The Harvest Mechanism of the Cryptocurrency Market: From Blockchain Technology to Futures Arbitrage

Why Do Countries Strictly Regulate Virtual Currency Issuance?

The answer to this question lies in the financial history of the past few decades.

There was a developer who once worked as a programmer in Silicon Valley, who used simple code and a few servers to make a profit of 20 million USD within two years. This case is not meant to encourage imitation but serves as a cautionary lesson—it reveals how virtual cryptocurrencies can become the most efficient tools for financial harvesting.

Unlike traditional stock markets that require listed companies’ endorsement, cryptocurrencies do not even need physical exchanges. A set of code, a few servers, and a white paper are enough to initiate an entire harvesting cycle. This is precisely why domestic regulation on virtual currency issuance is strict—issuing virtual coins on the mainland requires paying a guarantee deposit of 80 million RMB to trading platforms and passing complex audits. Meanwhile, many regions abroad adopt a “lawful to do as long as not prohibited” free market policy, leading to a proliferation of speculative projects.

The Three Stages of Virtual Currency Harvesting

Stage One: Creation and Listing (ICO)

The process begins with an “Initial Coin Offering” (ICO). Creators need to:

1. Log in to the Ethereum official website to download a wallet
2. Create their own token (there are many tutorials online for this)
3. Define the total issuance (for example, issuing 10,000 “Example Coins”)

Blockchain technology in this stage ensures the limited and non-reproducible nature of the total token supply. In other words, technology guarantees scarcity—that’s the only reason virtual currencies seem valuable.

After creation, the second step is to establish a secondary market—platforms similar to stock exchanges where holders can freely buy and sell. Abroad, the barriers to creating such platforms are very low; developers only need to use open-source code and purchase servers to operate. The creation of a well-known Dogecoin is a typical example of this model.

Stage Two: Price Manipulation (Whale Control)

This involves a fundamental market principle—supply and demand determine price.

Taking the stock market as an example: when buying interest exceeds selling interest, prices rise; otherwise, they fall. But the power to set prices lies in trade matching—the market price is determined by the last trade rather than the average of all trades.

Suppose a token’s current market price is 10,000 RMB. A single transaction of 100 million RMB can push the price up to 100,000 RMB—even if that is the only trade in the entire market. If the creator controls all circulating tokens, they can:

• Place sell orders at high prices (e.g., 100,000 RMB)
• Use another account to buy that sell order
• This money effectively moves from one pocket to another
• The market price is thus “pumped up” to 100,000 RMB

This is the most basic method of market manipulation. Token prices can be driven arbitrarily high—1,000 RMB, 10,000 RMB, or even 100 million RMB per coin—and the creator’s actual cost remains zero.

The key issue then arises: Even if the price is pushed to 100,000 RMB, paper profits are meaningless unless fully sold.

When the creator attempts to cash out at 100,000 RMB, they will find no takers. Once they start selling, prices will rapidly decline. During the sell-off, early investors who bought in will also follow suit—realizing the whale is fleeing.

This necessitates the emergence of the third stage.

Stage Three: Futures Arbitrage (Profit Lock-in)

Futures markets provide a solution: locking in profits without relinquishing spot control.

Basic Principles of Futures

Futures are essentially forward contracts—buyers and sellers agree to deliver goods at a specific future date at a predetermined price. This mechanism is primarily used for risk hedging but has become a paradise for speculators.

For example, in agricultural futures: farmers sign contracts with grain merchants six months ahead to lock in purchase prices, hedging against market volatility. But the same contract framework is also used purely for price speculation.

Key concepts: going long (bullish) and going short (bearish)

• Going long bets on the token price rising
• Going short bets on the token price falling
• In futures contracts, buy and sell orders are necessarily equal

When there is sufficient capital for going long, prices rise; when enough capital is shorting, prices fall. This mechanism is identical to the spot market.

Closing Mechanism

Suppose someone buys a token futures contract at 1,000 RMB (delivery volume of 100 units). Later, market sentiment heats up, and the contract price rises to 1,200 RMB. The holder can:

1. Open a short position (sell 100 units at 1,200 RMB)
2. On the delivery date, transfer the bought contract to the seller, capturing the price difference of 200 RMB
3. Do this without holding real currency, simply profiting from the price difference (2,000 RMB), completing a “white glove” arbitrage

This process is called “closing the position.” If the price drops and causes a loss upon closing, it is called “stop-loss closing.”

Margin mechanisms amplify risks:

Exchanges usually require a margin deposit (often 10% of the total contract value). This means with 1,000 RMB, one can control a 10,000 RMB position—leveraging 10 times. A 10% price move results in a 100% profit or loss, easily leading to liquidation (zeroing out the account).

Another advantage of virtual currency futures

In the virtual currency futures market, if all spot holdings are controlled by the creator:

All participants are just paying money.

• Short sellers cannot hold the asset until delivery; they must close their position early, and only the creator can act as the counterparty, setting the price
• Long buyers will ultimately receive tokens, but the creator is both the only seller and the price setter

Regardless of whether participants are long or short, the creator profits—this is the perfect arbitrage linking spot and futures.

Why is this mechanism so efficient?

Compared to historical bubbles like the Tulip Mania or MBS derivatives risks, virtual cryptocurrencies have unparalleled advantages:

This explains why cryptocurrencies are called the “ultimate form of the sickle”—production costs are nearly zero, and harvesting potential is unlimited.

Historical Precedents and Lessons

In the 2015 A-share crash, an interesting event occurred: the Shanghai Stock Exchange 50 and CSI 500 stock index futures were launched in April 2015, just two months before the market crash. This is no coincidence—institutions with control over both spot and futures markets can create extreme movements in futures, triggering panic liquidations among retail investors, and then driving down spot prices.

The same logic applies to virtual currencies.

The True Situation of Most Participants

Although stories circulate online about “someone paid for food delivery with Dogecoin and became wealthy” or “a programmer resigned after holding tokens,” these are survivor bias—widely spread cases are just the tip of the iceberg.

Real statistics show that the probability of retail investors getting rich through holding cryptocurrencies is extremely low. The reason is simple: Most circulating tokens are held by issuers, and retail holdings are minuscule. Whales decide when and at what price to harvest; retail investors have no power to resist.

The Necessity of Regulation

The core reason for strict regulation of virtual currencies domestically is:

1. Prevent capital outflows: Virtual currency trading causes large amounts of RMB to be exchanged for tokens and cross-border outflows
2. Protect retail investors: Most participants lack financial knowledge and are easily turned into “chives”
3. Prevent systemic financial risks: Extreme volatility in the virtual currency market could trigger chain reactions

How to Protect Yourself?

Understanding the core functions of these mechanisms is key to risk identification:

• Newly listed tokens: Be cautious, as circulation is concentrated among a few
• Unusual price fluctuations: May be manipulated by whales rather than reflecting real supply and demand
• Overhyped projects: Beware of overly optimistic promises in white papers
• Futures trading: Leverage amplifies losses; most retail investors find it hard to control

Conclusion

The pattern of human error is that history repeats itself. From the 17th-century Tulip Mania to 21st-century virtual currencies, the methods of harvesters are not fundamentally innovative—only the tools are upgraded, costs are decreasing, and concealment is improving.

Whether you plan to engage in virtual currencies or financial markets, understanding these mechanisms is essential. Because these fluctuations will ultimately impact everyone’s lives through exchange rates, prices, employment, and more.

Knowledge is the key to avoiding traps.