Shifting Narratives - The Daily Gwei #408
Like sands through an hourglass, so are the narratives of crypto.
If there’s one thing I’ve learned from all my years being involved in the crypto ecosystem it’s that most people cannot accurately predict what’s going to happen in this industry over any time-frame - not even from the highest level. Very few saw the major 2021 narratives coming - NFTs, dog tokens, alt-L1’s, web3 - these narratives blind-sided almost everyone but did make the few who saw them coming stupidly rich. Though it’s not enough to see the narratives coming - you need to have conviction on your predictions - and even fewer people have this.
My least favorite narratives are the ones that make absolutely no sense but somehow manage to gain widespread popularity/acceptance. For example, there’s been a pervasive narrative brewing over the last month or so that layer 2’s are actually bearish for ETH because they are going to have their own tokens which people will buy instead of ETH. This narrative is nonsensical for so many reasons but I really only need to state one to break it down completely: layer 2 networks have to pay Ethereum for their security (in ETH) and then most of that ETH is burned thanks to EIP-1559. This narrative is obviously being pushed by those who are short ETH in some way (usually by being long on competing ecosystems) and that’s exactly why it’s a narrative that breaks down so easily. Sadly though, it is one that I see continuing to persist simply because the financial incentives are there.
NFTs are another explosive trend that basically no one saw coming in 2021 and it really changed the whole landscape of crypto. Many people thought that DeFi would be the gateway for mass adoption but have now shifted to believing that NFTs will easily be the largest on-boarding vehicle for mass adoption - and I totally agree with that. This isn’t to say that DeFi isn’t incredibly cool and useful, but most people don’t actually want to think too deeply about finance because it’s considered “work” whereas something like NFTs is mostly entertainment. You can basically contrast this with how the internet achieved mass adoption - it was through entertainment (social media, video streaming, online gaming) and not things that felt like or were actual work (email, building websites, paying bills).
Now we’re at the part of the year where everyone is giving their 2022 predictions and they are varying wildly - from many believing that 2022 will be a strong year for the “multi-chain” thesis to people making big bets on social tokens, DAOs and crypto-gaming. The Ethereum community is making the prediction that 2022 will finally be the year that layer 2’s see real adoption (we even have a hashtag for it - #L222) but honestly I think this relies on these layer 2 networks issuing native tokens to incentivize usage - we’ve seen the playbook work extremely well for both DeFi and alt-L1’s. If done correctly, I do believe 2022 will be an explosive year for Ethereum-based layer 2’s and we’ll see their liquidity, active addresses and volumes skyrocket.
All in all, if you want to stay ahead of the pack and catch narratives before they play out, then I believe that you have to “reset” your thinking. You need to put yourself in the same frame of mind that a new crypto person is in as they have no prior context/history of crypto, no tribe affiliations, and no “bear market ptsd” holding them back. If you can manage to use the years of wisdom you’ve accumulated up until this point while resetting your priors on what this industry can be going forward, then I truly believe you can become unstoppable.
Have a great day everyone,
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All information presented above is for educational purposes only and should not be taken as investment advice.