The Core Role of Narrative Economics in the Crypto Market

Humans are inherently good at telling and understanding stories, and economic activities are based on human decision-making. This is particularly evident in the crypto market.

1. Narrative-Driven Market

At the end of 2017, an interesting phenomenon emerged. Many people who had no understanding of the crypto market began to ask how to buy Bitcoin. They were not concerned with the technical details; they were simply attracted by a simple story: someone had gained immense wealth through Bitcoin.

In the crypto market, the influence of narrative surpasses even traditional economic indicators. Retail investors have changed the game, with funds no longer flowing solely through traditional channels, but being greatly impacted by internet memes and social media.

When the market is in an upward trend, investors rely more on faith in the future rather than specific technical indicators or financial data. This faith often stems from compelling stories and visions.

2. The Mechanism of Narrative Dissemination

Powerful narratives spread like a virus. They don’t have to be completely true, but they must be infectious. In the crypto market, this spread is faster, broader, and often amplified by algorithms.

A typical crypto narrative often begins with a simple concept, such as "Bitcoin is digital gold" or "Ethereum is the world computer." These ideas are simple and intuitive, making them easy to resonate with. Once they gain popularity, they start to reshape people's values.

Powerful narratives often contain two key elements:

• A representative figure: such as the mystery of Satoshi Nakamoto or the wise image of Vitalik.
• A familiar story framework: themes such as rebellion against the existing system or the pursuit of freedom.

In the crypto world, narrative is not just a description of the product; it is part of the product itself.

3. Case Study of Narrative Shaping in the Market

Bitcoin: Digital Gold In 2020, the technology of Bitcoin did not undergo significant changes, but people's perceptions of it shifted. The narrative change from "peer-to-peer cash" to "digital gold" made Bitcoin a haven against inflation.

Ethereum: The World Computer When Ethereum was launched, there were almost no available decentralized applications, but its vision of a "world computer" is very appealing. Investors value its potential rather than its current usage.

Summer of DeFi The core driving force behind the DeFi craze in 2020 was not specific yield rates, but the idea of "permissionless finance." Although many protocols lack substantial revenue or user bases, this vision was enough to drive the market.

NFT: Cultural Ownership The explosion of NFTs is not just about the digital artworks themselves, but more about the new concepts of identity and cultural ownership. Owning a certain NFT has become a symbol of identity.

AI Token Fever In 2023-2024, some projects that have not yet perfected their functions have gained significant attention solely based on the concept of "AI + encryption." Practicality has been temporarily overlooked, and investors are more focused on their future potential.

4. The Special Nature of the Crypto Market

The crypto market is particularly susceptible to narrative-driven factors, mainly due to:

• Lack of traditional valuation standards
• Retail investors dominate
• Rapid dissemination on social media
• High liquidity of tokens

These factors together create a perfect environment for narratives to dominate price movements.

5. Strategies for Transaction Narratives

In a narrative-driven market, the key is to be able to identify potential hot topics early. Successful traders not only analyze technical indicators but also closely monitor social media trends and sentiment changes.

Some currently popular narratives include:

• Modular Blockchain
• Solana as an alternative to Ethereum
• The application of real-world assets (RWA) in DeFi
• AI-driven decentralized finance

Understanding the lifecycle of narratives is crucial for grasping investment opportunities.

6. The Feasibility of Narrative Investment

In the early stages of cryptocurrency, focusing on narratives might be one of the most reasonable investment strategies. As the industry develops, certain speculative factors may weaken, but innovative ideas and visions will continue to drive the market.

In the crypto field, success often favors those who can accurately interpret market sentiments. Therefore, closely monitoring community dynamics and emerging trends is crucial.

If we compare the crypto market to a large narrative, then the best traders are those who can foresee the content of the next chapter.