Crypto-narrative: the glue that strengthens collective interest and builds momentum of a single or many digital assets.
In the dynamic landscape of cryptocurrencies, certain patterns emerge, offering valuable insights into future trends with potential paths to riches . A consistent observation I gained since 2016 is that coins or projects that withstand a bear market often experience significant surges in the subsequent market cycle. This surge is not arbitrary but is primarily fueled by the coin's alignment with the prevailing narrative of the bull run to happen.
Solana, Avalanche are great examples of the 2021 bull-run, Arbitrum and Optimism are models of strong projects withstanding the lethargic crypto winter. In fact, only a select few coins manage to set new records unless they are integral to a dominant narrative: a theme pushed by big players, passive and active investors as well as new crypto adherents, it is the sales-pitch rehearsed and shared in unison through most crypto debates and conversations - before and after the bull run. My understanding is that a crypto narrative is a defining spirit, the inclination of participants - ideas and beliefs - during the accumulation and bull phase in the digital assets markets. Narratives in crypto provide context, shape investors’ sentiment, and influence investment decisions. Being aware of and understanding these narratives is essential for making informed investment choices in the ever-evolving cryptocurrency market.
A crypto narrative refers to a compelling and overarching storyline or theme that surrounds a particular cryptocurrency or group of cryptocurrencies. It represents the collective perception, beliefs, and expectations of the cryptocurrency community and the broader market about the role and potential of a particular digital asset or technology. These narratives often shape the way people view and invest in cryptocurrencies.
Here's why crypto narratives matter to investors in 8 points:
1/ Influence on Investor Sentiment: Crypto narratives have a significant impact on investor sentiment. When a cryptocurrency aligns with a compelling narrative, it tends to attract more interest and positive sentiment from investors. For example, if a coin is associated with the narrative of "digital gold" and a store of value, it may attract investors looking for a hedge against inflation, similar to physical gold.
2/ Investment Thesis: Narratives help investors build their investment thesis. They provide a framework for understanding how a particular cryptocurrency is positioned in the market and what problem it aims to solve. For instance, a cryptocurrency associated with the DeFi (Decentralized Finance) narrative is seen as a potential disruptor of traditional financial systems.
3/ Market Adoption: Crypto narratives often drive market adoption. When a narrative gains traction, it can lead to increased usage, adoption, and investment in related projects and technologies. This adoption can, in turn, drive up the value of associated cryptocurrencies.
4/ Long-Term Viability: Understanding the narrative behind a cryptocurrency can help investors assess its long-term viability. If a cryptocurrency is aligned with a narrative that addresses real-world problems or has a unique value proposition, it may have a better chance of surviving and thriving in the long run.
5/ Risk Assessment: Narratives also help investors assess risks. By understanding the narrative and its associated challenges, investors can make more informed decisions about the potential risks and rewards of a particular investment.
6/ Diversification: Investors often consider different narratives when diversifying their cryptocurrency portfolios. They may allocate funds to cryptocurrencies associated with different narratives to spread risk and capture opportunities in various sectors of the crypto market.
7/ Timing: Crypto narratives can influence the timing of investments. Investors may choose to enter the market or exit positions based on how they perceive the current narrative evolving. For example, during a bull market, narratives of rapid growth and adoption can drive FOMO (Fear of Missing Out) and lead to increased investment activity.
8/ Community and Ecosystem: Narratives are often closely tied to the communities and ecosystems surrounding cryptocurrencies. Strong communities can contribute to the success of a cryptocurrency, so understanding the narrative can provide insights into the level of community support.
When I reflect about the 2017 bull market, it was predominantly currency coins and Bitcoin derivatives that led the massive gains. Fast forward to the 2021 bull market, and the playfield was dominated by emerging layer 1 blockchain projects parallel to the rise of NFTs (Non-Fungible Tokens) and the explosive growth of DeFi (Decentralized Finance) protocols. Revenue-generating and sharing protocols like Luna also took the spotlight. These projects have proved that adaptability is intrinsic to the success of the majority of crypto projects. They continuously pivot, adjusting their objectives to resonate with the current zeitgeist.
Taking in consideration the Bitcoin halvening in a few months - March 2024 - it's clear that it will be influenced by the legacies of its predecessors while introducing new narratives. Based on the present trends, here are some narratives poised to gain more traction:
1/ Synthetic Assets: crypto indexed to real-world assets, imagine stocks and commodities represented through screens by blockchain tech. Digital replicas mirroring real assets prices without being tied to the real deal legally nor physically. The projects that will open this pandora box will be a big deal given that traders can get in on the action of things like forex, gold, oil, ETFs, and more.
This has high potential because it would would include 24/7 trading, cutting out middlemen for cost savings, easy swapping thanks to tokenization along with top notch crazy security and transparency through to blockchain.
1/ the Web3 Narrative: I know, I know we've been hearing this for a while now but the winners will be projects that finally bring easy decentralized innovation for an internet economy not controlled by the big corporations, but by users like you in a peer-to-peer fashion. This or these projects will have native tokens - in house crypto - worth buying and holding. Easy decentralized innovation = stupid-friendly interfaces/websites, no heavy crypto jargon, seamless user experience for a truly decentralized internet existence..
2/ AI & Crypto's Marriage:
AI with Crypto is the most obvious narrative that could amp up the next bull run. There's some serious excitement brewing around AI-driven projects, and this could be the fuel to launch the next crypto surge. Picture relying on AI optimizing finance and making crypto even more efficient and appealing to everyone. As of today, one project built on this narrative is yPredict ($YPRED) which is merging AI and Web3 to catch investors' eyes with its robust analytical tools and ML predictive trading for crypto.
3/ Meme Coins: because the average investors does not have enough money to fly to Vegas or Macau for gambling endeavors so it easier to dream of by putting hard money on the trendy Meme-coin...
4/ Decentralized Perpetual Exchanges: The appetite for derivatives is expanding, with decentralized perpetual exchanges are increasingly eating market shares from the centralized ones..
5/ Zero-Interest Loans: for the unbanked or the crypto users living in poor economy the option of borrowing without interest, backed by crypto, could revolutionize personal finance.
6/ Layer 2 Solutions (L2): while Ethereum's network is getting centralized and Solana fails to rebrand as trustworthy project: scalability becomes crucial, L2 solutions will be pivotal for sustaining the blockchain ecosystem.
7/ SocialFi: The fusion of social media and finance, where platforms offer payments/remittances with crypto and reward user engagement with crypto incentives(tokens, nft,etc...).
8/ GameFi: this narrative will always be present as long as gaming and digital coexist in the digital world, the convergence of gaming and decentralized finance has the potential to attract an ever-increasing number of users.
New crypto-investors like most current adopters share the inept habit of watching tiktok or Youtube to guide their investments. "Follow the money", one must perform a diligent research to understand the market state and detect the narratives gaining traction:
- by digging through long twitter threads by project founders and tech-leaders, articles, white papers
- asking questions on twitter or in AMA with the founders
- following thought leaders on twitter, my recommendations: Chris Burniske, Dylan Leclair, Willy woo, DefiIgnas, Andreas Antonopoulos, Jack, Vitalik Buterin, Raoul Pal
- keeping track of a few projects' progress and deliverables.
- to push your understanding further read the Messari reports, Delphi digital
The cryptocurrency ecosystem is ever-fluid, and while these are the strong narratives today, it's crucial to maintain a clear map of the markets while keeping an open eye for the next wave of innovation.
Spotting or not seeing a strong narrative is what makes the difference between thin gains and Lamborghini type of profits. Diligence, Vigilance and Adaptability are essential in this rapidly evolving space.