In the cryptocurrency market, narratives often play a key role in driving price increases, whether it’s the recent frenzy around meme coins or the previous hype around AI token projects. This article, sourced from Regan Bozman and translated by 白話區塊鏈, discusses the importance of narratives in the market.
1. Reverse Investment
In the venture capital (VC) industry, it is widely accepted that profits can be obtained by holding views that go against the mainstream but turn out to be correct. However, in the cryptocurrency market, the focus is more on project attention rather than cash flow. The best investment strategy is to predict the hot topics in the next one to three quarters, rather than stagnating projects, which is the traditional definition of “reverse investment.” The key is whether you can predict the direction of market sentiment in advance.
2. Differences between the Cryptocurrency Market and Traditional Market
In the VC industry, it is generally believed that being correct in terms of logic is usually not enough. If many other investors hold the same view, the market will price it accordingly. This view somewhat applies the efficient market hypothesis to the private market. Taking B2B companies as an example, which is the largest category in VC and the easiest to value, they typically have no significant assets but are experiencing rapid growth. Therefore, it can be assumed that their valuation is based on future cash flows. However, this is not always true. In a booming market or industry, investors are willing to pay a higher price for a specific cash flow. “Reverse investors” are those who oppose or reject the prevailing opinions. Therefore, in the context of venture capital, being a reverse investor basically means finding the biggest difference between the expected future cash flow of a startup and the actual future cash flow.
3. Summary
In the cryptocurrency market, attention is more important than cash flow. The market values being part of the current narrative, with the cryptocurrency community discussing it, retail investors wanting to own the token, the community creating interesting memes, and other projects seeking partnerships. The best investment strategy is to try to predict the development trend of narratives and enter earlier than others. However, investing in stagnant ecosystems, such as Polkadot, Tezos, and ICP, is likely to be a losing strategy. The cryptocurrency market values attention and highly appreciates new things. Therefore, invest in areas that you believe will gain consensus within 1-3 quarters.