BitMEX Founder Arthur Hayes believes that “narrative” is more important than “technology” in the cryptocurrency community, and he admits that his attention has been diverted by altcoins. This article is derived from Arthur Hayes’ article “Chief Story Officer” compiled, translated, and written by Foresight News.
Table of Contents:
Avalanches:
Elevator:
Cryptocurrencies:
What is my job?
Results
Altcoin narrative time
Conclusion
We are all speculators. Every moment of our existence in this universe is filled with uncertainty. As we navigate through the unpredictable nature of our existence, our brains continuously construct a probability map of our environment. Our actions are not based on facts, but rather on the perceived probability 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 located on slopes with gradients between 35° and 40°. This is also the perfect gradient for avalanches. Before venturing 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.
A more common example is choosing between taking an elevator or climbing 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 climbing stairs, knowing that it is a less risky mode of travel but takes longer and is more tiring.
You gamble with your life every second of every day. This is not a bad thing; it is simply the nature of human existence, unable to predict the future perfectly. How terrifying would it 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 it narrative. For social creatures like humans, narratives are primarily created through the “wisdom” of the crowd. 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, it is challenging as an individual to understand the exact proportion 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 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, with his experience and training in determining which slopes are prone to avalanches, believes this particular route is safe. Safe doesn’t mean avalanches won’t happen; safe means the probability of an avalanche occurring is low enough to be acceptable. So, because of my trust in his training system, which has evolved from the experiences of thousands of mountain guides, I will follow him down this slope.
I know that taking an elevator is riskier than climbing stairs. But everyone else is taking the elevator. If everyone else is taking 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. So, trusting the expertise of engineers I have never met and the wisdom of the crowd, I feel safe when taking the elevator.
The way we assign probabilities is not based on facts or technology, but on our perception of facts and the quality of technology. These perceptions are based on what others say are facts or good technology, which we believe they understand better 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 regarded. You believe the project’s engineers 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 experience working at successful tech companies. Because the narrative is strong (narrative + technology), you invest. But dig deeper into your thought process: which is more important, narrative or technology?
Narrative. Narrative is more important than technology. Your perceived probability of success is based on others’ views of the problem and others’ views of the team’s technical abilities. In rare cases, you have the ability to evaluate the technology at a basic level. That’s why you believe those whom you consider more knowledgeable than yourself can indicate whether the technology is likely to solve the problem.
While your technical skills are usually insufficient to accurately evaluate a project, you can easily understand the quality of a narrative. A good narrative is one that more and more people tell each other. It would be even better if this narrative is positive. 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 trading volume shifting from CEX to DEX is still spreading. I don’t care if people believe this narrative; I really don’t. I just want them to say it in its 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 spread of a narrative, the more the associated token appreciates.
The financial professionals at Maelstrom are all graduates of 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, distributed network experts, or computer scientists with deep knowledge in these areas. We rely on others.When we engage in transactions, we may outsource the technical due diligence to others who possess these skills. These individuals may be leading venture capital firms or qualified angel investors in pre-sale token 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 in the past, and success means applications that have been used by many cryptocurrency projects.
Our job is to determine which project is most likely to succeed vertically. 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 “never” happening to “possibly” happening.
I prefer to invest in tokens with a perceived success probability of 0.01%, in the viral growth stage of the narrative, rather than tokens with a perceived success probability of 50% but have reached the stage of common sense in the narrative. If the probability of success increases from 0.01% to 1% because the narrative quickly infects many people, my money will increase by 100 times. However, the only way to double my money using tokens with a perceived success probability of 50% is if the results are so amazing in any form related to the project that the growth comes from observed results, rather than continuously increasing the perception of future success.
The macro narrative tells the observed trend and how the project will leverage it. It is more of a narrative than a trend because we are taking a small action and extending its impact into an uncertain future. Macro narrative: “Retail derivatives 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 thoughts.
The micro narrative explains 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 of 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 the antidote to this organized theft of human dignity. But since I run a trading book, I also tell micro narratives about cryptocurrency trends and how the prices of the coins and tokens I choose 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 folks, it’s a bull market. I have laid the foundation for a significant force driving the adoption and popularization of cryptocurrencies, and it’s time to boast about my investment portfolio.
The results I’m talking about are the growth in trading volume, total locked value, unique wallet count, etc. Are they important? Yes, they are important, but their importance to token prices varies depending on which part of the hype life cycle you are investing in.
When investing in a narrative/trend that you believe will go from “never” to “possibly” happening, the attractiveness of the project is low. The market doesn’t have high expectations because it sees the token as part of a trend that is unlikely to grow in the future. Therefore, even mediocre results are considered groundbreaking because expectations are too low.
When investing in a narrative/trend that you believe will go from “maybe” to “definitely” happening, the attractiveness of the project is very important. 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 true revolutionary qualities to meet expectations.
The purpose of this article and thought exercise is to give readers an understanding of 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 will soon be publicly available, so I am trying to widely disseminate the narrative. 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 an outline of the macro and micro narratives I plan to discuss in the coming months.
Retail derivatives trading volume will shift from centralized exchanges to decentralized exchanges.
Related projects: dYdX, GMX, and potentially 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 market cap “junk coins” worth billions of dollars.
Related project: Krav.
DEX on-chain liquidity 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 establish fiat-backed stablecoins without relying on TradFi.
Related project: Ethena.
How to solve asset cross-chain bridging without building bridges.
Related project: Axelar.
Currently, people are focused on the incredible amount of Bitcoin being accumulated by US-listed spot ETFs. This, along with the global fiat currency devaluation frenzy, will drive Bitcoin to unimaginable heights when calculated in fiat currency. The upcoming listing of Ethereum ETFs in the US 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 perform better than Bitcoin and then Ethereum? This is the minimum threshold for Maelstrom. We achieve this goal by understanding certain projects as much as possible and telling exciting narratives about them.
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