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Table of Contents
Copying Past Market Trends
Why Does ETH Exist
The ETH 2.0 merge
Merge Schedule
Merge Basics
Dead Market Narratives
Living Market Narratives
Conclusion and Part 2
1. Copying Past Market Trends
One of the primary ways that we learn is by looking to the past and making inferences about the future. Before I say anything else, this is a perfectly reasonable way to learn and move through life. If you do this long enough and over a broad enough time frame while looking at markets, you will eventually learn how they work.
But the trading life of a human is typically not long enough to truly internalize one lesson until they’ve gone through two or more market cycles.
This post exists to save you some time in avoiding common mistakes and to outline what to look forward to and expect in the coming ETH merge. In this section I’m going to outline what that mistake is, and in the next sections I’m going to outline exactly how people are going to fall for it in the next crypto market cycle and likely make the wrong trades/purchases in relation to the ETH 2.0 merge.
But first lets talk about the primary mistake people make when they are trying to trade. Most of you here have probably at least seen the tail end of the last cycle in 2021, and the bear cycle of 2022. A few of you here have probably been in the crypto space for longer and may have even experienced the entire last cycle, or the last 2 cycles or even more.
The thing that’s important to know about experience, is that you will most likely misinterpret your first experience, or try to make it fit on to your very next experience. You will think you have learned from your past mistake, but you will actually be making another mistake by trying to apply it to your very next experience. In life, people ruin relationships by trying to be the perfect partner for their ex with their next partner. In markets, people always try to trade the last market cycle instead of trading the one that is in front of them. Because of this, it usually takes traders a few market cycles before they have actively internalized enough information to really start to be able to project how the next market cycle will look. Unfortunately most people simply don’t trade long enough for this to occur for them; market cycles can be 4-5 years long. If it takes 2-3 market cycles before you really start to learn anything, you can see how people wash out of this before really figuring out which lessons to internalize and how.
The most important thing that my experience has taught me is to not assume that a pattern I’ve seen before will play out again, even if many things are coming together in a similar manner as last time. New traders often have a form of hindsight bias that further exacerbates this. Hindsight bias is when we look back at previous market events we lived through and forget how it felt in the moment and all of the possibilities we were considering and instead look at the one prediction we had that was correct and presume that we knew what was going to happen and so know what is going to happen next.
You probably know what I’m going to say next. You didn’t know what was going to happen last market cycle, and as traders we need to humble ourselves and realize that we don’t know what will happen this cycle, no matter how familiar things are. You can’t see the next cycle until you humble yourself enough to admit that no matter how similar things might get, you don’t know how things will come to pass. If our hindsight is biased, then our foresight will suffer. If you were in the crypto space in the summer of 2020 (post march lows when everything was basically on sale) take a second to really remember just how much uncertainty was in the air and how much no one really knew what was going to happen in the macro-scale. Bitcoin was ~$7k, Ethereum was ~$230, Solana was launching and had just been listed on a few exchanges ~$1.30. Even with the infinite money printer turned on and flooding the markets, we had no idea just how much it was going to impact prices, especially combined with the lockdowns and DeFi summer. You can clear up misconceptions of the past by empathizing with your past self enough to truly remember the uncertainty and probabilities of your past. Most people do not practice enough empathy with their own past self and because of that have a skewed memory of their past.
Hindsight bias is the first mistake. Once you have come to really remember things as they actually were and not the version you tell yourself, there is another mistake that is commonly made. And that is to attempt trade the exact chain of occurrences that already happened as if it will repeat again.
For instance, as ETH got congested during DeFi summer with transaction requests, the cost of a transaction ballooned from ~$1 to ~$40, with some spikes driving transaction prices as high as $500 in early 2021. The narrative for 2021 became “ETH killers,” as a number of DeFi compatible chains saw large price runs as people moved to these chains because they that wanted to participate but didn’t want to pay $40 per transaction while also scheduling transactions for off hours and having to leave orphaned DeFi rewards on chain because they weren’t worth the gas. At the same time, many VC projects like Solana were able to go on a tear, it was listed on exchanges ~$1.30, and by the peak of the cycle in 2021, rose as high as ~$230 (I’m guessing, can’t be assed to look at a Solana chart).
There are a lot of people who saw that and internalized the wrong lesson. The lesson they internalized is that VC-backed ETH competitors can 100x during a bull cycle and those people are probably watching for the launch of Aptos and hoping to buy in to hold during the next cycle. But, the people are far more woke to VC activities now and in general are trading against the known contract variables that Venture Funding have engaged in. In a post ETH 2.0 merge landscape where a significant chunk of traders are anti-trading VC unlock schedules, you won’t see a VC smart contract chain (especially not one focused on speed at the expense of security and decentralization) pull another 200x next cycle. Of course Aptos thinks they are learning the lesson from Solana’s failure because now they are focusing on Security, instead of speed. But that wasn’t the main failure of Solana. The main failure of Solana is that most of the userbase was fake.
Click the link above, and you can see that this same developer is now moving to Aptos. The VC’s are going to try the exact same thing, and they will have much less success than they did with Solana. VC funds make the exact same mistakes that regular traders make, they also succumb to hindsight bias, and you’ll get to watch it happen in real time during this next cycle. In their heads they can perfect Solana by building a new chain that fixes the fundamental architectural problems underlying Solana. That’s dumb. They grab hold of one leg of the blockchain trilemma and pull without a real appreciation for the balance of the entire triangle of the trilemma, nor do they realize that jumping from project to project to project kills any credibility they may have among long term investors. VC’s get a rep for being Vulture Capital because some (not all) of them are vultures.
Account for your own hindsight bias, and do not try to trade the last market, instead try to trade the next market. What will the next market be, and what won’t it be? We’ll discuss that below.
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