Is it true that retail investors can no longer make money in the cryptocurrency market? Why do people say that this cycle has come to an end? Why is everyone feeling frustrated? We can attribute all these questions to one problem: under the current market structure, retail investors can no longer make real money.
Let’s talk about returning to the source and breaking free from the current cycle. The absence of retail investors in this market trend can be explained simply – the “traditional” cryptocurrency market (such as infra tokens) no longer offers 500x returns. There is now a more interesting casino with better memes, and they are easily accessible.
In fact, we are witnessing a replication of what happened in the VC/IPO market. In these markets, companies remain private for a longer period, allowing more upside to stay “private” (such as venture capital funds), and retail investors are unable to enter.
Cryptocurrencies once turned this situation around and democratized access to asymmetric upside. But not anymore! L1 and L2 have raised more funds from venture capitalists. There are no more public token sales. Venture capitalists make money, while retail investors are marginalized. It’s not surprising that retail investors are disillusioned with this cycle.
An important reason why companies are willing to stay private for longer is that venture capitalists now have five times more capital than ten years ago. Companies can now raise over $1 billion in funding in the private market without dealing with the additional expenses of the public market.
It’s no wonder that the trend of increased funds flowing into cryptocurrency venture capital is also happening. Cryptocurrencies were supposed to solve this problem!
ICOs aimed to democratize capital formation and further gain risk returns. They have definitely succeeded in doing so. Buying Ethereum at $0.30 during the 2014 ICO and seeing its price rise to $3,000 today means a return of 10,000x in 10 years, surpassing any concurrent venture capital returns. Anyone on Earth can participate, and that’s amazing.
While the industry has clearly grown, the entry price naturally increases, but the opportunities have not disappeared. $SOL launched with a price of $0.22 in 2020 and is now priced at $140, resulting in a return of 636x in 4 years, potentially beating almost all venture capital returns in the past five years.
In this cycle, we have moved away from this market structure. There are now hardly any retail investors who have the opportunity to buy tokens before their launch or at a lower price on the public market.
Airdrops are indeed an improvement, allowing early users to gain some financial rewards compared to the existing venture capital paradigm. But financially, they do not match token sales. By definition, you can only make so much money from airdrops.
We have transitioned from a market with unlimited upside to one with a cap – a huge change. $1,000 invested in SOL’s ICO now becomes $636,000, while $1,000 invested in Eigen can only turn into approximately $1,030, even if it increases tenfold, it’s only $1,300. In the previous cycle, you controlled your own destiny, but in this cycle, you are waiting for the generosity of Eigen’s dad.
Financial nihilism means acknowledging that these markets have always been about money. Yes, this money funds technological development, but it’s also what drives the entire industry. If you weaken the monetary aspect, the whole industry will collapse.
We can do a few things to improve the current issuance structure. The key is creating unlimited upside for early users and the community.
In other words, there are bigger structural problems in the market. The large-scale fundraising of L1 and L2 leads to valuations reaching billions of dollars before going live. This brings two problems: (A) a significant amount of selling pressure, and (B) a lower limit on the issuance price.
One of the structural problems that most altcoins in this cycle face is that the selling pressure from venture capitalists is not offset by retail investor inflows. If $500 million is raised before going live, there will be $500 million worth of selling pressure (potentially even more if token prices rise).
Raising funds privately at high valuations means you’ll try to sell at even higher valuations. This may result in a market that can only go down.
The relationship between venture capitalists and retail investors doesn’t have to be adversarial. Everyone made money on $SOL.
But it becomes more challenging if you try to force too much venture capital money into illiquid markets. If you strip away the unlimited upside for the most important market participants, it’s nearly impossible.
We can blame and argue about meme coins, but that completely ignores the essence of the problem. It’s not meme coins that are the issue – it’s our current market structure. Let’s go back to our democratic roots and solve the problems of the current market.
This article is a collaborative authorized reprint from:
DeepChain