Why can't retail investors make money in the encryption market now? - ChainCatcher

Source: Regan Bozman

Compiler: Deep Tide TechFlow

Why do people always say that this cycle is over? Why is it painful for everyone? We can boil it down to the fact that under the current market structure, retail investors can no longer make real money.

Some talk about going back to the basics and getting out of the current cycle

The answer to why there are no retail investors in this round of the market is actually very simple - this is because the “traditional” Crypto Assets market (such as infra Token) no longer has a price of 500 times. Now there’s a more fun casino with better memes at their fingertips.

We’re actually recreating what’s happening in the VC/IPO market, where companies stay private for longer, which means more long rise short remain “private” (e.g. venture capital funds) and are inaccessible to retail investors.

Crypto Assets reversed the situation for a time and democratized access to asymmetric pump short. But that’s not anymore! L1 and L2 raised more long from venture capitalists. There is no public Token Sale. Venture capitalists make money. Retail investors are marginalized. Perhaps the disillusionment of retail investors with this cycle is not so surprising.

A big reason why companies are willing to stay private for longer is that venture capitalists are now five times long more funded than they were a decade ago. Companies can now raise more than $1 billion in private markets and don’t have to deal with the additional overhead of the public markets.

Not surprisingly, the same trend has emerged in encryption venture capital – longer money is now flowing into encryption venture capital funds than there were five years ago.

Crypto Assets should solve this problem!

ICOs are designed to democratize capital formation and further reap the risk-return benefits. And they absolutely succeeded in doing just that.

Buying Ethereum for 30 cents at the time of the 2014 ICO has pumped to $3,000 today, which means a 10,000x return over a period of 10 years, definitely beating any venture capital in the same period. It’s awesome that anyone on the planet can participate.

Now that the industry has clearly risen, entry prices have naturally climbed, but these opportunities have not gone away. $SOL launched at $0.22 in 2020 and is now priced at $140, which translates to a 636x return in 4 years, which may also beat almost all venture capital returns in the past five years.

In this cycle, we have moved away from this market structure. There are now few retail investors who have the opportunity to buy Tokens before the token issuance or buy Tokens at low prices in the open market.

Airdrops are indeed an improvement, and early users can get some financial benefits compared to the existing venture capital paradigm. But they’re not as financially as Token sales, and by definition, you can only make that much money from Airdrop long.

We’ve gone from an uncapped pumping shorter market to a capped market – and that’s a huge change. **The $1,000 invested in SOL’s ICO now becomes $636,000;

And the $1,000 invested in Eigen only turns into about $1,030… Even if it pumped 10 times, it was only $1,300. In the last cycle, you were in control of your own destiny, and in this cycle, you are waiting for Daddy Eigen’s handout. **

Financial nihilism means acknowledging that these markets have always been about money. Yes, the money finances technology, but it’s the money that drives the industry as a whole. If the money part is weakened, the whole industry will collapse.

There are several things we can do to improve the current issuance structure. The key is to create an uncapped pump short for early adopters and communities.

That said, there are bigger structural issues in the market, with massive fundraising of L1 and L2, resulting in multi-billion dollar valuations before going live. This raises two problems: (A) a lot of seller pressure; and (B) a floor on the issuance price at launch.

I think one of the structural problems facing most long alts this cycle is that the selling pressure in venture capital has not been offset by retail inflows. If $500 million is raised before the launch, there will be $500 million of selling pressure (or even more if the Token price pumps).

Raising money privately at a high valuation means you’ll try to dump at a higher valuation. This can lead to a situation where the market can only go downwards.

The relationship between venture capitalists and retail investors does not need to be adversarial. Everyone on $SOL made money.

But this becomes even more difficult if you’re trying to squeeze over long venture capital money into a market that isn’t Liquidity strong. If you deprive the most important market participants of an uncapped pump short, it is almost impossible.

We can point fingers and argue about meme coins, but this completely ignores the essence of the problem. Meme coins aren’t the problem – our current market structure is. Let’s go back to our democratic roots and solve the problems of the current market.