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:
Elevators:
Cryptocurrencies:
What is my job?
Results
Narrative time for altcoins
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 surroundings. 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 powder snow slopes in the backcountry are on gradients of 35° to 40°. This is also the perfect gradient for avalanches. Before heading out, my guide assesses the likelihood of avalanches 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 taking an elevator versus taking the stairs. The former is faster than the latter. However, elevators are mechanical devices that can sometimes malfunction, resulting in serious injury or death. Considering your belief in 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 more time-consuming and tiring mode of travel.
Every second of every day, you are gambling with your own life. This is not a bad thing; it is simply the nature of being human and unable to predict the future perfectly. How terrifying existence 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 beings like humans, narratives are primarily created through the “wisdom” of the collective. 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. In fact, avalanches are more common on 40° slopes. It is a fact that people are injured or killed while riding elevators.
Common gossip combines with objective facts to create narratives. Though the facts may be clear, understanding the exact ratio of deaths inside elevators to the total number of elevator rides is challenging for an individual. Understanding the number of skiers killed in avalanches on 40° slopes compared to the total number of runs on similar slopes is also challenging. In the absence of accurate 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 won’t happen; safe means 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 taking the elevator is riskier than taking the 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 by trained engineers and the elevator is safety-certified. So, trusting the expertise of engineers I’ve never met and the collective wisdom, I feel safe 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 other people say about the facts or the quality of the technology, which we believe they know more about due to their training and experience.
To relate this to cryptocurrencies, consider the following. Suppose a new project claims to use new technology to solve a problem. The problem they claim to solve is well-known, and tokens of other projects attempting to solve the same problem have garnered high attention. 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 technology universities and have work experience in successful tech companies. Because the narrative is strong (narrative + technology), you invest. But upon digging deeper into your thought process, what matters more: narrative or technology?
Narrative. Narrative is more important than technology. Your perceived probability of success is based on others’ views of the problem and their views of the team’s technical capabilities. In very few cases, you have the ability to evaluate the technology at a basic level. That’s why you trust those whom you believe are more knowledgeable than you to indicate whether the technology is likely to solve the problem.
Although your technical skills are usually insufficient to accurately 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 great 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 trading volume shifting from CEX to DEX is still being spread. I don’t care if people believe this narrative; it doesn’t matter. I just want them to say it in its positive or negative variants. Because being long makes more money than being short, optimism will triumph over pessimism in a cycle. That’s how the human brain is wired.
Though 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 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, distributed network experts, or computer scientists with deep knowledge of consensus algorithms. We are storytellers, and we rely on the narratives created by others to make investment decisions.
End.When we engage in transactions, we may outsource the technical due diligence to others who possess these skills. These others could be leading venture capital firms or qualified angel investors participating in token presale rounds. Some may be respected technical advisors for the project. Without validators of these types, we may be satisfied with the technology because the founders have launched successful projects in the past, and success is defined as the application used by many previous crypto projects.
Our job is to determine which project is most likely to succeed in the vertical. Success depends on the widespread adoption of macro narratives and micro narratives. You can earn the most money by attaching tokens to narratives that are perceived as going from “never” 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 that have reached 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 by 100 times. However, the only way to double my money with tokens with a perceived success probability of 50% is if the actual results related to the project in any form are so amazing that the growth comes from observed results rather than constantly increasing expectations of future success.
Macro narratives tell of observed trends and how the project will leverage them. It is more of a narrative than a trend, as we take a small action and extrapolate 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 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 labor by printing fiat currency. The narrative I tell is about how Bitcoin and the crypto ecosystem are 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 and hear 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 the important force driving the use and popularization of cryptocurrencies, and it’s time to hype my investment portfolio.
By results, I mean the growth of metrics such as 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 speculative life cycle you are investing in.
When investing in a narrative/trend that you believe will go from “never” to “possible,” the importance of a project’s appeal is low. The market does not 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,” the appeal of the project 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 seen as 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 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 either been launched or are about to be publicly released, so I am trying to spread the narrative widely. I don’t care whether you buy or sell any of the mentioned tokens. What I care about is presenting such a provocative narrative and supporting you to discuss its arguments 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 tell in the coming months.
Retail derivatives trading volume will shift from centralized exchanges to decentralized exchanges.
Related projects: dYdX, GMX, and another potential 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 with low market cap junk coins worth billions of dollars.
Related project: Krav.
DEX on-chain liquidity will be provided by middleware that disconnects the 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-backed stablecoins without relying on TradFi.
Related project: Ethena.
How to solve the cross-chain bridging of assets without building bridges.
Related project: Axelar.
Currently, attention is focused on the astounding amount of Bitcoin being accumulated by publicly listed ETFs in the US. This, along with the global fiat currency devaluation frenzy, will propel Bitcoin to unimaginable heights when calculated in fiat. The upcoming Ethereum ETF listing will also drive up the price of Ethereum. 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 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.