BitMEX exchange founder Arthur Hayes believes that “narrative” is more important than “technology” in the cryptocurrency industry, and he also states that his attention has been drawn to 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
Altcoin narrative time
Conclusion
We are all speculators. Every moment we exist 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 the 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 off-piste powder runs are on slopes with a gradient of 35° to 40°. This also happens to be the perfect gradient for avalanches. Before heading out, my guide assesses the likelihood of an avalanche based on observed snowfall and weather conditions. My guide also relies on recent observations from other guides who have been skiing in the same area. If the risk is too high, we don’t ski.
Another common example is choosing between taking an elevator or walking up 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 belief in the likelihood of injury or death, you assess the expected value (probability * outcome) of time and energy saved by taking the elevator up 30 floors compared to walking up the stairs, which is a less risky but more time-consuming and tiring mode of travel.
Every second of your day, you’re gambling with your own life. This isn’t a bad thing; it’s just the nature of being human and unable to perfectly predict the future. How terrifying existence would be if we knew exactly how things would unfold. I prefer our imperfections.
The narrative you tell yourself about certain behaviors informs your perception of their risks. I call it 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 by objective facts. In most cases, 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 gossip combines with objective facts to create a narrative. While facts may be clear, it is challenging as an individual to understand the exact ratio of deaths inside 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 situations where we can’t be sure of accurate data, we rely on others.
Here’s the thing.
I know this type of avalanche is more common. But my guide has abundant experience and training in determining which slopes are prone to avalanches, and he believes this particular route is safe. Safe doesn’t mean no avalanches occur; safe means the probability of an avalanche 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 would follow him down that slope.
I know riding an elevator is more dangerous than taking the stairs. But everyone else is taking the elevator. If everyone else is riding the elevator, then it must be safe. Everyone can’t be wrong at the same time. Additionally, there are building codes established using the expertise of trained engineers, and the elevator is certified for safety. Therefore, trusting the professional knowledge of engineers I’ve never met and the wisdom of the masses, I feel safe riding the elevator.
The way we assign probabilities is not based on facts or technology, but rather on our perception of the facts and the quality of the technology. These perceptions are based on what others say are the facts or good technology, and we believe they know more than us due to their training and experience.
To relate this to cryptocurrencies, 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 are highly valued. You believe the engineers of this project are smart and talented enough to solve this problem. You believe this because engineers who have successfully launched crypto projects are advising them. You have confidence in the team because they graduated from prestigious tech universities and have work experience in successful tech companies. Because the narrative is strong (narrative + technology), you invest. But when you delve into your thought process, which is more important: narrative or technology?
Narrative. Narrative is more important than technology. Your perception of the probability of success is based on others’ views of the problem and their perception of the team’s technical abilities. In very few instances, you have the ability to assess the technology at a fundamental level. That’s why you believe those who you think are more knowledgeable than you can 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 is being told by an increasing number of people. Of course, it would be great if the narrative is told in a positive way. For example, “In this cycle, all retail traders will move from CEX to DEX.” But even if the narrative is negative, such as “Retail traders will never leave CEX for DEX,” the narrative of trading volume shifting from CEX to DEX is still spreading. I don’t care if people believe the narrative; I don’t care. I just want them to say it, whether it’s in a positive or negative variant. Because going long makes more money than going short, optimism will prevail over pessimism in the cycle. That’s how the human brain is wired.
Although 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 greater the spreading power of the narrative, the more the associated token appreciates.
The financial professionals at Maelstrom are all graduates of the Wharton School at 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 or distributed network experts, nor do we have deep computer science backgrounds.Science Knowledge. When we engage in transactions, we outsource the technical due diligence to others who possess these skills. The others may be leading venture capital firms or qualified angel investors in pre-sales token rounds. Some may be respected technical advisors to the project. Without these validators, we may be satisfied with the technology because the founders have launched successful projects, and success means applications used by many cryptographic projects in the past.
Our job is to ensure which project is most likely to succeed vertically. Success depends on the widespread dissemination of macro narratives and micro narratives. You can make the most money by attaching tokens to narratives that are considered “never” to “possible” to happen.
I prefer to invest in tokens with a perceived success probability of 0.01% and narratives in the viral growth phase, rather than tokens with a perceived success probability of 50% but narratives in the realm of common sense. 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, in any form related to the project, are so amazing that the growth comes from observed results rather than continuously rising expectations of future success.
Macro narratives tell the observed trends and how the project will leverage them. It is more of a narrative than a trend because we are taking a small step and inferring its impact into an uncertain future. Macro narrative: “Retail derivative trading volume is shifting from CEX to DEX.” BitPerp is building a permanent (perp) exchange DEX. BitPerp’s token will rise because its macro narrative is currently unknown but has the potential to infect many people’s minds.
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 tell narratives about central bank governors and politicians who destroy the value of time and human 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. But since I run a trading book, I also tell micro narratives about crypto trends and how as more people believe and hear about the narratives, the prices of the coins and tokens I choose will rise.
I don’t often analyze specific tokens other than Bitcoin and Ethereum in depth, but, folks, it’s a bull market. I have laid the foundation for a significant force in driving the adoption and popularization of cryptocurrencies, and it’s time to boast about my portfolio.
As a result, I am referring to the growth of metrics such as trading volume, total locked value, unique wallet count, etc. Are these important? Yes, they are, but their importance to token prices varies depending on which part of the speculative life cycle you are investing in.
When investing in a narrative/trend that you think will go from “never” to “possible” to happen, the importance of project attractiveness is low. The market does not have high expectations because it believes the token belongs 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 think will go from “maybe” to “definitely” happen, project attractiveness is crucial. The market has high expectations because it believes in a bright future. Results that were considered 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 thought exercise is to familiarize readers with the concept framework guiding Maelstrom. In the next few months, most of the articles I write will focus on specific tokens we hold and their macro narratives and micro narratives. These tokens have either been launched or are about to be publicly issued, so I am trying to spread the narrative widely. I don’t care if you buy or sell any of the mentioned tokens. I care that I present such a provocative narrative and support you to discuss it with others in a positive or negative way.
When I read the following on social media, I know I have succeeded:
Or:
Here is a rough outline of the macro narratives and micro narratives I plan to tell in the coming months:
Retail derivative trading volume will shift from centralized exchanges to decentralized exchanges.
Related projects: dYdX, GMX, and another potential competitor that may emerge.
The launch of ETH staking will trigger a surge in the overall DeFi interest rate swap trading volume.
Related project: Pendle.
There is a way to drive DEX dual-currency derivative trading volume using low market cap garbage coins worth billions.
Related project: Krav.
On-chain liquidity for DEX will be provided by middleware that disconnects 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 will face pressure, and how we can create fiat-pegged stablecoins without relying on TradFi.
Related project: Ethena.
How to solve asset cross-chain bridging without building bridges.
Related project: Axelar.
Currently, attention is focused on the amount of Bitcoin that US-listed spot ETFs are accumulating. This, along with the global fiat currency depreciation frenzy, will drive Bitcoin to unimaginable heights when calculated in fiat currency. The upcoming listing of Ethereum ETFs in the US will also boost the price of Ethereum. I have Bitcoin and Ethereum. I might buy a little more, but overall, my attention is turning to altcoins.
Which tokens can I buy that outperform Bitcoin and then Ethereum in terms of utility? That is the minimum threshold rate for Maelstrom. We achieve this goal by understanding certain projects as much as possible and telling exciting narratives about them.