Crypto narratives


Just like in any markets, crypto assets have to create easy to swallow narratives that will attract fans and die-hard HODLers. No matter an all-star team, fast development, or exchange listings, if an asset doesn’t make a big, exciting promise it’s going nowhere.

Here are some popular narratives with me playing the devil’s advocate:

  • Greatest wealth transfer in history — Yes, from 0.001% to 0.1%.
  • Store of value — “Get rich quick” would be more suitable for now. Because if Bitcoin appreciated just to fight off inflation, it would be as boring as real estate. We’ll get there in another decade. Until then, nobody actually wants to “store value”.
  • Satoshi’s vision — Let me know if I even need to start on the dogmatic premise that a white paper is a bible. I mean someone’s interpretation of the white paper. 🙄
  • World computer — Dead on arrival. One hour of Ethereum computing is 1.4 million times more expensive than Amazon EC2. The Ethereum Network is 1 million times less efficient. Storage cost 1 million times more. (source) All of this is a sacrifice for censorship resistance, which is a joke with Ethereum’s centralization and single points of failure.
  • Fat protocol thesis — A presumption that the protocol token should accrue value from all its sub-assets. It’s as if the TCP/IP token would somehow reflect the combined value of the Internet economy. Turned into the “fat bagholder thesis” when ICO sell-offs sent Ethereum to $160.
  • Open finance — Next ETH pivot that means the anticipated value of the smart contract economy. Special props to Ethereum for spinning new narratives on the go.
  • Web 3.0 — What exactly is that? New applications would require both a highly distributed, censorship-resistant platform of high performance AND a highly efficient (centralized) development WITHOUT single points of failure. Oh, don’t forget that the UX has to make the existing web obsolete to disrupt it. I don’t see it happening any time soon.
  • Silver to gold — A phrase that no Litecoin fanboy could explain to me. Never mind that real silver failed as a cheaper gold. L2 scaling (Lightning) can put Litecoin’s narrative to an end so it should invent a new one.
  • XRP the standard — Bankers (who are supposed to buy your bags) don’t have a single reason to use XRP, and stated accordingly multiple times. The token will not appreciate based on buying -> transferring -> selling. It doesn’t make a difference if XRP is worth $3 or $0.01.
  • Utility token — Applies to most of them: the only “utility” they can think of is being “internal money”. Of course, in future people will need Buncoin, Beefcoin, Lettucecoin, and some Ketchupcoin to buy a burger. Friction is the only product of such utility. A token is a liability by default, and some startups are learning it the hard way.
  • The next Bitcoin — People who missed out on Bitcoin’s rise think they can just buy something cheap with the same promise and repeat it. Doesn’t matter that the promiser makes all kinds of wrong trade-offs (e.g. security for performance) and has to fight strong network effects. Don’t get me wrong, I largely missed out on Bitcoin as well. But it doesn’t make me believe in dumb setups.
  • The next Ethereum — This is even more extreme than above because Ethereum’s rise was more recent and dramatic.
  • Masternode passive income — As if supply lock-up can sustainably take care of demand. Apart from being scarce, an asset must be useful. Full stop for most masternode (or any) coins.

These narratives are stronger than any fundamental analysis. When some are alarmed by dwindling transaction volumes, retail happily buys the blow-off top because nothing makes a story louder than a “confirmation” by price. No wonder Litecoin is still worth anything, the market keeps funding the next Ethereum or the next Bitcoin, and people don’t give a damn that IOTA is using proprietary broken cryptography.

The only current investment thesis in crypto is a strong narrative + execution that can’t hurt it too much. Very similar to dotcom days when the only thing people were buying was a promise. Defer delivering on your promise to keep your valuation higher. This is what happens when you have revolutionary but vague ideas + sheer illiteracy + FOMO.

I would probably only find one or two crypto stories plausible. Let me know what your favorite narrative is, and let’s see if we can debunk it.

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