At a dinner last summer, someone turned to me—as the “fuh-nance” person at the table—and asked a question about the art market. I professed ignorance but answered anyway, as a VC does. I ended up stumbling through an explanation of how art markets behave differently from the ones I spend my life studying.

The questions stuck with me though. What makes one market feel familiar and the other foreign? And can assets cross between them—or are they trapped forever in one mode of valuation?

Two Kinds of Markets

Every market answers the same question of “what is this worth?”, but the logic differs.

Cash flow markets are about math. A share of stock or slice of debt is worth the present value of its future income stream. These markets are deep, liquid, and mostly self-correcting. Mispricings get arbitraged away eventually, though sometimes not until after your investors have stopped taking your calls.

Popularity markets are about vibes. The price isn’t tied to future earnings but to what someone else will pay later, based on what they think someone else will pay after that. It’s like a hall of mirrors: art, watches, wine, NFTs, meme stocks, and, depending on your theology, bitcoin.

Both types of markets are internally coherent. One measures future earnings; the other measures collective belief. Most of the time, we pretend they are distinct. Increasingly, they’re not.

When Cash Flow Becomes Narrative

Traditional finance has always congratulated itself on being analytical rather than emotional, but over the last two decades that line has blurred. Within public equities, the meme stock phenomenon made equities into collectibles, with GameStop being somewhere between a baseball card and a Basquiat in terms of how it derives its value.

Further, public equity is giving way to private equity, where price is set by one enthusiastic buyer rather than the wisdom of crowds. The migration of credit from public to private is similar—more negotiation, less transparency, higher dispersion in outcomes. The result is less liquidity, but also less volatility and, paradoxically, often higher prices.

Private markets have become stories told slowly, where each funding round is an act of narrative revision. As investors, we justify this as “long-term orientation,” but it’s also a move toward the idiosyncratic and subjective. Private market participants underpin their bids with analysis around future cash flows, for sure, but relatively soon everyone will have the same AI-generated models in any event. The only differentiator will be which story you whisper to your GPT before hitting Enter. The beauty of private market investing kicks in after you’ve made your investment, because unlike public markets investors, PE and VC firms get to play a role in making their stories come true through active ownership.

When Narrative Becomes Cash Flow

At the same time, the opposite is happening in some markets that were historically based on popularity, for example in crypto.

Bitcoin began life as a pure popularity market—a digital collectible with no claim on future earnings. Ethereum, DeFi tokens, and tokenized real-world assets are inching toward the opposite pole: cash flows, staking rewards, and collateralized yields. A growing portion of digital assets now have observable income streams.

The composability of on-chain instruments, where ownership, exchange, and settlement are all software primitives, creates the potential for cash flow markets that are more efficient than public equities, with 24/7 liquidity, instant clearing, and transparent books.

Crypto, in other words, is evolving from a speculation engine into a form of programmable finance. Traditional assets, meanwhile, are drifting in the opposite direction—away from liquidity and transparency, toward scarcity and narrative.

The rise of prediction markets is bringing another highly idiosyncratic market into the mainstream. When monetizing an insight about the future moves from handing cash to a bookie in an alley to always-on digital markets, new possibilities emerge. A “bet” on an election result is a popularity contest until the decision is clear, but when combined with an “investment” in a regulatorily sensitive stock it can be a hedge that enhances the risk/reward of the combined trade.

Three Layers of a Market

Every market, whatever its logic, rests on three layers:

1. The underlying asset (what’s being owned)
2. The representation of ownership (the token or instrument)
3. The means of exchange (the infrastructure and rules by which it trades)

When an asset crosses categories—from private to public, or physical to digital—it’s because one of these layers changes. A company going private alters the exchange layer. A painting becoming fractionalized via NFT changes the representation layer. Real-world assets moving on-chain change all three. Changes in these layers often change who can participate in these markets, with major implications for valuations.

This layering helps explain why we’re seeing such rapid structural experimentation. Technology is allowing us to reconstitute “markets” in software—sometimes with more liquidity, sometimes less, but always with new combinations of narrative and analysis.

Liquidity and Its Discontents

Liquidity has become a cultural value in finance, almost a virtue. But more liquidity isn’t always better.

In a popularity market, high liquidity means high volatility: constant repricing with no analytic floor. In a cash flow market, liquidity allows efficient allocation and transparent risk transfer. We should be careful not to confuse the two.

There’s a case for aligning liquidity with analyzability: the more a market’s value depends on cash flows that can be modeled, the more liquid it can safely be. Where value depends on narrative and scarcity, illiquidity can actually be a stabilizer. It prevents the tyranny of the mark, wherein the least sophisticated player gets to be the one who sets the price.

The debate over “volatility laundering” in private equity misses this point. Illiquidity doesn’t hide risk; it just mutes reflexive behavior. Public markets allow you to buy from panicked sellers and sell to euphoric buyers every day. Private markets force you to hold still. The right lesson may not be that one is better, but that both serve a purpose in a portfolio of human psychology.

Convergence, Not Collision

The 20th century was about standardization—turning idiosyncratic assets into fungible securities, making more things investible by packaging them with a CUSIP. The 21st may be about repersonalization—deeper, wider and more diverse types of markets that can be synthesized and composed to allow for more specific and hyper-targeted exposures with high levels of efficiency.

We can now have instruments that are bespoke in economics but liquid in execution. Tokenized credit, online prediction markets and programmable securities all point toward a market architecture that’s more continuous, more transparent, and more flexible than anything before it.

The old categories—public vs. private, fungible vs. unique, speculative vs. productive—are dissolving. We are left with a continuum from pure popularity to pure cash flow, with most assets somewhere in between, trading on markets that range between purely liquid and traded by appointment.

The Moral of the Market

Markets, at bottom, reflect motive. Some reward the ability to predict productivity; others reward the ability to anticipate collective belief.

For most of history, we’ve kept them apart: finance for the rational, art for the romantic. But technology is forcing them together, and in doing so, revealing the spectrum between reason and story that underlies all value creation.

Our task as investors, founders, and regulators is not to defend one logic against the other, but to design systems that can accommodate both the measurable and the mysterious, without letting either dominate.

Because ultimately, every market is a popularity contest. Some just pay dividends.