Market Behaviour: Bitcoin Mimetism, Reflexivity, and Memes

The digital asset market, like any other market, is fundamentally driven by human input. At the end of Q3 this year, the Bitcoin (BTC) network recorded 351 417 daily transactions and the industry continues to be mostly retail-aligned. Retail investors are particulary exposed to emotional investing and trading, furthermore the access to higher-level information is scarce and limited. Additionally there’s a clear information asymmetry, granting a de facto edge to institutional investors.

Mimetism and Investing

The mimetic theory can be used to interpret retail investor behavior, yet it also might (more or less) apply to institutional investors. The mimetic theory of desire is an explanation of human behavior and culture which originated with the French historian and polymath René Girard. The name of the theory is derived from the philosophical concept mimesis.

In mimetic theory, mimesis refers to human desire, which Girard thought was not linear but the product of a mimetic process in which people imitate models who endow objects with value. Girard called this phenomenon mimetic desire. Girard described mimetic desire as the foundation of his theory.

“Man is the creature who does not know what to desire, and he turns to others in order to make up his mind. We desire what others desire because we imitate their desires.” - René Girard

Girard’s mimetic theory states that the desire is born out of the contemplation of someone else who is desiring something and who designates to the other the object of desire. The following chart shows the triangular relationship between speculator, model, and object of speculator. Speculator imitates the model and follows the path to object of speculation. This is called mimetic desire.

The mimetic theory also applies to digital asset markets, the following chart portrays investor making an allocation. He or she (mimetically) follows a model by mimetic desire. Retail investors generally make investment decisions based on actions of others, they want in because others are in. Looking back at Bitcoin’s (BTC) past price cycles, we can easily argue that the 2017 retail-based bull market was heavily influenced by mimetic desire.

Reflexive Assets

Reflexivity is a hypothesis that positive feedback loops between expectations and economic fundamentals can cause market trends that substantially and persistently deviate from equilibrium prices. George Soros, the main proponent of reflexivity, regards it as a source of success as an investor. Soros believes that reflexivity contradicts most of mainstream economic theory.

Reflexivity theory states that investors don’t base their decisions on reality, but rather on their perception of reality, instead. The decisions that result from these perceptions have an impact on reality, or fundamentals, which then affects investors’ perceptions and thus price and valuation. The process is a self-reinforcing cycle and tends toward disequilibrium, causing prices to become increasingly detached from reality.

Markets and Memes

A meme can generally be described as an element of a culture or system of behaviour passed from one individual to another by imitation or other non-genetic means. Markets and memes are closely aligned. Many of the most popular assets preferred by retail investors in last 10 years have achieved a status as social media memes.

Possibly the most relevant example is electric automotive and greentech company Tesla, and particulary its CEO Elon Musk. Tesla’s brand revolves around Elon Musk and vice versa, and Musk has utilized social media and memes with promising track record.

HODL is a popular slang word and meme in the Bitcoin community, stemming back to December 2013 post on Bitcoin Forum. HODL broadly means to stay invested in bitcoin and not to capitulate in the face of plunging prices.

Michael Novogratz, ex-hedge fund manager and CEO of Galaxy Digital, has evolved into one of the opinion leaders of digital asset industry. In addition to his influencer status, he’s also considered as a meme, often expression optimistic views on Bitcoin. As a billionaire, Novogratz has invested at least 20 percent of his net worth into Bitcoin and Ethereum.

Are digital asset valuations following news? At least the two variables are heavily interweaved. Kyle Samani, managing partner of Multicoin Capital, sees memes posing a significant effect on retail behaviour and markets.


A. The behaviour of retail investor segment can be interpreted by mimetic theory.

B. Markets and memes are closely aligned, both compile information, both reduce nuances.

C. Reflexive assets are subject to mimesis.

D. Digital asset markets are somewhat circular -> “the price is the news”.

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Data sources: dcresearch. George Soros. René Girard.

Author: Timo Oinonen. Twitter. LinkedIn.

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