The Daily Gwei - Hopium - The Daily Gwei #508
There are always new narratives that seem to gain extreme popularity during bull markets and the bull market of 2020/21 was no different. These narratives form simply because people are much more inclined to believe anything when they are clinging to hope (such as the hope that they are going to make a lot of money) - and people in crypto are very addicted to the mind drug known as ‘hopium’. I think the reason these narratives can take hold so fast in crypto bull markets is obvious - everyone is high on the feeling of making money and wants the party to continue as long as possible. This usually leads to people deifying those who assure them that the party will never stop - PlanB with his ‘Stock to Flow’ model, Su Zhu with the ‘supercycle’ and Bitcoiners saying that the institutions were going to buy up all the BTC. Of course the party does eventually stop and we have the brutal bear markets that we are so used to in crypto. These narratives don’t just have to come in the form of direct market commentary though - they can also form around technology deliverables. For example, for the longest time the Cardano core developers teased that smart contracts were coming to the chain and would “change everything” and the community latched onto this thinking that Cardano was going to take over the world. In reality, smart contracts were shipped to very little fanfare with nothing really changed for Cardano (no, it didn’t take ove rthe world). Ethereum has had some pretty strong narratives over the years as well - ranging from people saying ICOs were going to disrupt venture capital to everyone talking about EIP-1559. Even now there are major narratives like The Merge, layer 2’s (#L222), and sharding. Though what I like about Ethereum’s narratives is that they are usually focused on the fundamentals/technology that actually get delivered and do live up to the hype. I mean, EIP-1559 was hyped up for years as a way to both allow ETH to capture most of the fee revenue through the burn as well as a better mechanism for fees generally on Ethereum layer 1. I think the main lesson to learn from market-based narratives is that there are always new ones and almost all of them are fleeting. The consequence of this is that there is usually no substance behind the narrative which means the market is not going to respect it once the mania subsides. Stock to flow failed completely, the supercycle hasn’t played out at all, and institutions stopped buying BTC a while ago - not to mention that the ‘inflation hedge’ narrative that has been peddled for many years has been completely shattered. Never fear though - I’m sure there will be plenty of new narratives for us to latch onto in the next bull market! Have a great day everyone, Enjoyed today’s piece? I send out a fresh one every week day - be sure to subscribe to receive it in your inbox! Join the Daily Gwei EcosystemAll information presented above is for educational purposes only and should not be taken as investment advice.
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