Market Fictions and Evidence
(No shilling. No pumping. Some dumping. Minimal kumbaya bs. Zero citations.)
As a self proclaimed fiction-evidence investor, there are two general factors I’m examining when making decisions:
- Fiction (story or narrative)
- Evidence (data)
My approach begins from narrative investing but builds on it because I look at evidence that may support or contradict the narrative.
When I make investment decisions, I first write a fiction in my mind. It is what I imagine the future will look like based on what I know. This story or narrative is fake. Its opinion. Its fiction. I try to dream a little harder and think bigger. Normally when people tell me my ideas are dumb or will take a lifetime to realize, that's when I know I’m on the right track.
People usually have trouble imagining a future where things are substantially different. From a day-to-day perspective, they are correct. Things don’t really change. It is like taking the tangent line to a curve. From the perspective of the tangent line, there is only a point. Only when we take multiple tangent points and string them along, do we realize that we are dealing with a curve and not isolated point.
When I make investment decisions, I am not looking at points. I am looking for curves.
Another interesting detail about fiction, especially technological fiction, is how quickly things can change. Exponential growth permeates nature and science. When boiling a frog, the initial stages of heat are imperceptible. Until suddenly it is too hot.
For crypto, we are in the initial stages of boiling the water. The fiction I have written says that crypto will infiltrate and subsume all current organizational infrastructures. The story I wrote says that the next twenty years will be turbulent and deadly. Nations will fall, or rise, due to their crypto adoption.
An example of a sub-fiction, a fiction that relies or enhances other fictions, is this: in Africa, the combination of cell phones and satellite internet will connect them to the crypto infrastructure, replacing weak or nonexistent legacy infrastructure.
Do I sound crazy? Once my fiction is sufficiently wild and outlandish, I start looking for evidence that supports it. Its important to look for data trends, and not data points. Conflicting evidence is encouraged so long as its a conflicting trend and not a conflicting point. I try to watch out for confirmation bias, but I’m not going to dwell on short term data points.
Evidence is anything that can be verified on Dune Analytics, Nansen, Messari, Etherscan, as well as Google trends, social media mentions, etc. Data is king. This is objective, cold data. There are about 500,000 daily active Ethereum users at the time of writing, down from about 700,000.
For some parts of fiction, there is little to no evidence. At least, not evidence that is readily available. Perhaps this is a failing on my part. Going back to the specific Africa example, I could look for the data that indicates a rise in cell/satellite usage, and the failure of centralized banking infrastructure. But for me, it is enough to assume that this is true. Maybe this is my investing weakness: assuming fictions to be true.
If I had to fact check every assertion in my fiction, I would never decide on what assets to invest in. In the lazy absence of data, I must use faith.
When I make investment decisions, I start with the story. I think that the world is changing. Humans are prone to short term thinking and fail to make the correct long term decisions.
After I have a story that seems wild, I begin to gather evidence. Sometimes the evidence contradicts the story. I may have to revise the story. I may also realize that the evidence represents a single point in time, and is not representative of the long term trend.
Summary and TLDR:
Humans will place emphasis on the short term, single data points. They will fail to see the big picture. Crypto is in the big picture. There are more people that live in New Haven, Connecticut than there are people that use Ethereum every day.
Zoom out five years and there will be five million daily Ethereum users. In 10 years, there will be one billion daily Ethereum users. This is a bull case right here. I wrote the narrative, now I monitor the data to see if it comes true.
