In-depth analysis of the polarization of crypto narratives and their commonalities

Original author: kyla scanlon

Original translation: DeFi Path

In this article, I will discuss:

• The crypto narratives from both inside and outside the ecosystem
• The role of brands and financial institutions in shaping mainstream interpretations
• How all of this connects together—and the overlapping nature of narratives

If you wish, you can watch the video version of this article here.

There is a narrative problem in the crypto space

I think this issue is very apparent to most people—different projects are divided, there is defamation against brands launching crypto integrations, interpretations of the cryptobro role, and of course, the general atmosphere under any NFT Twitter post.

Source: CoinersTakingLs

To be honest, sometimes it’s quite terrifying—people really seem to hate NFTs, hate elements of the crypto ecosystem, as shown in the image below (tw: death).

Source: Loop News

A recently released video titled "Line Go Up" harshly criticizes cryptocurrency. It is a well-researched piece that delves into how those outside the crypto ecosystem view those within it. Sometimes, this article is overly sharp, more of an attack than an analysis, but the core theme articulated by Dan Olson is:

“Our system is collapsing or breaking, becoming strained under neglect and destruction, while our leaders seem to be the most optimistic, willing to ride out the collapse. We need something better. But not a system that turns everyone into small digital landlords, converting all interactions into transactions, nor a system that determines the value of something based on its salability and whether it can be gambled on through small auctions.”

Or simply put,

“Buy now, buy early, and you might be the guide to future high-tech.”

The video is correct in some places (and inaccurate in others), but much of the core rebuttal, such as that from Robin Schmidt of The Defiant, goes like this: “Yes, you know, the video is correct, there are elements of cryptocurrency based on unsustainable hype—we are fixing that—but there are also many good things.”

Tim O'Reilly wrote a very good article about web3, mentioning Sal Delle Palme's viewpoint.

“If Web3 heralds the birth of a new economic system, let it be one that can increase real wealth—not just the paper wealth of those lucky enough to get in early, but goods and services that can change lives and make everyone’s life better.”

Currently, crypto is not interpreted as “real wealth”—it is seen as a Ponzi scheme, a scam, etc. The development of things takes time, and the calibration of the system also takes time—but Line Goes Up does a great job of distilling the different narratives surrounding the perception of the crypto ecosystem.

• The thing about narratives is that different people can read the same book and have completely different takeaways.
• We all approach the world through different filters, different lenses, and this ultimately shapes what we see.

I believe Line Go Up and Crypto are talking about the same thing, but the difference is that Dan outlines dissatisfaction with the system in his video, which is also the entirety of Crypto. At the end of the article, he talks about the shrinking opportunities, mentions isolation, and how the future seems to be disappearing before our eyes—emphasizing that Crypto is not the answer here. But that is also what Crypto is about—building a better system.

So, why is there such a divide?

This is why discussing narratives is important.

Narratives

People outside the crypto ecosystem

When they see (1) Ponzis, (2) pump-and-dumps, (3) (honestly) absurd capital allocation to different shitcoins, they say: “Wow, this is terrible, why would this be the future?”

People inside the crypto ecosystem

They know a lot beyond shitcoins—but the problem is that shit really stinks. It can be difficult to see what lies beyond these shitcoins—they need to recognize the potential power of cryptocurrency in how it has changed and is changing lives, ownership, and meaning, as well as what the underlying technology can bring to ancient industries in terms of efficiency and execution.

In an imperfect world, you cannot have a perfect solution.

Overlap between insiders and outsiders

This can be roughly divided into two different groups (of course, this is a simplification)—

• Those who want freedom from the system (r/antiwork, FIRE, socialist elements, etc.).
• Those who want money (crypto, finance people, VCs, etc.).

Of course there is overlap between these two groups—actually quite a lot—many people involved in cryptocurrency do not

• It’s hard to have freedom without money (that’s the reality, for better or worse), and the drive for money is often to have freedom.
• Both money and the desire for freedom are about being able to make the choices you want, spend your time the way you want, and engage in what you care about, all while knowing you and your family are safe.
• Freedom = f(time allocation, choice, money)
• Money = f(stability, freedom, choice)

Many people who just want money and the freedom part just want a world that feels more hopeful.

• Both money and freedom are essentially functions of each other.

This makes sense. Most people are frustrated with the system, as highlighted by the comments under Dan's video and various crypto Discords. More and more people yearn to escape the 40-hour workweek, the 9-to-5 grind, for a lifestyle that includes healthcare, retirement plans, and only working 30 minutes a day. And Crypto is essentially an answer to this problem—it is a way for people to at least attempt to deconstruct a system to make it (on paper) fairer, more accessible, and change the distribution of power.

But broadly speaking, it is not interpreted this way.

Two divisions of crypto narratives

I will first discuss the "Crypto Bad" narrative, followed by "Crypto Good," to emphasize the differences in interpretation—Crypto Bad sees hyper-financialization, while Crypto Good sees the ability to create ownership, and so on.

Crypto Bad narrative

People outside the ecosystem see five key things when looking at Crypto (once again, a broad generalization, these are some more extreme views).

1) (Soul) hyper-financialization and commodification

Paying for everything, turning everything into an object of investment/speculation. Do we really need to make everything a microtransaction? Is it absolutely necessary to break down access into dollars and turn every aspect of our lives into another speculative market?

Many people wish to return to simplicity—and cryptocurrency *complicates it.

2) Scams/Ponzi schemes

Scams, pump & dumps, rug pulls are undoubtedly some of the most well-known parts of the crypto ecosystem. Scams are the common thread. Ponzi economics is a completely different thing, “What is the intrinsic value other than the price going up?”—when the answer is “none,” then what is it?

3) Speculation

• There is a very large gambling problem in modern society. Lotteries are such a paradox (they help fund education), but gambling is indeed an incredibly harmful and painful addiction.
• Crypto seems to encourage mass speculation, which is hard to separate from gambling (some positive expected value).
• This atmosphere is very widespread, such as “bet on this coin because Musk might tweet; if he tweets, this coin will go to the moon.” This narrative is also a main thread in the GME/AMC saga—if we all do this, then its price will rise.
• Both GME/AMC and crypto have an anti-establishment element, but like??? What societal benefit does betting on mooncoin rising bring? (And what is this society?)
• Also, a lot of NFT art isn’t that great? Does it just look like fancy gambling? In this economic environment, you’re going to spend hundreds of thousands on a photo of xyz? Haha—can you even make money off it?

4) In-group vs. out-group

They say: “You’re not going to make it (NGMI).” It’s common for communities to adopt their own language (mainly to indicate who is cool and who isn’t), and if you’re out, then—good luck getting in, because the brain is actually working against you.

5) Environmental destructiveness

The earth is on fire? You want us to simply accelerate the demise of the planet so you can make $100 on a coin named after a dog?

Moreover, the stress that cryptocurrency mining puts on an already fragile power grid is also a concern.

Summary of the Crypto Bad narrative

Crypto is a reflection of the world it emerges from—therefore, it’s hard not to let the influences of traditional systems seep into the new system. And the current world seems to many like this:

For many, crypto only makes things worse. (1) The bad things during the global financial crisis will be amplified, (2) the destructiveness of Facebook will be amplified, (3) the environmental destruction of oil producers dumping their products into the ocean will be intensified.

• This is the ever-widening wealth gap—but the inner voice that needs to be loudly spoken is—“I have the ability to spend hundreds of thousands on a picture of a monkey, while you live paycheck to paycheck.”
• In a world where millions are barely getting by, seeing this can feel very cruel. It’s not to say it’s good, bad, or anything else (who knows), but it’s the feeling of many.

There exists a lottery society in the world, but it doesn’t hide behind the crypto gas station—it’s out there for the whole world to see and boast about. It becomes wealthy off of things that seemingly haven’t made the world better—this can feel… bad… because for many, the world is already a bit… bad.

A one-sentence summary of Crypto Bad and the entire argument of "Line Go Up" ultimately is:

“Our system is bad—turning our lives into speculative commodities is not the answer.”

But from the opposite perspective…

Crypto Good narrative

Of course, crypto is not entirely like this (of course not, usually nothing is as extreme as we think). Before we dive into this part, it’s very important to emphasize that crypto has different parts (obvious, but still needs to be stated). (1) Some people are literally just in it for the money, (2) others for the real-world use cases of the technology. The five points of the narrative that crypto believes are more like:

1) Creating ownership

By participating in this thing, you get this token, which will allow you to benefit and own what you engage with. Tokenization, then gaining its value. Simply benefiting from being a person—this is kind of cool—and doesn’t require paying intermediary fees (decentralized). Getting rewarded for what you do. And thus building a better world.

2) Market calibration

Losses are part of the learning process :-/

Rug pulls are part of the game. If you invest in enough projects, you will encounter various rug pulls. People will tilt the table slightly in their favor, and then suddenly—you get liquidated. This is not a good thing—but

• After experiencing enough scams, people will hopefully become more discerning over time, thus reducing the effectiveness of scams (again, hopefully—the numbers from 2021 look a bit rough).
• Vulnerabilities are also part of the game—Wormhole is a very unfortunate example.
• 
• Ponzi games and Ponzi schemes: these two are a bit different—we are deep in multi-level marketing in web2, so there will certainly be some Ponzi schemes in web3. The core argument can be summed up as: “If you HODL, we all HODL and become very rich.” This will work until it doesn’t.

Most people know that relying on “more money coming in, the price will go up” token economics doesn’t really work.

2.5) Policy

• Crypto policy is interesting because it is a system trying to calibrate around something entirely new—while politicians don’t know what they are regulating.
• Regulation is synonymous with acceptance and usage elements, which is why this point is so important. Crypto wants to be regulated—but in the right way.

3) Financial advantages

• If you position correctly, you can really make a lot of money in this space (you can also lose a lot, the market is interactive on both sides). So people say, “Hey, why not get involved in this pretty cool opportunity and make some money beyond what I earn as a worker?” Literally, why not?
• However, the market is interactive on both sides. It’s a zero-sum game—all markets are. Some people will end up being the exit liquidity (very similar to the slowest antelope being eaten by a lion). This is not the main goal (usually?), but it’s the nature of the environment many fast and furious projects face.
• Additionally, you can also enjoy the thrill of financial upswings—Dune Analytics just raised $69,420,000 (because they can, and life is a meme). Everything is simple irony and self-deprecation. Don’t take yourself too seriously, because at this point—you really don’t understand what it’s all about.

4) Community

• The value of crypto lies in its people. People build together—the scaling capabilities of L2 make Ethereum more accessible, they build alternatives to Ethereum, they overly focus on Doge, they buy Bored Apes—all of these share the concept of community.

This is also what crypto offers—a derivative of religion, a place where people feel valued and respected.

5) Changing lives environmentally (amplified by FOMO)

• This comes from Zeneca reflecting on regret and missing certain trades. He summarizes the existing FOMO well—“Ah, I didn’t get on board, so all the wealth will be lost”—while also emphasizing how much wealth is out there.
• 
• And it seems like everyone is in FOMO, or at least embracing this environment. The lines between web2 and web3 are starting to blur, and innovation and investment are everywhere.

Summary of the Crypto Good narrative

The Crypto Good narrative is about access and opportunity, about creating pathways for those who didn’t have them before, about connecting the world to truly owning things with this common goal. It’s about taking power away from social platforms, it’s about the David vs. Goliath narrative (non-ironic, “showing his God’s power,” which is some degree of Crypto).

It’s about creating community (even if it may be chaotic, that’s okay!) and changing the world. For better development.

Narrowing the ever-widening wealth gap. Providing alternatives. Not letting power dynamics become so skewed that it’s nearly impossible to rebalance the scales.

A one-sentence summary of Crypto Good is:

“Our system is bad—but we can choose how to protect, own, and benefit from the world around us.”

Interpretation of narratives

To summarize both narratives.

However, both statements are very extreme interpretations.

A few weeks ago, I wrote an article about narratives and the issues of interpreting the narrative around web3:

“Thus, the narrative about what web3 could be—potentially net beneficial for most—has been distorted. It can be seen as a fair, collaborative, barrier-free world, but it is not. From an outsider’s perspective, this narrative has not been interpreted in the right way. Most people still see crypto as a wealth-making scheme for those who are already wealthy, which is not… appealing. This can actually be divided into two main lines:

1. Economic change: Crypto will change how the economy works, digitizing everything, allowing us to own everything, and changing how we work and entertain ourselves, etc.

2. Ponzi economy: This is actually just a corridor of wealth that makes the rich richer and leaves others behind.

It’s always about perception. It’s about the issue of narratives. Everything ultimately is a byproduct of how people interpret it.

If you amplify either argument, you will find flaws in both. Crypto is not perfect yet (nothing is perfect), and it requires a massive tech stack to truly delve into the ecosystem. The democratization of wealth is murky. As Matt Levine wrote:

Countless people have become billionaires by founding crypto exchanges, trading platforms, market makers, derivatives businesses, etc. (while I’ve never read about anyone becoming a billionaire by using cryptocurrency to solve any problems, other than trading more cryptocurrency, but don’t mind that!).

The crypto ecosystem is a stack of blocks—we can see the interpretation of narratives playing out here. It consists of brands, financial institutions, and other aspects.

Narratives in action

Brands

Major brands want to get involved; they want to stay relevant. Therefore, brands develop NFT projects, build in the Nike metaverse, and even try to become the disjointed metaverse itself (which has certainly affected their recent earnings). This is about testing the ecosystem (for Zuckerberg, it’s about controlling it) to figure out how they can leverage the technology and allow fans to engage with them. It’s about a function of the following two points, including:

• Relevance: Why not keep up with cultural trends and create some NFTs?
• Future: Attention is one of the most valuable commodities in the world. If you can figure out how to leverage that, you can carve out more opportunities for yourself in the vast space of uncertainty that lies ahead.

This could go very smoothly, or it could go very poorly.

But at the same time…

Look, this is confusing.

Tradfi

So these people love to make money. They are currency experts; they know traffic, know the system, and understand it. They specialize in markets, looking for discrepancies, truly making Line Go Up.

So yes, they will enter the crypto space. This is in their DNA—derivatives, leverage, yield farming, etc., with huge upside potential? And they are already entering the crypto ecosystem (BlackRock is launching blockchain ETFs, while the pursuit of spot ETFs has long been stalled). They see financial opportunities here.

The Ontario Teachers' Pension Plan invested in FTX's recent funding round—this is a huge sign that institutions have appeared in the circle (and they have been here all along). Here are a few reasons:

• Yield: Making money in certain parts of the market is very difficult. Bonds are basically weakened cash reserves, and some stocks have already risen a bit too much, with no future returns in sight (maybe?), which is tough for the typical stock picker. So they need yield—and cryptocurrency is yield! And it doesn’t matter if it’s trading like Nasdaq now.
• Diversification: This is closely related to yield—cryptocurrency is the answer to “Wow, is everything just Apple/Google/Facebook?” It provides an opportunity to reduce the overall concentration of funds and portfolios, which is unparalleled in finance.
• Financial upside: Including yield—cryptocurrency has changed the fortunes of many people. This is a probabilistic event—making a few strange bets here and there, some people might become winners (this is also the exact definition of venture capital, which I will discuss later).

So yes. “Why not?” This is basically the narrative of financial institutions investing in cryptocurrency.

Venture Capital

Last week, I wrote about this issue, but venture capital, as this article describes.

Crypto and fast-growing technology have a large amount of venture capital funding, Wall Street money, and global macro narrative funding. Because of this, this funding moves according to the risk assessments of its holders—which means cryptocurrency will eventually trade like large tech companies, with a lot of risks and cyclical movements of risk.

This is not a bad thing—it’s just the market’s way of pricing the risks it sees.

Venture capital funding is flowing in—large amounts of venture capital funding are pushing projects to valuations of $100-200 million, putting pressure on the entire market before products, ideas, and outputs.

Venture capital plays an interesting role in this space—sometimes they are enemies, sometimes they are friends, but their commonality is that they are financiers, offering millions of dollars to (seemingly) anyone with a tokenized revenue model and mentioning web3 in their pitch. The awkward/necessary part of venture capital is that they are seeking returns. The reason they invest is Line Go Up— they can throw spaghetti at the wall and see what sticks, but their main goal is to have a solid exit.

In the context of FOMO and hype, return-driven investment. They invest in cryptocurrency companies because one day, the intrinsic expectations will bring them a lot of money, and that makes everyone happy. Of course, not every company will do this (most won’t), but those that do will make it all worthwhile.

Venture capital is speculative—it’s either a bet on the founders or a bet on the idea itself. And these small bets are an injection of capital that is now setting a floor for the entire space.

Quick thoughts on the Federal Reserve

There are other influencing factors—of course including the Federal Reserve—or rather, what the Federal Reserve represents. This has been very evident in the past few weeks as the Federal Reserve announced they would indeed raise interest rates (and this time they are serious!), causing the stock market and cryptocurrency to lose their minds throughout January. Cryptocurrency became a testbed for tech stocks—this crushed the entire diversification narrative.

• The Federal Reserve announced it was time to tighten economic conditions, and things are no longer easy—so people are reallocating from tech/crypto into staples like energy and utilities.
• Until they rotate back—because we are living in a cycle after all.

But the market is now quite uncertain—we can see this from the VIX index, low fund inflows, and general market movements. Geopolitical risks, whether the economy is really fine, general concerns about speculative bubbles—well, to say the least, things are tricky. In this situation, several things complicate it further, and all of these also affect cryptocurrency:

• Energy markets: I think there are quite a few risks for cryptocurrency here, and these risks are often not discussed enough. The rolling blackouts in Central Asia and Russia are not a good sign for stable energy supplies. OPEC held a 16-minute meeting, agreeing to increase oil production by 400,000 barrels a day in March—but concerns about underproduction, underinvestment, and resource constraints are strong.
• Speculative exhaustion: If energy prices start to inflate (like real inflation), this will help achieve the Federal Reserve’s goal of tightening the economy (#efficiency). Speculative dollars are being funneled back into less speculative assets (like oil), causing the entire speculative bubble to burst. So. This could be a bad thing.

Narrative summary

Well, the point is that crypto is aware of where it needs to improve—and the overlap between its bad and good narratives is more than I think people realize.

So I think it looks more like this:

• Yes, there is more financialization of things, but behind it are elements of ownership and decentralization.
• Market calibration—due to human nature, scams are an unfortunate norm.
• There are opportunities to transcend speculation and have real investments.
• Community—people do make crypto valuable, but there are also jerks everywhere. Please avoid those jerks.
• Environment—the world is on fire. We must have sustainable energy. This transcends cryptocurrency and directly relates to policymakers.

We must consider the opportunities that change lives, but we must also consider transcending the current life.

Of course, this is a fairly subjective and very qualitative analysis of the ecosystem.

Markets are both qualitative and quantitative. Markets reflect to some extent the world we want to see—we invest in those companies we hope can bring good to the world (most of the time…).

But sometimes, the world doesn’t seem so great.

Whether inside or outside of crypto, people are clearly unhappy with how the world is developing. The fact that we are restoring coal production, that we still have worker rights issues, and that we can’t even think about how to have healthcare in the U.S.—it’s like, “Is this world just a giant shitcoin?”

So, what do you do? Where do you find hope and meaning?

We have two groups that actually have relatively similar goals (crypto bad and crypto good), but have different interpretations of the narratives (and technologies, processes, etc.) needed to achieve those goals.

To improve people’s perceptions of it, crypto can do a lot—Casey Newton highlights some—including making transactions more reliable and implementing scaling solutions (faster) (people are working on this). He emphasizes the importance of Molly White’s article about cleaning up privacy issues on the blockchain.

There are narratives with hype (which may be the future) and also realities (this is the future).

• Both crypto skeptics and crypto enthusiasts have reasonable points—perhaps hyper-financialization to the point where we have to spend money to unlock our coffee machines and toothbrushes (as Cobie pointed out) is not good.

But there is an idea that we can build a better future that allows access, seizes opportunities, and benefits from previously very conservative systems—that’s quite good. All we have to do is how we view it—and ultimately, how we implement it.

Humans are, after all, human—many narratives revolve around this. To some extent, we never get along well. But I think these two seemingly polarized groups—those who resonate with Dan Olson’s video and more content, and those who delve deep into the crypto ecosystem—have more in common than they might think—I believe there is some room for reconciliation—which is very valuable for starting to build a better future that both seem to want.

Note: When I mention Crypto, I refer to the broad ecosystem—metaverse, tokens, networks, NFTs, DeFi, etc.