Us crypto enthusiasts love a good narrative and that’s because where there’s a narrative, there’s opportunity. Usually an opportunity to make some money by riding a wave of hype or bullish excitement in a relatively short period of time. The term ‘narrative’ is used quite frequently in the crypto community and we see that term a lot on Crypto-Twitter, but many people don’t fully understand what that means.
In this article, I’m going to dive into what narratives actually are, how to spot them early enough, how to profit from them and I will cover a few examples of past narratives just to put everything that we’ve discussed into context. I’m also going to share one potential narrative that I believe could be profitable in the future and my reasons behind why I believe this.
What is a narrative?
Simply put, a narrative is hype that is circling around a major event, a specific project or a category of projects. Hype, excitement, enthusiasm, anticipation, however you want to box it up, they are all words to describe the emotional feelings that drive a narrative.
Narratives often benefit from the snowball effect if they can pick up enough traction early on. People begin to talk, creating excitement and in our online world, news/rumours can spread fast. If the narrative is valid (basically not made up bullshit) that can soon reflect in the price of a certain token or category of tokens which in itself, can then further boost the peoples confidence behind the narrative as they begin to FOMO.
A narrative can last days, weeks or months and we will discuss this more when looking at some examples later. When a narrative is coming to an end, it often comes to an end fast and not everybody gets the life changing gains that they so desperately hoped for.
How to find a narrative early enough.
In the early stages of a narrative unfolding, stories are told, rumours pop up or a date is released around a specific event. We often criticise Crypto-Twitter and the shady characters who lurk in the space but if used correctly, it is a great place to find reliable and trustworthy information. However, this is easier said than done. It isn’t always in your face and glaringly obvious. If it was, everyone would be millionaires. The reality is that you aren’t going to come across a tweet that says ‘Project ABC is the next narrative, BUY NOW’. But if you do see something interesting on the timeline that a few people are talking about, it could be worth doing your own research and taking things from there. Most importantly, the key is to act fast, the narrative isn’t going to wait around for you.
Technical analysis can also be used to better understand how far along a narrative may be. We can look at price action to determine if it is outperforming the general market. Narratives will often lead the way and have their moment to shine. Sometimes it can be easier to spot this kind of price action in a bear market because if everything is nuking and one coin is holding up relatively well or even thriving, that is pretty eye catching. We can also monitor volume to understand if popularity and momentum is building up over a certain period of time.
Sometimes narratives can simply be found by following timelines of events. Big fundamental drivers such as a staking launch or a major product launch are good examples of this. If there is a huge event that people are excited and bullish about, it can offer a timely opportunity. A perfect example of a narrative like this is the Ethereum Merge. Fundamentally, people think the actual event of the merge itself will lead to bullish price action as it has fundamentally improved the project. In theory it makes sense when thinking this way about the tech, but this isn’t necessarily how price will react. Many people will have already bought to get ahead of the crowd, making it a classic buy the rumour, sell the news type of event. You want to buy well ahead of the merge, and sell before the event.
How to profit from a narrative.
First things first, just don’t get greedy. Scale out of your position on the way up because more often than not, it isn’t a slow and steady fall after the hype dies down or the event passes. You aren’t going to be gifted as much time as you would like to sell and take profit. Everybody else is also rushing to lock in profit whilst they still can. People will begin dumping at market price regardless of the price itself. Narratives are usually a prime example of stairs up, elevator down.
Similar to buying into a narrative, using technical analysis can also be used to exit your position. Price action can be used to look for weakness in the trend. If we start to see bullish market structure break down, it could be a key indication that the top is in. Volume declining rather than rising can also be a key indication that people are losing interest.
The key is to make sure that heading into these events you’ve managed your risk and planned accordingly. You want to have some kind of exit strategy and you’ve got to stick to it regardless of the wild price targets that you see on Twitter. Those who consistently think ‘it might go higher’ typically never sell until it’s too late. So many other people will be hoping for just a little higher and then a little higher again, which comes full circle back to the first line of this segment, don‘t get greedy.
Examples of previous narratives.
This is where we can bring what we’ve discussed to life and highlight how narratives have played out in the past. Of course past events don’t mirror future events perfectly, but they can give enough information to work with.
ETH Merge
The Ethereum Merge is a great recent example. In September 2022 the highlight anticipated Merge finally happened and the rough date was set well in advance. During the months leading up to the event, $ETH outperformed the majority of the market (most importantly Bitcoin) and hit a local top on August 13th. However, the merge didn’t take place until September 15th. Notice that price was choppy for nearly a month? A classic example of those front running the event and locking in profits early.
Metaverse Hype
When the crypto markets topped out in November 2021, there was a narrative that was going crazy, even in the mainstream news. This was the Metaverse narrative. Everywhere you looked people were talking about how the Metaverse was the future. Family members starting to send texts asking questions (huge top signal FYI), Metaverse tokens were pumping hard and Zuckerberg renamed FaceBook to Meta. Coins like $MANA benefitted immensely but when time was up, time was up and those long term believers felt the pain of the inevitable bear market.
Meme Coins
Bitcoin leads the entire cryptocurrency market but when it comes to meme coins specifically, $DOGE is the top dog (pardon the pun). I think everybody heard about Doge last year and meme coins were the favoured ‘get rich quick scheme’ for most of the year. However, the bigger they are, the harder they fall and as Doge was on its way to $1, Elon went on the SNL show and talked about Doge. This was a highly anticipated appearance where many were hopeful to hear bullish things during the show and ultimately send price to $1. However, this was already priced in and Doge nuked over 70% in little over 10 days. It’s also important to highlight that Doge was already up 160x in 2022 at this point. Those who were early and didn’t take profit definitely got greedy.
A narrative to look out for.
This is pure speculation and simply something I will be paying attention too, but I think we could see a narrative around decentralised derivative exchanges. Now you might be thinking, some of these tokens have seen a good 2022 despite market conditions such as $GMX which is true, but fundamentally, I believe there is further room for growth.
As regulation continues to come down on us (or at least threaten to) the access for many to trade derivatives is becoming less and less. If anything, the push for regulation and ultimately the banning of derivative products offered by centralised exchanges is only going to accelerate after the FTX fiasco. A prime example being Canada who shared just this week that they will be banning citizens from using leverage.
Furthermore, with the continued fear and array of issues that are publicly being shared around centralised exchanges, people are more keen than ever to remove funds from these exchanges and be self-custodial via hardware wallets. The fears of insolvent exchanges, FTX exposure and proof of reserves are some of the most popular talking points right now.
We actually seen something similar back in the DeFi summer of 2020 (a narrative itself) with the rise of DEX’s and more specifically, Uniswap . It’s interesting because DEX’s were being built well before this but never really gained any popularity until Uniswap got things going. I think we could see something similar for decentralised derivatives products heading into the next bull cycle.
Conclusion
The key thing to remember with narratives is that they don’t last forever. Sometimes we are blessed to have a date or time to work towards which allows us to plan ahead such as the merge. Sometimes it’s just hype that has picked up momentum, comes from no where and eventually hits mainstream news (top signal) before coming crashing down.
Something else to keep in mind is the NFT market will also have narratives of its own. Whether it be pixelated projects, PFP projects, Ape copies or something that hasn’t even been created yet, there is going to be trends, hype and money to be made if played correctly.
The issue for many with narratives is that they get emotionally attached to the coin or project that has put them in profit. It’s important that you make your money, hit the sell button, secure your profit and wait for the next narrative to arrive, no matter how much Twitter convince you to hold.
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Hopefully this was helpful! Please let me know on Twitter if it was and I’ll share more articles like this. Also, feel free to follow on Medium for more content and on Twitter and Telegram where I will share future article releases.
Cheers, Posty.
This article should not be considered as financial advice and has been written for educational purposes only.
