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In This Issue:
Investor Memory
Bitcoin Thoughts And Analysis
Legacy Markets
Forced Sellers Vs. Willing Sellers
BAYC Continues To Plummet
Vitalik Endorses Controversial Privacy Protocol
Is April Finally A Red Month?
Investor Memory
In yesterday's newsletter, I briefly discussed the short-term memory investors tend to have. See below:
“What's unique about these smaller-scale conflicts is that, like all things, investors have an extremely short memory or lasting concern for them. This means markets will naturally quickly recover upwards because the next shiny thing or threat of war is more distracting. Is anyone actually concerned today about how the Russia and Ukraine conflict might impact the S&P 500? Does anyone not in that region even know if there is a war still going on or where exactly it is taking place? For better or worse, investors move on quickly.”
Today, I have more to say on this topic.
I want you to ask yourself right now, what are the things you do remember as an investor? Assuming you aren’t a savant with a perfect memory, there are only going to be certain things we tend to remember, which also means there will naturally be things we tend to forget. Let’s work on a list.
Things Investors Tend To Remember
- **Major Crashes:** Such as the Dot-com bubble (2000), the Global Financial Crisis (2008), and COVID-19 (2020).
- **Big Wins or Losses:** Instances where significant action led to notable results.
- **Major Mistakes:** Not all losses are considered mistakes, but significant ones tend to stick.
- **Success Stories:** Times when taking major risks or unconventional ideas paid off.
- **Strategies that Worked:** Remembering periods when a specific strategy consistently succeeded.
Things Investors Tend To Forget
- **Minor Crashes:** Recoveries that occur relatively quickly, within days, weeks, or months.
- **Small Gains and Losses:** Trades with minor fluctuations, like those around +/-3%.
- **Minor Mistakes:** They are beneficial to forget if they result in learning experiences.
- **Predictions That Didn’t Come True:** These are frequently rationalized or forgotten.
Generally, investors tend to remember significant events, actions, and outcomes, while minor movements and predictions are often forgotten or downplayed. If an investor buys a large position during a dip, they're likely to remember this decision. However, if they take no action and the market corrects in a couple of months, this decision typically becomes a grey speck of distant memory.
Next, I want to highlight how mistakes impact memory. Mistakes aren’t solely about selling at the wrong time but also about focusing on the wrong asset or class at the wrong time. For instance, if one spent the past couple of weeks or months investing heavily in altcoins without taking profits and is now facing losses, it likely qualifies as a significant mistake.
However, if one missed an opportunity like the Solana trade, it shouldn't necessarily be seen as a mistake. If the decision was based on a solid understanding of another opportunity and sticking to that plan, it's not a mistake but rather a strategic choice. The real mistake lies in never taking any action at all; that's where the difference lies.
Lastly, some mistakes are unforeseeable, like attending Token2049 in Dubai in the middle of a monsoon that shuts down the entire city down. That is me, right now. These are situations you can't anticipate, can't account for, and certainly won’t forget.
I’ll try to stay positive.
Moving back to memory now, I want to discuss the mistakes that are worth remembering and those that aren’t. Mistakes can be a great learning tool, but if they aren’t categorized well, they can just as easily work against you.
Mistakes that are Worth Remembering
- **Overconfidence:** The time you thought you knew more than you do.
- **Ignoring Fees:** High fees can eat into your returns over time.
- **Market Timing:** Trying to predict market movements can lead to missed opportunities.
- **Chasing Performance:** Buying an asset just because it has performed well recently can backfire.
- **Lack of Research:** Not thoroughly researching an investment can lead to surprises.
Mistakes that are Worth Forgetting
- **Small Losses:** Dwelling on small losses can lead to emotional decision-making.
- **Missed Opportunities:** Instead of regretting missed opportunities, focus on learning from them.
- **Past Successes:** While it's good to learn from past successes, resting on your laurels can be dangerous.
- **Uncontrollable Events:** Some events, like natural disasters or regulatory changes, are beyond your control. It's best not to dwell on these.
While these lists are not exhaustive, they highlight the importance of using our memory as a tool to make informed decisions. By remembering key lessons and experiences, we can improve our decision-making process. Similarly, utilizing our forgetfulness to appropriately categorize and let go of less relevant information can also be beneficial.
I can't predict the future, but I have a strong hunch that this pullback will recover in a reasonable amount of time (no more than a few months), as previous ones have, and the bull market will swiftly resume. Additionally, history shows that the longer the bull market lasts, the higher prices tend to go. Take this dip as an opportunity to reassess, if needed, and practice a little bit of patience; everything will likely turn out fine.
Bitcoin Thoughts And Analysis
The bullish divergences that I was looking for are confirmed, which is usually an indication that we are bottoming, if not bottomed. Remember, these can build with more lower lows on price and higher lows on RSI, but this is my favorite signal.
Legacy Markets
Global equity markets experienced a mixed performance as investors focused on corporate earnings following comments from Federal Reserve Chair Jerome Powell that suggested a delay in rate cuts, driving the dollar and Treasury yields to five-month highs. European stocks had varied results, influenced by disappointing earnings from ASML and positive updates from Adidas and LVMH. US equity futures dipped slightly, while Asian markets nearly wiped out their yearly gains.
Powell indicated it might take longer to be confident that inflation is moving towards the Fed's target, leading to a decline in market expectations for US rate cuts. This sentiment was reinforced by other Fed officials who suggested that high interest rates might persist if inflation pressures continue.
Amid these economic updates, geopolitical tensions in the Middle East also persisted, with Israel considering how to respond to an attack from Iranian soil, and Saudi Arabia and the UAE advocating for restraint to avoid further escalation.
In the commodities market, Asian LNG prices reached a peak since January, while oil prices saw a slight decrease. Gold prices remained near record highs, reflecting ongoing market uncertainties and a shifting economic outlook.
Forced Sellers Vs. Willing Sellers
The halving is just a couple of days away and my good friend Matt Hougan released an insightful weekly memo about this historical event that is free to read and top-notch quality.
Spoilers incoming.
The premise of the blog is to question whether the upcoming halving can truly be a bullish event given the assumed efficiency of the markets. Matt argues that even though the halving is widely anticipated well in advance, its impact—specifically, the reduction of forced sellers by half—will significantly influence our current market conditions.
“If there is more demand for bitcoin in the future than the market currently expects, buyers will have to chase bitcoin in a different market than the one they encountered pre-halving—a market with half as many forced sellers as before. That could lead to significant run-ups in price, as unanticipated future demand tries to shake bitcoin loose from a higher ratio of willing sellers.
That’s why I find the halving bullish. I think the market has underestimated the long-term demand for bitcoin, for a number of reasons. For instance, I don’t think the market fully appreciates the size of the opportunity in the ETF market once wirehouses and the rest of the roughly $60 trillion U.S. wealth management industry are able to allocate to bitcoin ETFs, which could start to happen as early as Q3. I also don’t believe the market has fully factored in the extent to which rising concerns about inflation will drive significant allocations.
If I’m right, I’m excited to see what happens in a market where this excess demand increasingly has to chase down bitcoin from people who don’t want to—and don’t have to—sell.”
BAYC Continue To Plummet
If you're looking at your portfolio and feeling disappointed by the recent downturn—Bitcoin is down about 15% from its recent all-time high, and Ethereum is down around 18%—remember that things could be much worse. The floor price of the once highly sought-after Bored Ape Yacht Club (BAYC) continues to plummet, now standing at around 11 ETH, a steep fall from its peak of over 120 ETH in May 2022. For traders, it might be wise to adjust positions amid such volatility. However, for long-term investors, the key during pullbacks is to thoroughly re-evaluate your convictions and maintain your position if they still hold.
Both Ethereum and Solana have experienced similar levels of corrections, with BAYC down about 92%, suggesting it’s too early to write off this project, provided it can regain momentum with strategic decisions. While I'm not an expert in this field, it's evident that NFTs generally mirror the performance of the blockchain they operate on. When the narrative is compelling and prices are rising, NFTs tend to perform well, and the reverse is true when the market dips. Their capital rotation typically occurs later in the cycle, making NFT investment a complex and timing-sensitive endeavor.
Vitalik Endorses Controversial Privacy Protocol
On April 15, it was revealed that Ethereum founder Vitalik Buterin transferred 100 ETH to the privacy protocol Railgun, which is known to be used by the North Korean hacker group Lazarus Group. This development sparked controversy and concern, but some important context is necessary. Firstly, this wasn't Vitalik's initial interaction with the protocol; he has consistently engaged with it over the past 6 months, albeit with smaller amounts ranging from 0.1 ETH to 30 ETH. Secondly, Vitalik views Railgun as a reputable middle ground between regulatory requirements and individuals seeking privacy. Vitalik has evidently thought deeply about this move, as he recently co-authored a 10-page paper titled "Blockchain Privacy and Regulatory Compliance: Towards a Practical Equilibrium," where he discusses the pros and cons of this protocol and demonstrates how it could be used to establish a separating equilibrium between honest and dishonest users. For those interested or concerned, the abstract of the paper, provided below, is highly recommended reading.
Is April Finally A Red Month?
If Bitcoin doesn’t recover within the next couple of weeks, April will mark the first red month in a while, breaking a seven-month streak of gains. Currently, April shows a decline of -11.54%, a deficit Bitcoin could potentially rebound from swiftly, given its volatility. However, the future remains uncertain. The monthly averages provide some context: historically, April sees an average gain of +13.25%, and May +7.66%. These statistics, though intriguing, might be somewhat misleading due to their historical depth—averages are expected to decrease over time. Nevertheless, they offer a worthwhile glimpse. Notably, this seven-month green streak is the longest since 2013, making it quite significant.
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.