How Narratives Form and Fade

2.1 Everyone was talking about it

For a few weeks, one sector seemed to be all anyone in crypto discussed. Every podcast, every thread, every group chat. New tokens in the sector launched daily, and many rose several times over.

Mint bought in near the end of those weeks. Within two months, most of the sector's tokens had fallen 70% or more.

"I bought when it was obvious," said Mint. "Everyone agreed it was the future."

"That's usually when a narrative is most expensive," said Hash. "By the time everyone agrees, most of the buying has already happened. Let's look at how narratives typically develop, so you can recognise where you are."

2.2 The narrative lifecycle

Narratives often follow a recognisable path, similar to the hype cycles described for new technologies more broadly.

Stage	What happens	Who's involved	Typical price behaviour
1. Innovation	A new idea or product appears	Builders and researchers	Little price attention
2. Early adoption	Early users and investors notice	Insiders, specialised investors	Early gains, often in small tokens
3. Recognition	Research reports, funding announcements, respected voices discuss it	Funds, informed traders	Strong gains; new projects launch
4. Mania	Mainstream crypto attention; countless new tokens; extreme claims	Retail traders, influencers	Parabolic gains, then a peak
5. Disillusionment	Products disappoint, tokens unlock, attention moves on	Late buyers trapped	Steep declines, often 70% to 90%
6. Building or fading	Serious projects keep building; most others fade	Builders, long-term believers	Low, quiet prices; some eventual recovery for the strongest

Some narratives return in a later cycle with real usage behind them. Others never recover.

"So the best time to buy is when nobody's talking about it," said Mint, "and the worst is when everyone is."

"As a rough guide, yes," said Hash. "But early is hard. Many early narratives never take off at all. Being early and being wrong look identical for a long time."

2.3 Reflexivity

Crypto narratives are strongly reflexive: prices and beliefs reinforce each other.

1. A narrative attracts attention.
2. Tokens in the sector rise.
3. Rising prices attract more attention, funding, and new projects.
4. More projects and funding seem to confirm the narrative.
5. Prices rise further.

The same loop runs in reverse when sentiment turns: falling prices lead to less attention, less funding, abandoned projects, and further falls.

Reflexivity explains why narrative moves can go much further than fundamentals justify in both directions, and why they can turn so suddenly.

Chapter 2 · How narratives form and fade

Attention raises price, which attracts funding and new projects, which generate coverage that appears to confirm the narrative, which draws still more attention. When price turns, each step reverses, so the narrative fades as fast as it formed.

2.4 Signs of each stage

Stage	Possible signals
Early	Few tokens, low market caps, technical discussions, little mainstream coverage, real product experiments
Recognition	Funding rounds, research reports, rising developer activity, new launches
Mania	Many copycat tokens launching daily, extreme price targets, influencer promotion, projects renaming to join the trend, high funding rates on sector tokens (Module 7, Chapter 7)
Disillusionment	Product delays, large token unlocks (Module 5, Chapter 5), falling usage, attention shifting to a new narrative

One of the clearest mania signals is rebranding: existing projects suddenly describing themselves as part of the hot sector, without meaningful changes to their product.

2.5 Narrative versus substance

Hash suggested asking four questions about any narrative:

Question	Strong narrative	Weak narrative
Is there real usage?	Growing users, fees, and activity (Module 6, Chapter 10)	Mostly announcements and promises
Does crypto make it better?	Blockchains solve a real problem here (Module 5, Chapter 2)	Crypto added mainly to raise money
Do the tokens capture value?	Clear value accrual (Module 5, Chapter 6)	Tokens with no link to usage
Is it priced in?	Valuations reasonable relative to usage	Valuations assume total success

A narrative can be strong on substance and still be a bad investment at a given moment, if prices have already run far ahead of reality. And a weak narrative can produce huge gains for a while, if attention flows to it.

2.6 Where narratives come from

Source	Example
Technology breakthroughs	New scaling methods, new cryptography
Events outside crypto	Advances in AI, regulatory changes, financial crises
Big players entering	Major financial institutions launching crypto products
Successful products	A popular app spawning imitators
Market structure changes	ETFs, new trading venues
Influencers and funds	Coordinated promotion, sometimes with conflicts of interest

Funds and influencers who promote narratives often hold the tokens they're promoting, sometimes bought earlier at much lower prices (Module 5, Chapter 4). That doesn't make them wrong, but it's worth remembering who benefits when you buy.

2.7 Mint's narrative journal

To avoid repeating the mistake, Mint started a narrative journal.

Narrative	Stage (Mint's estimate)	Evidence	Real usage?	Valuation	Action
Sector A	Mania	Copycat launches daily, rebrands, high funding	Limited	Very high	Avoid new positions
Sector B	Recognition	Funding rounds, growing fees	Yes, growing	Moderate	Research the leaders
Sector C	Building, after disillusionment	Prices down 80%, usage still growing	Yes	Low	Watch list

"I'll probably still get some wrong," said Mint. "But at least I'll know what I thought, and why."

2.8 Try it yourself

Pick two narratives that were popular in past crypto cycles. For each, find when attention peaked, using search trends or social media volume, and compare with the price of the sector's largest token. Then check whether real usage, such as fees or users, grew, stayed flat, or fell afterwards. Which narrative had more substance?

Key takeaways from this chapter

1. Narratives often move through stages: innovation, early adoption, recognition, mania, disillusionment, and building or fading.
2. When everyone agrees on a narrative, much of the buying has often already happened.
3. Reflexivity makes narratives overshoot in both directions, as prices and beliefs reinforce each other.
4. Copycat launches, rebrands, extreme targets, and high funding are mania signals.
5. Test narratives for real usage, crypto's role, value accrual, and valuation.
6. Narratives come from technology, outside events, big players, products, and promoters, who may have conflicts of interest.
7. A narrative journal helps you track stages and learn from your decisions.