[Twisting Bitcoin] How Will the Narrative Driving Bitcoin End?

A Kind of Heroic Narrative Driving Bitcoin's Value Increase
The Atmosphere Subtly Shifts as the Narrative Twists... Attention Needed on the Bitcoin Narrative

Cryptocurrency is sweeping across the globe. It is even likened to a so-called ‘mania.’ However, the more intense the mania, the more necessary it is to pause and observe. If problematic aspects are swept away along with the hype, they are bound to resurface as bigger issues someday. This is a time to calmly review the cryptocurrency market, through ‘Twisting Bitcoin.’

[Image source=Yonhap News]

[Asia Economy Reporter Gong Byung-seon] Robert Shiller, a Nobel laureate in economics and professor at Yale University, explains that the representative cryptocurrency (crypto) Bitcoin fits the typical ‘narrative economics.’ To briefly explain narrative economics, it is the argument that the economy, which seems to be governed by rationality and reason, is actually driven by narratives, or stories. Simply put, stories with compelling narratives drive up Bitcoin’s price. Moreover, if the narrative is attractive, it spreads rapidly like an epidemic, rising sharply before suddenly crashing, according to narrative economics.

The cryptocurrency mania is hotter than ever now. There are even stories of young people in their 20s and 30s investing as if grasping at straws, and cases where people have taken out loans to invest in cryptocurrency are not uncommon. However, if Bitcoin truly fits narrative economics, it could face a serious situation. When the positive narrative ends and interest fades, a sudden crash could happen at any time. Where does the Bitcoin narrative stand now?

Beginning: The Anonymous Hero Opposing the State and the Establishment

Bitcoin was born in 2008 when an anonymous developer named Satoshi Nakamoto published a paper. The most famous narrative of Bitcoin is that Satoshi Nakamoto developed Bitcoin due to distrust of the existing establishment following the 2007 subprime mortgage crisis. However, the paper does not mention terms like the subprime mortgage crisis or Wall Street, and since the developer is anonymous, fact-checking is impossible, so it is presumed to be just a rumor.

The story Bitcoin holds is quite attractive. No one rejects the plot of an anonymous hero fighting against corrupt states and establishments. Moreover, it’s not just about becoming a hero alone; if you invest in Bitcoin, the price surge can make ordinary people rich.

Professor Shiller also points this out. In his book ‘Narrative Economics,’ he explains that Bitcoin carries anarchism, which means anarchism symbolizing anti-government ideology. He also argues that the narrative of an anonymous developer who creates and then disappears is romantic and close to a detective story. There is no public who would refuse a story where an anonymous hero leaves humanity a tool to oppose the state and then departs.

In reality, the blockchain underlying Bitcoin was not a completely new technology created by Satoshi Nakamoto, but it attracted attention due to its anarchistic nature. Professor Lee Byung-wook of Seoul School of Integrated Sciences and Technologies explains, “In the early 1980s, various technologies that became the prototype of Bitcoin were developed from the cypherpunk movement, which aimed to protect privacy through cryptography. However, while cypherpunks partnered with centralized financial institutions, Bitcoin differs by completely excluding financial institutions.”

Development: Another Hero Emerges, Elon Musk

[Image source=Yonhap News]

The emergence of Elon Musk, CEO of Tesla, ignited the Bitcoin narrative. As recently as December last year, he said Bitcoin was “useless,” but in February, through the audio-based social networking service Clubhouse, he said, “I should have bought Bitcoin.” Later, on February 9, Tesla disclosed that it had purchased $1.5 billion (about 1.6762 trillion KRW) worth of Bitcoin.

Musk’s influence was tremendous. On the day Tesla announced its Bitcoin purchase, Bitcoin rose 17.05%, surpassing 50 million KRW. His influence also applies to the recent surge of Dogecoin. Dogecoin, which has no intrinsic value and no fixed issuance amount, rose 47.10% on the 15th and 104.82% on the 16th, thanks to Musk’s Twitter.

Musk’s narrative transferred to Bitcoin, becoming a driving force behind its price rise. He has a heroic narrative of overcoming the world’s scorn and succeeding in what everyone thought impossible. He leads businesses across fields such as autonomous vehicles, space, and brain research.

He also carries the narrative of an individual opposing the state and establishment. He is achieving results in the space industry, which is perceived as something only a powerful country like the United States could attempt. During the GameStop incident in January, where individual investors rallied against institutional short selling, Musk actively stated, “Short selling is a scam.” This overlaps somewhat with Bitcoin’s narrative.

Professor Lee explains, “Musk has a prophetic character, so many people follow him,” adding, “He plays the role of a super-spreader of narratives as explained by Professor Shiller.”

Turning Point: The Hopeful Narrative of Everyone Making Money and ‘Comeback’

However, Musk’s words alone are not enough. No matter how heroic a prophecy is, if it is not proven in reality, people hesitate to participate. In this situation, success stories around them began to be heard. Bitcoin started to gain attention as a kind of ‘hope’ among the public.

Especially, these success story narratives spread mainly among the 20s and 30s generation. Unlike previous generations, it is difficult for them to build assets, so cryptocurrencies with steep growth rates were seen as an ‘escape route.’ The fact that the protagonists of rumors about making big money with cryptocurrency are all university students or low-level office workers was enough to stimulate the 20s and 30s generation. Professor Hong Ki-hoon of Hongik University’s Business Administration Department explains, “Current cryptocurrency investment aims to make a fortune by leveraging volatility,” adding, “The social atmosphere encourages participation in the cryptocurrency market.”

Participation from the establishment also contributed to the mania. Not only major U.S. investment banks like Goldman Sachs but also Morgan Stanley and Fidelity declared their intention to participate in the cryptocurrency market. Above all, the Nasdaq listing of Coinbase, the largest U.S. cryptocurrency exchange, led the mania to its peak.

On the 13th, due to expectations for Coinbase’s listing, Bitcoin surpassed 80 million KRW. Bitcoin, which had not been recognized by the establishment, grew into an entity that can no longer be ignored. If Bitcoin is also launched as an exchange-traded fund (ETF) on the U.S. stock market, it would be a ‘comeback’ narrative comparable to the epic of the Chu-Han Contention.

Conclusion?: Tangled Narratives Could Hold It Back

[Image source=Reuters Yonhap News]

However, the narrative has begun to tangle. The beginning and turning point no longer align. As mentioned earlier, Bitcoin was born to oppose the state and establishment, but at some point, it began to seek or receive recognition from the establishment. Professor Hong points out, “It is contradictory that Bitcoin, born to oppose the establishment, wants recognition from the establishment.” In fact, after Coinbase’s listing, Bitcoin declined. From the 14th, Bitcoin showed a downward trend for nine consecutive days, falling to the 54 million KRW range.

Bitcoin’s failure to prove intrinsic value and inability to create its own narrative is also an obstacle. Without another hero appearing, its growth momentum will fade. Bitcoin was born as a means of payment, but actual cases are hard to find. The gaming platform Steam accepted Bitcoin payments but stopped due to high fees and volatility. Tesla also accepts Bitcoin payments, but predictions suggest it will withdraw for the same reasons as Steam. On the 31st of last month, global payment company PayPal launched a cryptocurrency payment service, but experts point out it is inefficient. Professor Hong says, “PayPal’s service uses cryptocurrency but ultimately converts it to fiat currency before payment,” adding, “It just adds an unnecessary step.”

More problematic is that the narrative’s flow has subtly begun to change. On the 23rd of last month (local time), despite Jerome Powell, Chair of the U.S. Federal Reserve, pointing out that Bitcoin cannot replace the dollar, and after a 1% decline, Bitcoin rose again, the atmosphere is different now. Scott Minerd, Chief Investment Officer (CIO) of Guggenheim Partners, appeared on U.S. economic media CNBC on the 21st and said, “Bitcoin could fall to $20,000?30,000 in the short term.” He was an optimist who claimed Bitcoin’s market capitalization would surpass gold.

According to Professor Shiller, epidemics decline by avoiding contact with patients but end naturally over time even without medical intervention. Economic narratives are similar. Professor Shiller explains that economic narratives spread rapidly for unclear reasons like epidemics and disappear when interest in the story fades. As of the 24th, the 24-hour trading volume on overseas cryptocurrency exchange Binance fell 55.43% compared to the previous day. The 24-hour trading volume on domestic cryptocurrency exchange Upbit also decreased by 49.71%. If interest in Bitcoin, which grew on the momentum of narratives, declines, a price crash seems inevitable. This is why special attention must be paid to Bitcoin-related narratives.

This content was produced with the assistance of AI translation services.