reaction inside of me when I saw it first, days after it got deployed. Before I were to gamble here, I would like to see a more material market reset of some odd 50% in the meme coins, which may never come. Either way I am totally fine watching the zoo from the sidelines. Don't sweat it, the next meme will come.

On a healthy note, the ETH / BTC ratio on the monthly chart is slowly grinding up. As expected, ETH becomes more valuable again compared to BTC over time. Our position here remains steadfast. The ETH burn streak is at 13 days and counting as per the Ultrasound Money website. That means Ethereum blockspace is in very high demand, making ETH deflationary. The fee burn from L2s alone has hit 15% over the past 30 days, meaning the Ethereum ecosystem keeps scaling via its satelite rollups. And the somewhat controversial rollup Blast made it into the top 3 of rollups by total value locked, which is about 7.5% of L2 market share.

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