Narrative Economics in the Crypto Market: The Power of Vision and Emotion

"Humans are naturally good at telling stories. The economy is built on human decisions." This quote from a famous economist aptly highlights the importance of narrative in the economy.

1. Narrative: The Driving Force of the Market

In December 2017, an interesting phenomenon emerged. Many people who had never paid attention to the crypto market suddenly began to ask how to buy Bitcoin. They did not understand blockchain technology; they only heard that someone around them had made a fortune from it.

This simple story is enough to spark action.

In the cryptocurrency field, the influence of narrative even surpasses traditional economic indicators. Retail investors have changed the game. Funds no longer flow solely through professional channels but instead leverage online trends, viral dissemination, and social groups. Narrative has become the new fundamental, particularly evident in the crypto market.

When market sentiment is high, narratives become the key factor in capital allocation. It's not technical whitepapers, nor financial statements, but belief.

The core idea is that the volatility of the crypto market is not determined by technological advancements, user growth, or revenue (, at least not in the early stages ). It depends on belief, and belief comes from compelling stories.

2. The Transmission Mechanism of Narratives: Viruses with Capital

Economists believe that the spread of economic narratives is similar to a virus. The most powerful narratives are not necessarily true, but they are certainly contagious. They appeal to emotions, identity, and the psychology of fear of missing out. In the crypto market, this spread is instantaneous, global, and amplified by algorithms.

A typical narrative usually begins with a simple concept: Bitcoin is digital gold, Ethereum is the world computer, and decentralized finance is the new banking system. These ideas are simple, intuitive, and emotionally appealing. Once they gain popularity, they start to reshape people's values.

Powerful encryption narratives often follow the following trajectory:

1. Birth: Someone proposes an idea or vision.
2. Spread: Disseminate through social media and community channels
3. Impact: Changing people's mindset and enhancing the perceived value of relevant assets.
4. Attraction: Capital influx, chasing this narrative

The narrative itself also has network effects. The more people believe a story, the more real it appears: this is true on a social level, an economic level, and ultimately on a financial level.

Two key elements can make the narrative more compelling:

• Iconic figures: faces that can represent this narrative
• Familiar themes: Echoing well-known story themes, such as the rise of the underdog, rebels, revolutions, etc.

In the encryption field, narrative is not just an added layer to the product; it is the core of the product itself.

3. Case Study: Narrative Creates Market

Bitcoin: Digital Gold

In 2020, the technology of Bitcoin did not undergo significant changes, but people's perceptions of it shifted. The mainstream narrative changed from "peer-to-peer cash" to "digital gold." Suddenly, Bitcoin was seen as a tool against inflation, becoming a safe haven during turbulent times. It was not the technology of Bitcoin that attracted large institutional investments, but rather this concept.

The mysterious legend of the founder has also played a role in promoting this. This is not just a piece of code, but a movement.

Ethereum: World Computer

When Ethereum was launched, there were almost no available applications. However, its concept – a decentralized platform where anyone can build unstoppable applications – is highly appealing. The saying "code is law" has deeply resonated. The market buys potential, not the status quo.

The decentralized finance boom of 2020

During the decentralized finance boom, the yields were absurdly high. But the core driving force was not the annualized yield, but the narrative: permissionless finance, becoming your own bank, unrestricted financial primitives. This concept spread rapidly. Most protocols had almost no revenue, very few users, and flaws in their token economies, but none of this mattered. The narrative itself was enough to transcend reality.

Non-fungible Token ( NFT ) as cultural ownership

Why are some people willing to spend millions of dollars on a digital image? Because NFTs are not about the image itself, but about identity. The narrative is simple and enticing: digital ownership will redefine art, music, and social status. Owning certain NFTs is not about aesthetics, but about showcasing identity.

The narrative itself is more important than the product. This is the reason for its success.

Artificial Intelligence Token for 2023 - 2024

Some projects with scarce product features and zero income have skyrocketed simply because of slogans like "Artificial Intelligence + Cryptocurrency = Future." The concept of artificial intelligence has spread from the traditional finance sector to the crypto market, bringing in a large amount of speculative funds. Practicality is not important; the narrative is key.

The prices of popular tokens with the word "agent" in their names have skyrocketed. Founders of various projects are adding "artificial intelligence" elements to their roadmaps. Investors are optimistic about its potential, even if it is just talk for now.

4. Why the crypto market is particularly susceptible to narrative-driven influences

Cryptocurrencies lack traditional valuation benchmarks: no balance sheets, no price-to-earnings ratios, and no regulatory documents. This makes the sector particularly susceptible to narratives rather than fundamentals.

In addition:

• This is a market dominated by retail investors and thriving on speculation.
• Internet culture that spreads rapidly through social media
• The high liquidity of tokens and ease of listing

These factors create a perfect breeding ground for narrative-driven price behavior. In other markets, narratives are just a byproduct. However, in the crypto market, they are the core driving force.

The price of cryptocurrency is not based on the present, but on the possible future.

5. Advantages: Trading Narrative

In a narrative-driven market, advantages stem from early recognition.

Smart traders and funds do not just analyze charts or read code. They pay attention to the social aspect: who is posting information, how dense are the network hotspots, is there emotional interaction, and is the narrative moving from niche to mainstream?

Some popular narratives include:

• Modular Blockchain: "New Design Space"
• A certain public chain becomes the new Ethereum: "Fast, cheap, and efficient"
• Physical assets on-chain: "Balancing returns and compliance"
• Proxy-based decentralized finance: "AI-driven protocols"

Each narrative follows a similar lifecycle:

1. Spark: Ideas emerge in a small scope.
2. Spread: Influential people amplify it.
3. Frenzy: Widespread participation, related token prices soaring
4. Disillusionment: Products fail to deliver, interest wanes
5. Exit or Evolve: Narratives either perish or transform.

Timing is crucial. If you can enter in the second phase and exit before the fourth phase, you are going with the trend. Missing the cycle may turn you into the "bag holder" of the narrative.

6. Narrative Investment Strategy

In the early days of cryptocurrency investment, narrative was one of the few reasonable frameworks.

Ignoring narrative is ignoring macro forces. In the crypto market, this point is amplified. Narrative not only reflects the market but also creates the market.

As cryptocurrencies gradually approach traditional finance, some noise may diminish. However, this field will always attract speculators, dreamers, and builders who value vision over metrics.

In the crypto field, the most successful people are not always the most outstanding engineers, but rather those who are best at interpreting market sentiment.

Therefore, it is crucial to pay long-term attention to the narrative, keep an eye on community dynamics, and follow the latest trends. The narrative may not be encoded but rather written.

If the crypto market is compared to a big book, then the best traders are those who can read a few chapters in advance.