Why is there always talk of this cycle being over? Why is everyone feeling miserable?
We can boil it all down to this: retail investors can no longer make real money under the current market structure. Some random thoughts on getting back to basics and getting out of the current cycle
The answer to why retail investors are absent from this round is actually quite simple — it’s because there are no longer 500x prices in the “traditional” crypto markets (like infra tokens). There is now a more interesting casino with better memes at their fingertips.
We are essentially reproducing what happened in the VC/IPO markets, where companies stay private longer, which means more upside stays “private” (e.g. VC funds) and is inaccessible to retail investors.
Crypto once reversed this and democratized access to asymmetric upside. But not anymore! L1 and L2 raise more money from VCs, there are no public token sales, VCs make money, and retail investors are marginalized. Perhaps retail investors’ disillusionment with this cycle isn’t that surprising.
Not surprisingly, the same trend is happening in crypto VCs - there is more money flowing into crypto VC funds now than there was five years ago. Cryptocurrencies were supposed to solve this problem, and ICOs were meant to democratize capital formation and further the return on venture. They have absolutely succeeded in doing that.
Buying Ethereum at 30 cents in 2014 at the time of the ICO and seeing it at $3,000 today would mean a 10,000x return in 10 years, absolutely beating any VC investment in the same period. Anyone on Earth could participate.
Now that the industry has clearly grown, the entry price has naturally climbed, but these opportunities have not disappeared. $SOL launched at $0.22 in 2020 and is now at $140, that would mean a 636x return in 4 years, which would also likely beat almost all VC returns in the past five years.
We have moved away from this market structure in this cycle. There are now very few retail investors who have the opportunity to buy tokens before they are launched, or to buy tokens at low prices on the open market.
Airdrops are an improvement, and early adopters can get some financial gains compared to the existing formalization of venture capital. But they are not as financially sound as token sales, and by definition you can only make so much money from airdrops.
We have moved from an uncapped upside market to a capped market — and that is a huge change. $1,000 invested in the SOL ICO is now $636,000; $1,000 invested in Eigen is only about $1,030… even if it goes up 10x, it’s only $1,300.
Financial nihilism means acknowledging that these markets have always been about money. Yes, that money funds the technology, but it’s that money that drives the industry. If you weaken the money part, the industry will collapse. There are several things we can do to improve the current issuance structure. The key is to create uncapped upside for early adopters and the community.
That said, there are larger structural issues in the market, with massive fundraising on L1 and L2 leading to multi-billion dollar pre-launch valuations. This creates two problems:
(A) a lot of sell-side pressure; and (B) a floor on the issue price at launch.
I think one of the structural issues facing most altcoins in this cycle is that VC selling pressure is not offset by retail inflows. If $500 million is raised pre-launch, there will be $500 million of selling pressure (and even more potential pressure if the token price rises).
Raising money privately at high valuations means you are trying to sell at higher valuations. 💰qun楂💵玮:1983211157This can lead to a situation where the market can only go down. The relationship between VCs and retail investors does not need to be adversarial. Everyone on $SOL made money.
But it becomes more difficult if you try to cram too much VC money into an illiquid market. It is almost impossible if you deprive the most important market participants of uncapped upside.
We can point fingers and argue about meme coins, but that completely misses the point.Meme coins are not the problem — our current market structure is the problem. Let’s get back to our democratic roots and fix the problems in our current market.
