Noelle Acheson is a veteran of business analysis and director of research at CoinDesk. The opinions expressed in this article are those of the author.
The following article was originally published in Institutional crypto by CoinDesk, a weekly newsletter focused on institutional investment in crypto assets. Register for free here.
Has anyone seen the movie “Parasite”? You know, the one about class mobility, creative solutions and scary basements.
I thought about this movie after reading Jill Carlson’s column a few days ago – she watches our collective surprise that bitcoin is not a haven and, in a gentle way, asks “what are you were you waiting for? ” She points out that bitcoin (BTC) is too young to be considered a refuge because its narrative is not yet formed. This does not mean that it will not succeed.
What does this have to do with a South Korean Oscar winner? Well, in “Parasite”, we spend the first hour thinking that the film is one thing but it turns out that it is not, it is something completely different.
The same thing happens in cryptoland. Jill is right: Bitcoin’s story is the key driver of its price evolution, and it will evolve over time. The story is not about what bitcoin “is” but about what it “will be”.
However, an even more interesting narrative change is taking place elsewhere.
I’m talking about the rest of the market. Almost all of that, in fact. Stories are changing everywhere.
For example, everyone knows that you should have bonds in your portfolio because they provide income and stability. I mean, there’s no way the rates will get negative, right?
This week, the yield on US government debt at 30 and 10 years fell to its lowest level ever. The S&P 500 now pays more than Treasurys, calling into question the whole concept of “risk spreading”.
Even gold behaves strangely. We see it as the ultimate example of a “safe haven” investment, yet changes in market structure challenge this. Last week, the price of gold fell almost 5% in one day, the largest daily decline in seven years, due to the pressure of deleveraging positions in derivatives. And we tend to forget that gold fell almost 30% at the height of the market rout in 2008.
The role of gold as a safe haven is entirely based on narratives: that gloss and yellow are desirable qualities (is it surely subjective?), That the supply is limited (we do not know with certainty) and that the heavy is good (you will have heard the disparaging expression “a light weight!”). These days, heavy – like very difficult to pick up and take with you – may not be the usefulness indicator it once was.
While we can all agree that the metallic properties of gold are impressive, its position as the world’s safe haven is no longer universally unassailable and without any fault on its part. The narratives surrounding it are changing, and the resumption of the gold price rally at the start of the week seems less based on the belief that the metal will retain its value in the event of difficulty and more of a desperate achievement, it n there is nothing that can still take His place.
Now why are there so many narrative changes all of a sudden? In fact, narratives are always changing – but the pace of change is generally much slower than the one we are witnessing today.
What we are witnessing is a breakdown of hypotheses, in times of fear. We are concerned with the economy, the banking system, the climate, living conditions, politics, education and job automation. Add to that a growing sense of vulnerability and concern for health and contagion.
In times of fear, we fall back on what we know, what we can be sure of. Nowadays, it is not much.
In his poignant 1944 article “The Social Psychology of Fear”, the philosopher Kurt Riezler pointed out that “if we do not know the nature of a danger, we are making an assumption. Without such an assumption, we cannot act. ”
But what are hypotheses if not conclusions based on stories? We assumed that interest rates would never get negative. We assumed that house prices would never fall. We assumed profits were good and social media would set us free.
So now, faced with many dangers that we still have a hard time understanding, we are reaching assumptions that we no longer trust.
Bitcoin’s narrative is changing, as you would expect for such a young and complex innovation. But so do the stories that guide just about every other aspect of investing.
In a few years, when the new stories have settled into a semblance of normalcy, we will come back to this era and we will realize that the greatest story was still before us.
Disclosure Lily More
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