Written by: jawor, crypto KOL
Compiled by: Felix, PANews
'The human brain is inherently good at storytelling. And economics is built on human decisions.'
—— Robert J. Shiller (American economist, Nobel laureate in economics)
1. Narrative as the engine of the market
In December 2017, something strange happened. Friends who had never cared about the crypto market began asking how to buy Bitcoin. Not because they had read the white papers or even understood what blockchain was. They just heard a story: someone they knew made life-changing money.
This is enough.
In the narrative economics described by Nobel laureate Robert J. Shiller, cryptocurrency is the most fertile ground: narratives that influence market behavior are as infectious as, if not more than, traditional macro factors like interest rates or GDP.
Retail investors have changed the game. In traditional finance, capital typically flows through structured channels: fund managers, analysts, investor reports. Now, capital flows through memes, viral posts, and high-quality Telegram groups. Narratives have become the new fundamentals. This is most evident in the cryptocurrency space.
When the market heats up, narratives become significant factors in capital allocation. Not white papers, not balance sheets, but belief.
The core argument is: the volatility of the crypto market does not depend on technology, user growth, or revenue (at least not initially). It depends on belief, and belief is built on compelling stories.
2. How narratives work: viruses with capital
Robert Shiller believes that the spread of economic narratives is like a virus. The most powerful narratives are not necessarily true—they are just contagious. They appeal to emotions, identity, and FOMO psychology. And in the cryptocurrency field, this dissemination is instantaneous, global, and amplified by algorithms.
A typical narrative usually begins with a seed idea: Bitcoin is digital gold. Ethereum is the world computer. DeFi is the new banking system. These ideas are simple, intuitive, and emotionally compelling. Once such narratives gain traction, they start reshaping people's values.
The lifecycle of a powerful crypto narrative typically follows this trajectory:
A narrative is born: someone writes a blog post, a key opinion leader hints at a trend, or a charismatic founder articulates a vision.
This narrative spreads through social platforms, YouTube channels, and Discord.
As the influence of the narrative grows, it changes people's thought processes. Even if there are no changes on-chain, the related assets feel more valuable.
Capital floods in, chasing this narrative.
People often discuss network effects in a technical context. But narratives themselves also have network effects. The more people believe in a story, the more real it becomes: socially, economically, and ultimately financially.
There are two key elements that make a narrative more compelling:
A familiar face: a person who can represent this narrative. Think of Satoshi's mystery, Vitalik's wisdom, or Anatoly's product power. People are drawn to faces.
A familiar plot: great narratives often echo storylines familiar to people. For instance, the underdog rising, rebels, revolutions. Cryptocurrency perfectly fits these themes. It is anti-bank, anti-establishment, and supports freedom.
Ultimately, in the crypto space, narratives are not an additional layer on top of the product. Narratives are the product itself.
3. Case study: Narratives create markets
Bitcoin: Digital Gold
In 2020, Bitcoin itself did not change. What changed was people's perception of it. The mainstream narrative shifted from 'peer-to-peer cash' to 'digital gold.' Suddenly, Bitcoin was positioned as a hedge against inflation, becoming a safe haven in an era of money printing. What attracted MicroStrategy or Tesla was not Bitcoin's technology, but this idea.
The mysterious legend of Satoshi also plays a role. This vanished founder makes the story more compelling. It's not just about code—it's a movement.
Ethereum: The World Computer
When Ethereum launched, there were almost no dApps available. But its concept—a decentralized platform where anyone can build unstoppable applications—is incredibly attractive. The saying 'code is law' resonates deeply. The market buys not based on actual usage, but on potential.
Ethereum became valuable not because of its current state, but because of its promise.
The DeFi Summer of 2020
During the DeFi Summer, yields were ridiculously high. But the core driver was not the annual percentage rate (APR), but the narrative: permissionless finance, being your own bank, financial primitives unbound by banks or borders. This concept spread rapidly. Most protocols had little revenue, few users, and flawed tokenomics—but that didn't matter. The narrative itself was enough to transcend reality.
NFTs as cultural ownership
Why are some willing to spend millions to buy a JPEG image? Because NFTs are not about the image itself—they're about identity. The narrative is simple and enticing: digital ownership will redefine art, music, and status. Owning a 'Bored Ape' is not about aesthetics, but about displaying identity.
The narrative itself is more important than the product. That is why it succeeds.
AI tokens of 2023 - 2024
Some projects with scant product functionality and zero revenue skyrocketed simply because of a phrase like 'AI + cryptocurrency = the future.' The AI concepts that have long been hot in traditional finance (TradFi) have now made their way into the cryptocurrency space, bringing with them a flood of speculative capital. Practicality doesn't matter; the narrative is key.
Meme tokens with 'proxy' in the name skyrocketed 10 times. Founders hurriedly added 'AI' to their roadmaps. Investors are optimistic about their potential, even if it is just talk for now.
4. Why the crypto market is particularly susceptible to narrative-driven movements
Cryptocurrency lacks traditional valuation benchmarks: no balance sheets, no price-to-earnings ratios, and no regulatory filings. This makes the space particularly susceptible to narratives rather than fundamentals.
Additionally:
This is a retail-dominated market thriving on speculation.
Meme culture spreads rapidly through social media.
The liquidity of tokens and the ability to list without permission.
These factors create a perfect breeding ground for narrative-driven price behavior. In other markets, narratives are just an accompanying phenomenon. But in cryptocurrency, they are the driving force.
The price of cryptocurrency is not based on the present, but on potential futures.
5. Advantage: Trading narratives
In narrative-driven markets, the advantage comes from early recognition.
Smart traders and funds do not just analyze charts or read code. They focus on the social aspect: who is tweeting, the intensity of memes, whether there is emotional interaction, and whether the narrative is moving from niche to mainstream?
Here are some popular narratives:
Modular blockchains: 'A new design space'
Solana becomes the new Ethereum: 'Fast, cheap, and clean'
RWA: 'Balancing yield with compliance'
Proxy-based decentralized finance: 'AI protocols that think for you'
Every narrative follows the same lifecycle:
Spark: The idea emerges in alpha chats and early discussions.
Spread: Influential people amplify it.
Euphoria: Everyone is involved, and tokens skyrocket.
Disillusionment: Products fail to deliver, interest wanes.
Exit or evolve: Narratives either die or transform.
Timing is crucial. If you enter in the second phase and exit before the fourth phase, you are going with the trend. If you miss the cycle, you can only bear the 'burden' of the narrative.
6. Can you invest in narratives?
Of course. In fact, in early cryptocurrency investment, narratives are one of the few reasonable frameworks.
Robert Shiller made a compelling point: ignoring narratives is ignoring macro forces. In the cryptocurrency space, this is amplified. Narratives not only reflect the market but also create it.
As cryptocurrency gradually approaches traditional finance, some noise may diminish. But this space will always attract speculators, dreamers, and builders who value vision over metrics.
In the crypto space, the most successful individuals are not always the best engineers, but those best at reading market sentiment.
So keep an eye on narratives for the long term, pay attention to community dynamics (CT), and watch the latest trends. Narratives may not be encoded but are written.
If cryptocurrency is a grand narrative, perhaps the best traders are those who read a few chapters ahead.
