In the world of cryptocurrency, attention is the most important factor for the majority of coins.
Unlike traditional finance, where earnings and fundamentals drive value, crypto tokens can be valued based on attention. Projects that capture the attention of traders often see significant price increases, regardless of their fundamentals.
Attention Matters More Than Fundamentals
As crypto traders, we often focus on the value and potential earnings of projects, as well as the fundamentals that may drive their success. However, in the world of cryptocurrency, attention is the most important factor for the majority of coins. In this article, we will explore the concept of attention markets and its impact on the crypto industry.
In traditional finance, earnings and fundamentals play a crucial role in determining the value of an asset. However, in crypto, the situation is different. Most tokens have no intrinsic value and can be valued based on anything, including attention. This can be a difficult concept to grasp for traders coming from a traditional finance background.
Let's take the example of INJ, a token that has experienced a significant increase in value. Looking at its ecosystem and the substantial increase in its token price, one might assume that the project is thriving. However, the total value locked (TVL) has remained flat throughout the year, and the number of core developers has been decreasing. So why did the price of the token increase? The simple answer is attention. As more attention and investment flowed into INJ, the token continued to rise in value.
Similar examples can be found in other projects like Celestia (TIA). Despite a decrease in transaction counts and active accounts, the attention and buzz created by the project's airdrop resulted in a strong price increase. In the crypto market, the adage holds true: there is no better form of marketing than a token's price going up. Projects that manage to capture the attention of crypto traders often see significant price increases, regardless of their fundamentals.
Trading Attention on DEXs
For those who primarily trade on decentralized exchanges (DEXs), tracking the attention and popularity of projects is crucial. DEX screeners, like Dexscreener's trending tokens, can provide valuable insights into which projects are attracting the most attention. By qualitatively and quantitatively analyzing the amount of attention a token is receiving, traders can make more informed decisions about their trades. Tokens that lose attention and stop trending are likely to see a decrease in price, while tokens that regain attention can experience significant price increases.
Mental Framework for Trading Attention
Developing a mental framework for trading attention is essential in the crypto market. Some questions traders can ask themselves include: Has attention peaked for a particular token? Will the token or its narrative continue to attract attention? And where does the token stand in its attention cycle? By answering these questions, traders can gain a better understanding of how attention impacts the value of a token.
Putting the Theory into Practice
To put this theory into practice, traders can start by monitoring Dexscreener's hot tokens to track where the attention and money are flowing. This doesn't necessarily mean buying these tokens but being aware of the trends in the market. Additionally, traders should have a clear thesis for each position they hold, determining whether attention has peaked, if the narrative has potential for attention, or if an unnoticed token is likely to gain attention. By front-running attention, traders can potentially profit from the market's dynamics.