A Case Study In Narrative Trading

Even in a bear market, there is always a fresh narrative to make money within crypto.

That’s because crypto is still an inefficient and small market. Coins, unlike stocks, don’t require billions and trillions of buy pressure to rocket up. In an inefficient market, “fundamentals” are not super important short-term. What is really important is the narratives and what will get people rushing to buy a coin. Luckily, there are always new narratives forming, even during a bear market.

This past week was the perfect example, as LDO, FET, and BONK all had massive run-ups.

Below we will examine each one, but first, it’s worth mentioning that we aren’t going to go too deep into the details regarding what each of these assets do. As we mentioned above, this is narrative trading… not investing.

Still, there is a lesson to be had.

Lido (LDO)

Lido is the dominant liquid staking derivative (LSD). This means that Lido makes staked ETH liquid and tradeable by giving users the liquid asset stETH in return for staking their ETH in Lido. We’ve previously discussed liquid staking and Coinbase’s version of it here if you want to catch up.It’s a great value prop, resulting in Lido holding $6.51 billion in user assets – the most of any DeFi protocol.But this isn’t anything new. So why did LDO and the LSD narrative take off this week?A couple reasons:

1. Widespread bullishness over Ethereum’s March Shanghai upgrade, which will enable people to un-stake their ETH

2. A tweet from popular Crypto Twitter influencer Degen Spartan

This resulted in a gain of 51.4% in just one week. In a bear market.

Not bad.

Fetch.ai (FET)

AI is all the rage these days. You’re talking about it. Your mom is talking about it. Your dog is talking about it. ChatGPT is talking about it. And now, crypto is talking about it.

Everybody is itching to get ahead of the inevitable AI and crypto crossover, and this week, the winning coin was Fetch.ai’s FET.

Fetch.ai is “creating AI platforms and services that let anyone build and deploy AI services at scale, anytime and anywhere”, while the FET token is the currency of the Fetch.ai network.

It’s a cool project with perhaps some real-world use cases, but let’s be honest, that doesn’t really matter. The degens were sold at “AI”.

And those that got in early enough made a nice 77.2% gain.

Bonk (BONK)

The big winner last week was Solana’s newest meme coin, $BONK, which flew up 331% before returning to Earth, as meme coins always do.

There really isn’t a whole lot to say about $BONK. It’s a dog coin on Solana. Apparently, people are still into dog coins. In a bear market. In 2023.

You can’t make this stuff up.

Gotta love crypto.

Hunt The Narrative

In the traditional markets, there is a saying that we are sure you have heard before: Buy the rumor, sell the news.

The concept here is that rumors, stories, and narratives can drive up asset prices regardless of their underlying, quantitative value. And nowhere better can this be seen than in the crypto markets.

Simply put, there is always money out there for the taking in crypto. The market is still inefficient, and coins can go up tremendously at the drop of a dime.

Find a narrative early, invest with conviction, and get out at the top.

Is this a strategy we suggest? Not necessarily. But understanding how narratives can interplay with fundamental value can make you a better trader.

Or, you could just hodl ETH and BTC. Either option is cool.