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Arthur Hayes: Narrative over technology, is the era of altcoins here?

Arthur Hayes

Read this article in 15 Minutes

My attention is turning towards altcoins.

Original Title: Chief Story Officer

Author: Arthur Hayes

Translated by: Deng Tong, Golden Finance

We are all speculators. Every moment we exist in this universe is filled with uncertainty. As we attempt to navigate the unpredictable nature of existence, our brains constantly construct probability maps of our environment. Our actions are not based on facts, but on the perceived probabilities of various outcomes.

An example of my existence that applies is the risk of triggering an avalanche while skiing. The most enjoyable backcountry powder runs are on slopes with a gradient of 35° to 40°, which is also the perfect gradient for avalanches. Before heading out, my guide assesses the likelihood of an avalanche based on observed snowfall and weather conditions. My guide also relies on recent observations from other guides who have been skiing in the same area. If the risk is too high, we do not ski.

An even more common example is whether to take the elevator or the stairs. The former is faster than the latter. However, the elevator is a mechanical device that can sometimes malfunction, which may result in serious injury or death. Taking into account your beliefs about the likelihood of injury or death, you evaluate the expected value (probability * outcome) of the time and energy saved by taking the elevator up 30 floors compared to taking the stairs, knowing that this is a less risky mode of travel but requires more time and is more tiring.

Every second of your life, you are gambling with your own life. This is not a bad thing; it is simply the nature of humans to be unable to predict the future perfectly. If we knew exactly how the future would unfold, it would be a terrifying existence. I prefer our imperfection.

The narrative you tell yourself about certain behaviors will inform your perception of their risks. I call this narrative. For social creatures like humans, narratives are primarily created through the collective "wisdom" of the group. Whether good or bad, the most influential narratives are the ones that everyone believes.

Narration is also created by objective facts. In most cases, the fact is that certain behaviors are discrete events that carry risks. In fact, avalanches are more common on slopes with a gradient of 40°. It is a fact that people are injured or killed while riding elevators.

The combination of common chat and objective facts creates a narrative. Although the facts are clear, as a person, it is challenging to understand the exact ratio between the number of deaths in elevators and the total number of elevator rides. It is also challenging to understand the number of skiers who died in avalanches on a 40° slope compared to the total number of skiing on similar slopes. In situations where we cannot ensure the accuracy of calculated data, we rely on others.

The situation is like this.

Avalanches:

I know this type of avalanche is more common. But my guide has rich experience and training in determining which slopes are prone to avalanches, and he believes this particular route is safe. Safe does not mean that avalanches will not occur; safe means that the probability of an avalanche occurring is low enough to be acceptable. Therefore, because of my trust in his training system, which has evolved from the experience of thousands of mountain guides, I will follow him down this slope.

Elevator:

I know that taking the elevator is more dangerous than taking the stairs. But everyone else is taking the elevator. If everyone else is taking the elevator, then it must be safe. It's impossible for everyone to be wrong at the same time. In addition, there are building codes created by trained engineers and the elevator has passed safety certification. Therefore, I feel safe taking the elevator, trusting the professional knowledge of engineers I have never met and the wisdom of the public.

Our way of assigning probabilities does not depend on facts or technology, but rather on our perception of the facts and the quality of the technology. These perceptions are based on what others have said about the facts or good technology, which we believe they know more about due to their training and experience than we do.

加密货币： Cryptocurrency:

To link it with cryptocurrency, consider the following. Suppose a new project claims to use new technology to solve a problem. They claim that the problem they are trying to solve is well-known, and tokens from other projects attempting to solve the same problem are highly valued. You believe that the project's engineers are smart and talented enough to solve this problem. You believe this because engineers from other successful cryptocurrency projects are advising them. You also have confidence in the team because they graduated from a well-known technology university and have work experience in successful technology companies. Because the narrative is strong (narrative + technology), you invest. But upon further examination of your thought process, which is more important: narrative or technology?

Narrative. Narrative is more important than technology. Your perceived likelihood of success is based on others' views of the problem and the team's technical abilities. In rare cases, you have the ability to evaluate the technology at a basic level. That's why you trust those who you believe are more insightful than yourself to indicate whether the technology is likely to solve the problem.

Although your technical skills are usually not sufficient to evaluate projects correctly, you can easily understand the quality of the narrative. A good narrative is one that more and more people are telling each other. Of course, it would be great if this narrative is told in a positive way. For example, "In this cycle, all retail traders will move from CEX to DEX." But even if the narrative is negative, such as "Retail traders cannot leave CEX for DEX," the narrative of the trading volume moving from CEX to DEX is still spreading. I don't care if people believe this narrative or not; I don't care. I just want them to say its positive or negative variant. Because being long makes more money than being short, optimism will prevail over pessimism in the cycle. This is how the human brain is wired.

我的工作是什么？

My job is what?

Although my formal title is Chief Investment Officer of Maelstrom, I should change it to Chief Storytelling Officer. I tell stories. The better and more concise the story, the faster it spreads. The greater the spread of the story, the more valuable the token associated with that story becomes.

Technology is not important!

Maelstrom's financial professionals are all graduates of the Wharton School at the University of Pennsylvania, with degrees in finance. I didn't plan it that way; it just happened. While we understand the potential applications of cryptography and blockchain technology, we are not cryptographers, distributed network experts, or computer science experts. When we trade, we outsource the technical due diligence to others with these skills.

Others may be leading venture capital firms or qualified angel investors in the pre-sale token round. Some may be respected technical advisors for the project. Without these types of validators, we may be satisfied with the technology because the founder has launched successful projects, meaning applications used by many past cryptocurrency projects.

Our job is to ensure which project is most likely to succeed in the vertical direction. Success depends on the widespread dissemination of macro and micro narratives. You can earn the most money by attaching tokens to narratives that are considered to have gone from "never" happening to "possibly" happening.

I would rather invest in tokens with a perceived success rate of 0.01% and a narrative in the viral growth stage, than tokens with a perceived success rate of 50% but a narrative that has reached the common sense stage. If the success rate increases from 0.01% to 1% because the narrative quickly infects many people, my money will increase by 100 times. However, the only way to double my money using tokens with a perceived success rate of 50% is if the actual results from any form related to the project are so amazing that the growth comes from observed results rather than a continuously rising cognitive future success.

The macro narrative describes the observed trend and how the project will leverage it. Rather than a trend, it is more of a narrative as we are taking a small action and extrapolating its impact into an uncertain future. Macro narrative: "Retail derivative trading volume is shifting from CEX to DEX." BitPerp is building a permanent (perp) exchange DEX. BitPerp's token will rise because its macro narrative is currently unknown but has the viral potential to infect many people's minds.

The micro-narrative explains why this particular project will be the best among all competitors in a specific macro-narrative. Micro-narrative: "BitPerp received advice from Arthur Hayes, who helped invent perpetual contracts." When others heard that Arthur was involved, they believed that the project would receive some great advice to help them surpass all other competing projects.

This blog is usually about macro-narratives. Most of the time, I tell stories about stealing central bank governors and politicians who undermine the value of time and labor by printing fiat currency. The narrative I tell is about how Bitcoin and the crypto ecosystem become an antidote to this organized theft of human dignity. But given that I run a trading book, I also tell micro-narratives about cryptocurrency trends and how the prices of the coins and tokens I choose will rise as more and more people believe and hear about the narratives.

Conclusion

Currently, people's attention is focused on the astonishing amount of Bitcoin being accumulated by the spot ETF listed in the United States. Together with the global currency devaluation frenzy, this will drive Bitcoin to reach an immeasurable height when calculated in legal currency. The upcoming Ethereum ETF listed in the United States will also push up the price of Ethereum. I have Bitcoin and Ethereum. I may buy a little more, but overall, my attention is turning to altcoins.

What tokens can I purchase that have better performance than Bitcoin and secondly, Ethereum? This is the minimum threshold rate for Maelstrom. We achieve this goal by understanding certain projects as much as possible and telling exciting narratives.