BitMEX exchange founder Arthur Hayes believes that “narrative” is more important than “technology” in the cryptocurrency industry, and he also stated that his attention has been drawn to altcoins. This article is sourced from Arthur Hayes’ article titled “Chief Story Officer”, compiled, translated, and written by Foresight News.
Table of Contents
Avalanches:
Elevators:
Cryptocurrencies:
What is my job?
Results
The narrative of altcoins
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 existence, our brains constantly build 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 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 likelihood 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.
Another common example is taking the elevator versus taking 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 evaluate the expected value (probability * outcome) of the time and energy saved by taking the elevator up 30 floors compared to taking the stairs, knowing that it is a less risky mode of travel but takes longer and is more tiring.
You are gambling with your life every second of every day. This is not a bad thing; it is simply the nature of human existence, where we cannot perfectly predict the future. 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 with risks associated with certain behaviors. Indeed, avalanches are more common on 40° slopes. It is a fact that people get injured or die while riding elevators.
Common chatter and objective facts combine to create narratives. While the facts may be clear, as an individual, it is challenging to understand the exact ratio of deaths inside elevators to the total number of elevator rides. It is also challenging to understand the ratio of skiers who die in avalanches on 40° slopes compared to the total number of runs on similar slopes. In the absence of actuarial data that we can confidently rely on, 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. Safety doesn’t mean avalanches won’t happen; safety means the probability of an avalanche occurring is low enough to be acceptable. So, due to my trust in his training system, evolved from the experiences of thousands of mountain guides, I will 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 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 certified as safe. So, trusting the expertise of engineers I’ve never seen and the wisdom of the crowd, I feel safe riding the elevator.
The way we assign probabilities is not based on facts or technology, but on our perception of the facts and the quality of the technology. These perceptions are based on what others say are facts or good technology, which we believe they know more about due to their training and experience.
To relate it 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 project’s engineers are smart and talented enough to solve this problem. You believe this because engineers from successful crypto projects that have already launched are advising them. You also have confidence in the team because they graduated from prestigious tech universities and have worked in successful tech companies. Because the narrative is strong (narrative + technology), you invest. But digging deeper into your thought process, what 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 their perception of the team’s technical abilities. In very few cases, you have the ability to evaluate the technology at a fundamental level. That’s why you believe those you consider more knowledgeable than yourself can indicate if the technology is likely to solve the problem.
While your technical skills are usually insufficient to correctly evaluate a project, you can easily grasp the quality of the narrative. A good narrative is one that more and more people are telling each other. Ideally, it would be great if that 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 the 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 in its positive or negative variations. Because being long makes more money than being 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 more powerful the narrative’s spread, the more the value of 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, decentralized network experts, or have deep computer science backgrounds.When we engage in transactions, we may outsource the technical due diligence to others who have these skills. The others 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 validators of these types, we may be satisfied with the technology because the founders have launched successful projects, and success means an application that many previous crypto projects have used.
Our job is to determine which project is most likely to succeed in a vertical direction. Success depends on the widespread dissemination of macro and micro narratives. You can earn the most money by attaching tokens to a narrative that goes from “never” happening 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 that have a perceived success probability of 50% is for the actual results to be so amazing in any form related to the project that the growth comes from observed outcomes rather than continuously rising expectations for future success.
The macro narrative tells the observed trends and how the project will capitalize on them. Rather than being a trend, it is more of a narrative because we are taking a small action 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.
The micro narrative explains why this particular project will be the best among all competitors in a specific macro narrative. Micro narrative: “BitPerp has 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 devalue the value of time and 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 crypto 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 dive deep into specific tokens other than Bitcoin and Ethereum, but, folks, it’s a bull market. I have laid the groundwork for the important force that drives the use and popularization of cryptocurrencies, and it’s time to hype my portfolio.
The end result, in terms of growth in trading volume, total locked value, unique wallet counts, etc., is important, right? Yes, they are important, but their importance to token prices varies depending on which part of the hype 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 believes the token belongs to a trend that is unlikely to grow in the future. Therefore, even mediocre results will be seen as groundbreaking because expectations are too low.
When investing in a narrative/trend that you believe will go from “maybe” to “definitely” happening, project attractiveness 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 seen as mediocre in this stage. 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 coming months, most of the articles I write will focus on specific tokens we hold and their macro and micro narratives. These tokens have been launched or are soon to be launched, so I am trying to widely disseminate this narrative. I don’t care if you buy or sell any of the mentioned tokens. What matters to me is that I have presented such a provocative narrative and supported arguments for you to discuss it with others in a positive or negative way.
I know I have succeeded when I read the following content on social media:
Or:
Here is a rough outline of the macro 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.
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 as custodians of fiat currency will face pressure, and how we can create 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’s attention is focused on the staggering amount of Bitcoin accumulated by the US-listed spot ETF. 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 ETF in the US will also boost 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 getting to know certain projects as much as possible and telling exciting narratives about them.
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