BitMEX exchange founder Arthur Hayes believes that in the cryptocurrency industry, “narrative” is more important than “technology”, and he also mentioned that his attention has been diverted by altcoins. This article is sourced from Arthur Hayes’ article “Chief Story Officer”, compiled, translated, and written by Foresight News.
Table of Contents:
Avalanches:
Elevator:
Cryptocurrency:
What is my job?
Results
Time for altcoin narratives
Conclusion
We are all speculators. Every moment of our existence in this universe is filled with uncertainty. As we navigate the unpredictable nature of existence, our brains constantly construct a probability map of our environment. Our actions are not based on facts, but on perceived probabilities of various outcomes.
A simple example that applies to my existence is the risk of triggering an avalanche while skiing. The most enjoyable backcountry powder runs are on slopes with a gradient of 35° to 40°. This is also the perfect gradient for avalanches. Before heading out, my guide assesses the probability of an avalanche based on observed snowfall and weather conditions. My guide also relies on recent observations from other guides skiing in the same area. If the risk is too high, we don’t ski.
A more common example is choosing between taking the elevator or the stairs. The former is faster than the latter. However, elevators are mechanical devices that can sometimes malfunction, leading to serious injury or death. Considering your beliefs about the likelihood of injury or death, you evaluate the expected value (probability * outcome) of time and energy saved by taking the elevator up 30 floors compared to taking the stairs, which is a less risky but longer and more tiring journey.
Every second of your day, you are gambling with your own life. This is not a bad thing; it is simply the nature of human beings being unable to predict the future perfectly. How terrifying it would be if we knew exactly how the future would unfold. I prefer our imperfections.
The narrative you tell yourself about certain behaviors informs your perception of their risks. I call this narrative. For social creatures like humans, narratives are primarily created through the “wisdom” of the crowd. Whether good or bad, the most influential narratives are the ones that everyone believes.
Narratives are also created from objective facts. In most cases, the facts indicate discrete events where certain behaviors carry risks. Indeed, avalanches are more common on 40° slopes. It is a fact that people get injured or die while riding elevators.
Common chatter combines with objective facts to create narratives. While the facts may be clear, as a person, it is challenging to understand the exact ratio of deaths in elevators to the total number of elevator rides. It is also challenging to understand the number of skiers who die in avalanches on 40° slopes compared to the total number of runs on similar slopes. In the absence of accurate actuarial data, we rely on others.
Here’s the thing.
I know this type of avalanche is more common. But my guide has extensive experience and training in determining which slopes are prone to avalanches, and he believes this particular route is safe. Safe does not mean that avalanches will not occur; safe means that the probability of an avalanche occurring is low enough to be acceptable. So, due to my trust in his training system, which has evolved from the experiences of thousands of mountaineering guides, I follow him down this slope.
I know riding an elevator is more dangerous than taking the stairs. But everyone else is taking the elevator. If everyone is taking the elevator, then it must be safe. Everyone cannot be wrong at the same time. Additionally, there are building codes established by trained engineers and safety certifications for elevators. So, trusting in the expertise of engineers I have never met and the wisdom of the masses, I feel safe while riding the elevator.
The way we assign probabilities is not determined by facts or technology, but by our perception of the facts and the quality of the technology. These perceptions are based on what others say are the facts or the quality of the technology, which we believe they understand better than us due to their training and experience.
To relate this to cryptocurrency, consider the following. Suppose a new project claims to solve a problem using new technology. The problem they claim to solve is well-known, and tokens from other projects attempting to solve the same problem have received high attention. You believe the engineers of this project are smart and talented enough to solve this problem. You believe this because engineers from successful cryptocurrency projects that have already launched are advising them. You have confidence in the team because they graduated from prestigious tech universities and have work experience at successful tech companies. Because the narrative is strong (narrative + technology), you invest. But when you dig deeper into your thought process, which is more important: the narrative or the technology?
The narrative. The narrative is more important than the technology. Your perceived probability of success is based on others’ views of the problem and the team’s technical abilities. In very few cases, you have the ability to assess the technology on a fundamental level. That’s why you trust those you think are more knowledgeable than you to indicate whether the technology is likely to solve the problem.
While your technical skills are usually insufficient to correctly evaluate a project, you can easily understand the quality of the narrative. A good narrative is one that more and more people are telling each other. Of course, it would be even better if this narrative is told in a positive way. For example, “In this cycle, all retail traders will shift from CEX to DEX.” But even if the narrative is negative, such as “Retail traders will never leave CEX for DEX,” the narrative of the volume shifting from CEX to DEX is still spreading. I don’t care if people believe this narrative; I don’t care. I just want them to say it in its positive or negative variant. Because going long makes more money than going short, so optimism will prevail over pessimism in the cycle. That’s how the human brain is wired.
While my formal title is Chief Investment Officer of Maelstrom, I should change it to Chief Story Officer. I tell stories. The better and more concise the narrative, the faster it spreads. The more powerful the spread of the narrative, the more the associated token appreciates.
The financial professionals at Maelstrom all graduated from the Wharton School of the University of Pennsylvania with degrees in finance. I didn’t plan it that way; it just happened. While we understand the potential applications of cryptography and blockchain technology, we are not cryptographers, experts in distributed networks, or deeply knowledgeable about computer science.When we engage in transactions, we may outsource the technical due diligence to others who possess these skills. These others may be leading venture capital firms or qualified angel investors in token presale rounds. Some may be respected technical advisors to the project. Without these types of validators, we may be satisfied with the technology because the founders have launched successful projects, and success here refers to applications used by many past cryptocurrency projects.
Our job is to determine which project is most likely to succeed in the vertical direction. Success depends on the widespread dissemination of macro and micro narratives. You can earn the most money by attaching tokens to narratives that are considered to have never happened to possibly happening.
I would rather invest in tokens with a perceived success probability of 0.01% and narratives in the viral growth stage than tokens with a perceived success probability of 50% but narratives in the common sense stage. If the probability of success increases from 0.01% to 1% because the narrative quickly infects many people, my money will increase 100 times. However, the only way to double my money using tokens with a perceived success probability of 50% is if the actual results related to the project are so amazing in any form that the growth comes from observed results rather than continually increasing the perception of future success.
Macro narratives tell the story of observed trends and how the project will leverage them. This is more of a narrative than a trend, as we are taking a small step and extrapolating its impact into an uncertain future. Macro narrative: “Retail derivative trading volume is shifting from CEX to DEX.” BitPerp is building a perpetual (perp) exchange DEX. BitPerp’s token will rise because its macro narrative is currently unknown but has the potential to infect many people’s thoughts.
Micro narratives explain why this particular project will be the best among all competitors in a specific macro narrative. Micro narrative: “BitPerp received advice from Arthur Hayes, who helped invent perpetual contracts.” When others hear that Arthur is involved, they believe the project will receive some great advice to help them surpass all other competing projects.
This blog is usually about macro narratives. Most of the time, I talk about narratives involving central bank governors and politicians who destroy the value of time and labor by printing fiat currency. The narrative I tell is about how Bitcoin and the crypto ecosystem become an antidote to this organized theft of human dignity. However, since I run a trading book, I also tell micro narratives about cryptocurrency trends and how the prices of the coins and tokens I chose will rise as more and more people believe in and hear about the narratives.
I don’t often delve into specific tokens other than Bitcoin and Ethereum, but it’s a bull market, folks. I have laid the foundation for a significant force driving the adoption and popularization of cryptocurrencies, and it’s time to tout my portfolio.
As a result, I am referring to the growth of metrics such as trading volume, total locked value, and unique wallet count. Are they important? Yes, they are important, but their importance to token prices varies depending on which part of the speculative life cycle you invest in.
When investing in a narrative/trend that you believe will go from “never” to “possibly” happening, the importance of project attractiveness is low. The market doesn’t have high expectations because it sees the token as belonging to a trend that is unlikely to grow in the future. Therefore, even mediocre results are considered groundbreaking because expectations are so low.
When investing in a narrative/trend that you believe will go from “maybe” to “definitely” happening, project attractiveness is crucial. The market has high expectations because it believes in a bright future. Results that were exciting in the previous stage are now considered mediocre. Astonishing results are not enough; more effort is needed. At this stage, a project must have a truly revolutionary aspect to meet expectations.
The purpose of this article and the thought exercise is to help readers understand the concept framework guiding Maelstrom. In the coming months, most of the articles I write will focus on specific tokens we hold and their macro and micro narratives. These tokens have already been launched or are about to be publicly issued, so I am trying to widely disseminate these narratives. I don’t care if you buy or sell any of the mentioned tokens. What I care about is presenting such a provocative narrative and supporting your arguments to discuss it with others in a positive or negative way.
When I read the following content on social media, I know I have succeeded:
Or:
Here is a rough outline of the macro and micro narratives I plan to discuss in the coming months.
Retail derivative trading volume will shift from centralized exchanges to decentralized exchanges.
Related projects: dYdX, GMX, and possibly another competitor.
The launch of ETH staking will trigger a surge in DeFi interest rate swap trading volume.
Related project: Pendle.
There is a way to drive DEX dual-currency derivative trading volume using low-cap garbage coins worth billions of dollars.
Related project: Krav.
On-chain liquidity for DEX will be provided by middleware, which will disconnect current market makers.
Related project: Elixir.
As DEX becomes the primary venue for price discovery, on-chain oracles providing settlement and clearing prices will become increasingly important.
Related project: Flare.
Why Tether and any stablecoin using TradFi banks to custody fiat currencies will face pressure, and how we can create fiat-pegged stablecoins without relying on TradFi.
Related project: Ethena.
How to solve cross-chain bridging of assets without building bridges.
Related project: Axelar.
Currently, attention is focused on the amount of Bitcoin being accumulated by spot ETFs listed in the United States. This, along with the global fiat currency devaluation frenzy, will drive Bitcoin to unimaginable heights when measured in fiat currency. The upcoming listing of Ethereum ETFs in the United States will also boost Ethereum prices. I have Bitcoin and Ethereum. I may buy a little more, but overall, my attention is shifting to altcoins.
Which tokens can I buy that outperform Bitcoin and Ethereum? That is the minimum threshold for Maelstrom. We achieve this goal by understanding certain projects as much as possible and telling exciting narratives.
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