Why can't retail investors make money in the current cryptocurrency market?

Source: Regan Bozman

Compiled by: Shenchao TechFlow

Why do people always say this cycle is over? Why does everyone feel pain? We can sum up all the issues as follows: under the current market structure, retail investors can no longer make real money.

Some musings on returning to the essence and breaking free from the current cycle

Why are there no retail investors in this round of the market? The answer is quite simple—it's because the "traditional" cryptocurrency market (like infra tokens) no longer has 500x price increases. There is now a more interesting casino with better memes that are easily accessible.

We are actually reproducing what happened in the VC/IPO market, where companies stay private longer, meaning more upside potential remains "private" (like venture capital funds), and retail investors cannot enter.

Cryptocurrency once reversed this situation and democratized access to asymmetric upside potential. But that is no longer the case! L1 and L2 have raised more funds from venture capitalists. There are no public token sales. Venture capitalists are making money. Retail investors are being marginalized. Perhaps it is not so surprising that retail investors' illusions about this cycle have been shattered.

One important reason companies are willing to stay private longer is that venture capital funding is now five times what it was ten years ago. Companies can now raise over $1 billion in private markets without having to deal with the extra costs of public markets.

It is no surprise that crypto venture capital is also experiencing the same trend—there is now more capital flowing into crypto venture capital funds than there was five years ago.

Cryptocurrency should solve this problem!

ICOs were designed to democratize capital formation and further access venture returns. They absolutely succeeded in doing this.

Buying Ethereum at 30 cents during the 2014 ICO and seeing it rise to $3,000 today means a 10,000x return over ten years, which can definitely beat any venture capital during the same period. Anyone on Earth could participate, which is fantastic.

Now that the industry has clearly grown, the entry price has naturally risen, but these opportunities have not disappeared. The launch price of $SOL in 2020 was $0.22, and now it is $140, which means a 636x return in four years, potentially beating almost all venture capital returns in the past five years.

In this cycle, we have moved away from this market structure. Almost no retail investors have the opportunity to buy tokens before the issuance or to buy tokens at low prices in the public market.

Airdrops are indeed an improvement, allowing early users to gain some financial benefits compared to the existing venture capital paradigm. But they are not financially as rewarding as token sales; by definition, you can only earn so much from an airdrop.

We have shifted from a market with unlimited upside potential to a market with capped potential—this is a huge change. An investment of $1,000 in the SOL ICO has now turned into $636,000;

while an investment of $1,000 in Eigen can only turn into about $1,030… even if it increases tenfold, it would only be $1,300. In the last cycle, you controlled your own destiny; in this cycle, you are waiting for Eigen daddy's charity.

Financial nihilism means acknowledging that these markets have always been about money. Yes, this money has funded technological development, but it is precisely this funding that drives the entire industry. If the monetary aspect is weakened, the entire industry will collapse.

We can do a few things to improve the current issuance structure. The key is to create unlimited upside potential for early users and the community.

That said, there are greater structural issues in the market, with large-scale fundraising for L1 and L2 leading to valuations in the billions before launch. This brings two problems: (A) significant selling pressure; (B) a lower limit on the issuance price at launch.

I believe one of the structural issues facing most altcoins in this cycle is that the selling pressure from venture capital is not offset by retail inflows. If $500 million is raised before launch, that will create $500 million in selling pressure (and if the token price rises, the potential pressure is even greater).

Raising funds privately at high valuations means you will try to exit at an even higher valuation. This can lead to a situation where the market can only go down.

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

However, if you try to cram too much venture capital into a market with low liquidity, it becomes more difficult. If you deprive the most important market participants of unlimited upside potential, it is nearly impossible.

We can blame and argue about meme coins, but that completely overlooks the essence of the problem. Meme coins are not the issue—the current market structure is the problem. Let’s return to our democratic roots and address the issues in the current market.