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The Death of Traditional Economy and Emergence of Narrative Economy

The year of 2020 has been among the ones which will be marked in humankind history – global lockdowns, spreading virus, race for vaccine, overleveraged economic decline, yet continuous capital market all-time highs (ATH). 

On the surface of reasons for ATH is the appearing never-ending quantitative easing by the Fed, which is now not the lander of last resort, but the buyer of first and last resort.

Federal Reserve’s Balance Sheet

Federal Reserve’s Balance Sheet

Current levels of the world’s most influential central bank’s assets are unimaginable. The world has never seen, nor expected that such a simple, yet powerful business model could drive up all the capital markets around the globe. The business model is simple: print more money, buy more risky assets.

M2 Money Supply

M2 Money Supply

Such actions by the Fed, apart from other fundamental factors, led to the accelerated emergence of what is commonly called – the Narrative Economics.

Narrative Economics were first introduced by the Nobel Prize-winning economist and New York Times bestselling author Robert Shiller. He is among the pioneers in the world who recognized and described a groundbreaking account of how stories help drive economic events. While in his book Robert Shiller gives plenty of examples of events that fall into the category of narrative economics, starting from the Bitcoin, and expanding that to real estate bubbles, and more fundamental economic questions, people who followed the news of 2020 and now 2021 have observed that themselves.

While the fundamental value for Bitcoin is a long-lasting debate about wheather it has an intrinsict value due to its network value, mining power, community, decentralization and other factors, versus the potential death of Bitcoin when quantum computers become the every-day reality, how Bitcoin is effectively de-anonymized in the current world, and how it is actually centralized in the hands of large mining groups. There have been more examples that depict the narrative-based power, which prevailed the fundamental factors, including the Hertz in June 2020 with the first ever Initial Bankruptcy Offering, the first ever Initial Twitter Offering by Mask Network, and the most recent GameStop battle vs. the Wall Street. There have been many other examples, but the mentioned ones got the widest media coverage. At the same time some or most of these events have been marked by the few thesis: 

  1. Professional and traditional financiers refused to accept any intrinsic value in those assets and events
  2. The assets got a wide global coverage and traction ranging from day traders in the U.S. to Chinese Housewives, and Russian factory workers, who all wanted to take part in
  3. The success of the early-joiners and sometimes failure of the late joiners 

With these three simple theses, and such examples, none of traditional or Warren Buffet-style indicators, analysis or evaluations worked. What was dictated to be worth of zero value by the common financial understanding made people reach highs of financial wealth within weeks or months, the heights that usually takes decades to build.

The ones who embraced and understood the new trends – got rich, the ones who bet against new paradigm lost billions. Same applies to recently one of the most hated stock Tesla. Same applies to the recently one of the most hated asset – Bitcoin (which is now 3% owned by institutionals who were insulting Bitcoin). Same applies to Verge coin that recently lost 200 days of transaction data.

With the later one, the recent price move looks like a regular market correction, while in presumably traditional financial markets, the price would plunge to zero within minutes.

Verge Coin Market Price

Verge Coin Market Price

Verge Coin Home Page

Verge Coin Home Page

The all above implies only few things. While we might be living in a bubble economy, or we might not – it does not matter at all. As long as the asset got a virus-like spreading narrative that is able to engage and attract more and more people in it, as described by Dr. Shiller, neither technical indicators matter, neither fundamentals. The wise-follower and the one able to identify promising narratives early on will be able to generate significant alpha and beat any hedge fund out there on the Wall Street.

This is the new world of Narrative Economics.


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Nikolay Zvezdin

Nikolay Zvezdin

Founder and CEO

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01 Feb 2021


Hong Kong

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