Human brains have trouble with multitasking. In Web3, a similar limitation applies to crypto users (that are human) who are trying to invest in multiple projects at the same time. For most people, we have a limit of how many connections that we can actively maintain a stable and "meaningful" relationships with, and that number is 150, according to Dunbar's law. Going deeper into this theory, out of the 150 connections, just 5 people belong to the "loved ones" category, followed by 15 that are considered "good friends", and then 50 friends, 150 meaningful friends. As a result, most people would only be able to have consistent and good relationships with about 15 people.
Web3 is inherently vast and complex and touches upon many other fields, including economics, mathematics (cryptography), psychology, computer science, and others. All of these seemingly disparate subjects touch or impact the various narratives in Web3, including Layer 1s, Decentralized Finance (DeFi), Bitcoin ecosystem (including Ordinals and BRC-20 Tokens), Non-Fungible Token (NFT), Decentralized Science (DeSci), Developer Tooling, Decentralized Physical Infrastructure Network (DePIN), Real World Assets, AI, Gaming, SocialFi, etc. Keeping up-to-date in one narrative/theme in Web3 is already difficult even for people who work in Web3, thus it would be exponentially difficult for people from outside the industry (e.g., casual traders, new to Web3) to get exposed to more than 2-3 narratives through 6-15 projects (tokens) at the same time. To optimize returns, one usually tracks at least 3-5 tokens (for diversification purpose) in the same narrative, and with 2-3 narratives being tracked, that would be 6-15 tokens being tracked. Considering each token/project has its own story, tokenomics, price, mechanics, etc, we can safely infer that most people would only be able to stay up-to-date with 2-3 narratives (or 6-15 tokens) at most in order to make the most out of it. Hence the title of this post: 2-3 prevailing narratives. Anything beyond that is not sustainable for most people unless one has a dedicated crypto team.
Keep in mind that I'm not arguing that only 2-3 narratives can exist in a bull cycle, my hypothesis is that most of the attention/interest will be drawn around just 2-3 prevailing narratives this cycle. With that explanation out of the way, the next logical question many would like to know is: which narratives are going to capture the most attention in the current bull-run cycle?
To answer that, let us dive back into the past first. In the 2016-2017 bull cycle, one of the major narratives at that time was mainly ICO's (Initial Coin Offering), where many ideas raised millions of dollars with just a whitepaper and then just as fast most of these ICO's projects faded away. In the 2020-2021 cycle, the major narratives were DeFi, NFT's (Non-Fungible Tokens), and Gaming. I will quickly summarize these narratives below:
In summer 2020, we saw the sky-rocketing growth of DeFi thanks to yield farming, a practice where users provide liquidity (by staking, lending, or locking tokens) to platforms such as Aave, Compound, and others in order to generate income (or interest) in the form of governance tokens that could be sold for other crypto in the open market. The reason why this was so attractive is because users could obtain juicy APY, usually in high single digits or double digits, that do not exist in the traditional financial system. Then the DeFi craze went to the extreme in 2021 after Olympus DAO was released in March 2021. Basically, the idea was that the value of the OHM token was backed by whatever value that was held in the treasury of Olympus DAO and couldn't fall below that value. Then token owners could receive juicy interest of about 8000% APY in the form of OHM tokens. The pictogram below illustrate the mechanics behind Olympus DAO. After Olympus DAO was born, hundred of other forks (copies of Olympus DAO code) flooded the market, boasting APY of billion and sometime quadrillion. Obviously, the whole situation was not sustainable and was quite ponzinomics (ponzi scheme + econmoics), but attracted millions of people into these musical chair rotations.
In 2021, NFT took over the art market with the sales of Beeple's painting worth over $69 million dollars at Christie's. We also encountered many "blue-chip" (expensive and hold high status) profile picture NFT collections sprung up during this time, including Bored Ape Yatch Club in Apr 2021, and Pudgy Penguins in July 2021.
In 2nd half of 2021, GameFi led the most activity in blockchain according to the image below from DappRadar 2021 industry report.
The growth of GameFi can be credited to these simple play-to-earn games, spearheaded by Axie Infinity (at one point in Nov 2021 the market cap of the Axie Infinity token, AXS, was worth over $10 billion) made a by Sky Marvis, a Vietnamese game studio. Most of these games were more focused on the "earn" aspect than on the "fun" aspect of the games. Needless to say, most of the games' tokenomics was not sustainable, but it didn't stop millions of users from joining and playing the games.
I believe that the 3 narratives above from the 2020-2021 cycle will most likely not repeat because of these reasons:
People who got "burned" (lost lots of investment money) have learned their lessons and stayed away, resulting in reduced interest, or attention.
The world outside of crypto has changed significantly since 2021, with it also comes new opportunities.
Influencers, marketers, and news outlets need new "materials" to promote and write about in crypto. Thus new "shiny" narratives would triumph over old narratives because it can attract both new and existing Web3 users.
Now that we have the historical background out of the way. Now let me share the narratives that will lead the current 2024-2025 cycle and why:
AI:
Thanks to the breakneck speed of adoption for OpenAI and other companies' large-language models (LLM's), now even layman can also easily comprehend the power of AI. Below is the relative interest over the past 5 years comparing AI (in blue) and Bitcoin (in red) according to Google trends, we can see that after the public release of OpenAI in Q4 of 2022, interest just kept rising until now.
More than 65% of Y Combinator's summer 2023 cohort are building tools using AI, especially generative AI.
Thanks to the explosion of AI, now any project in crypto that uses or has incorporated some portion of AI element in it will result in some very strong interest and attention.
Bitcoin ecosystem (including ordinals and BRC-20):
Bitcoin is the granddaddy of all blockchain tokens due to its perceived image of "digital gold."
In 2023, Casey Rodarmor created the Bitcoin ordinals protocol and soon ordinals took the Web3 world by storm. Basically, ordinals are inscriptions that are inscribed (or written) on satoshi(s), the smallest unit of a Bitcoin. BRC-20 is a system for numbering satoshi. Another simpler way is to think of ordinals as NFT on the Bitcoin blockchain.
The Bitcoin ETF approval in Jan 2024 by the SEC also cemented Bitcoin status as a "legitimate" asset for big financial institutions, thus drawing in even further interest.
Last but not least, Runes Protocol, also created by Casey, allows the creation and management of various types of digital tokens on Bitcoin, using UTXO-based protocol (UTXO is Unspent Transaction Output). There have been statements released by many Runes ecosystem projects that they will start to airdrop participants who hold Runes-related ordinals before the BTC halving, which is supposed to take place on Apr 19th 2024 16:09 UTC.
In the past 30 days (early Mar to early Apr 2024), the sales of NFT sales on Bitcoin ecosystem have exceeded sales on Ethereum network (data is from CryptoSlam).
The top 3 collections by volume in the past 30 days have also been on Bitcoin ecosystem, per Cryptoslam figures.
People in Web3 are also aware that Bitcoin transactions have been traditionally expensive, and slow. Thus any new protocol or companies that promise to address these 2 fundamental problems of Bitcoin are inherently perceived as bullish.
Real-World Assets (RWA):
Real-world assets are basically physical or digital assets in the world that are tokenized and brought on the blockchain for improved transparency, liquidity, and other benefits.
BlackRock, the world's largest asset manager, recently announced that they want to tokenize $10 trillion dollars worth of real-world assets on the blockchain. In 2018 in Larry Fink's letter, Blackrock announced that they want companies to shift focus away from traditional capitalism to embracing ESG (Environment, Social, and Governance) in their conduct and contribute positively to the communities, we see that the majority of public companies follow this guidance. Thus we can safely infer that many public companies will follow Blackrock's trends and consider tokenizing more and more assets on the blockchain.
BCG published a report in 2022 stating that by 2030, $16 trillion, or 10% of the world GDP, will comprise of real-world assets.
Many people may not realize it, but stablecoins are probably the biggest use case of real-world assets, since the 2 biggest stablecoins, USDT (Tether) and USDC (Circle) by market cap are mainly backed by fiat money.
Real-estate is one of the largest asset class in the world with the market size in 2022 valued at $3.88 trillion. As blockchain technology improves and the infra becomes more suitable for real estate, we will see more and more companies adopt tokenization because of the numerous benefits: lower cost of asset issuance, reducing intermediary costs, improved risk/return, more liquidity.
(Not financial advice) I believe a smart investor will just deep dive into few protocols in 2-3 narratives and double down on those, instead of spreading themselves too thin.
What do you think will be the prevailing narratives in this crypto bull cycle of 2024-2025? Please feel free to comment below and let me know. If you enjoy my writing, please feel free to subscribe for more. Thank you for reading!