How to understand narratives from the “market maker’s perspective” and make smart trading decisions
In the Meme track of the crypto market, narrative has always been a hot topic of discussion. So, what is a "good narrative"? As an investor, how should we judge the value of narrative and participate in it in the right way? Mr. Mai took us to analyze the operation of Meme narrative from the "banker's perspective" to help everyone sort out their thoughts, not only teaching project parties, but also bringing practical skills to traders.
What is “narrative value”?
First of all, the essence of Memecoin is a "game of communication". You can use the following formula to measure the value of narrative:
“Number of people who can share” x “depth of emotional resonance” = “narrative value”
Mr. Mai gave a classic example: Why do dogs
Why is Dogecoin so popular? Its success lies in the fact that dogs, as narrative archetypes, can touch the soft spot in almost everyone's heart. Humans have a natural preference for furry creatures such as cats and dogs. Whether you are in the circle or outside the circle, Dogecoin can quickly establish emotional resonance. In comparison, many other meme coins have similar concepts, but lack the "emotional resonance" that is widely spread like "Dogecoin".
Four types of narrative
Hot Narratives
Hot topic narratives are usually triggered by unexpected events and have short-term explosive power. For example, Pnut, Ban, Fight, Luigi, etc. Such narratives will quickly attract a lot of attention, and the price of the currency can soar in a short period of time. However, the sustainability of hot topics is often unpredictable, and the dealers usually ship before the heat subsides. Once the heat is over, the selling pressure of retail investors will increase rapidly, and the market price will be difficult to maintain. Therefore, the key to catching hot topic narratives is to keep up with the hot topics and run in time.
Classic Narrative
Classic narratives represent some symbols or themes that "everyone knows", such as Pepe, Popcat, Wojak, Cheems, etc. This type of narrative has been deeply rooted in the hearts of the public. Although its explosive power is not as strong as that of hot narratives, it has huge long-term value due to its wide dissemination and recognition. The disadvantage is that the competition is extremely fierce, the best "pits" have long been occupied, and the project party needs to find new scalability. Therefore, when trading classic narratives, it is wise to choose strong dealers who have already occupied big IPs.
Original Narrative
Original narratives such as SPX, GOAT, Retardio, Cult, etc. often rely on the team's creativity and strong execution. Although this type of narrative does not have the blessing of natural traffic, due to its uniqueness and Crypto Native characteristics, it can gain strong emotional resonance in the currency circle. The disadvantage is that the communication power is weak and it depends entirely on the promotion ability of the project party. When trading original narratives, pay special attention to the team's resources, strength, and whether their "community culture" has a "Cult" atmosphere.
Derivative Narrative
Derivative narratives are usually differentiated from existing big IPs. For example, the derivatives of Pepe include Brett, Andy, Wolf, etc. The advantage of derivative narratives is that they use the already hot themes to compete for the market of "Dragon II", and there will be strong liquidity in the short term. But the problem is that the competition for Dragon II is extremely fierce, and its upper limit is usually only 10%-20% of Dragon I. Therefore, trading derivative narratives must be particularly fast, because the competition is too fierce, and the dealers often rush to get ahead.
Trading Strategies for Different Narrative Types
Hot topics:
When the hot spots break out, you must follow closely and choose a strong dealer team. As the heat gradually cools down, you need to run away decisively before the narrative is implemented, so as to avoid retail investors selling and causing price collapse.
Classic Narrative:
Blue-chip coins with classic narratives are relatively safe choices. Despite fierce competition, the market position of these coins is relatively stable. Choose a suitable time to buy, hold for a long time, and patiently wait for the market to mature.
Original Narrative:
The key to this type of narrative lies in the team's execution and innovative spirit, especially in communication and community building. Pay attention to whether the project party can effectively promote the spread of the narrative and create a "cult" atmosphere.
Derivative Narrative:
When trading derivative narratives, the focus is to seize the opportunity of "Dragon 2", but once you find that the market is overheated, you must quickly stop profit. If you see the opportunity too late, it is safer to simply increase your position in Dragon 1.
Summarize
In the meme market, the choice of narrative directly determines whether you can successfully harvest. Hot narratives are short-term and fast, but they are ephemeral; classic narratives require a long period of accumulation; original narratives rely entirely on the driving force of the team; and derivative narratives are full of opportunities, but the competition is extremely fierce. No matter which narrative you choose, seizing the opportunity and understanding the changes in market sentiment are the key.
