VC Coin vs. Meme Coin: Why Retail Investors No Longer Take Over VC Coin

Source: Regan Bozman X Account

Author: Regan Bozman, Partner at Lattice Capital;

Compiled by: Jinse Finance xiaozou

Why is this cycle so torturous, and why is everyone so distressed? We can sum up all the problems with this fact: under the current market structure, retail investors can no longer make much money. This article will bring some disorganized thoughts around returning to the essence.

Why is it difficult for retail investors in this cycle? The answer is very simple: because "trades" like infrastructure tokens will no longer see 500x growth in the crypto market. And now there is a more interesting playground not far from us, with better meme memes.

We are actually reproducing what happened in the VC/IPO market.

In these markets, companies remain private for a longer time, which means more upside potential is "privatized" (e.g., venture capital funds), and retail investors cannot touch it at all.

Crypto has been reversing this situation and democratizing access to asymmetric upside potential. But now it has changed! L1 and L2 have raised much more funding from VCs! Without public token sales, venture capitalists are making a fortune, and retail investors are heavily impacted. Perhaps the shattering of retail investors' dreams in this cycle is not so surprising.

One important reason why companies remain private for longer is that the scale of VC funding has increased fivefold compared to ten years ago. Companies can now raise over $1 billion in the private market while avoiding the costs associated with the public market.

As expected, the same trend is happening in the crypto VC space—crypto VC funding is much larger than it was five years ago.

Crypto was supposed to solve this problem! ICOs aimed to democratize capital formation and thus obtain risk returns. They have completely succeeded in doing so… unless you are fortunate enough to have a U.S. passport.

The price of ETH during the 2014 ICO was $0.30, and now it is $3,000. That’s a 10,000x return over ten years, easily beating any venture capital during that period. Anyone in the world could participate, which is fantastic!

Now that the industry has clearly grown, the entry price has naturally risen, but opportunities have not disappeared. The issuance price of SOL in 2020 was $0.22, and four years later, the price is $140, which is a 636x return over four years, likely surpassing almost all venture capital returns in the past five years.

In this cycle, we have deviated from this market structure. Now, the opportunity for retail investors to buy pre-issued tokens or purchase tokens at low prices in the public market is close to zero.

Airdrops are definitely an improvement over the existing risk model, where early users have no economic advantage. But this is a worse financial transaction than token sales because you can only earn so much from airdrops.

The originally limitless upside market has brought us to the market cap limit, and the trading during this period must have been enormous. An investment of $1,000 in the last cycle's SOL ICO has now turned into $636,000. In this cycle, an investment of $1,000 in Eigen can only turn into $1,030; even with a 10x increase, it would only be $10,300.

In the last cycle, you controlled your own destiny; in this cycle, you are waiting for Eigen daddy's charity.

Financial anarchism means acknowledging that these markets have always been about money. Yes, this money is invested in technology, but it is money that drives the wheels of development. Without money, the wheels will fall off.

We can do something to improve the current issuance structure. Ultimately, it is about creating limitless upside potential for early users and the community.

That is to say, there are larger structural problems in the market. The massive financing of these L1 and L2 projects has led to pre-issue valuations reaching billions of dollars. This creates two problems: huge selling pressure and excessively high FDV.

In my view, the structural problems of most altcoins in this cycle largely stem from the fact that the selling pressure from venture capital has not been offset by the inflow of retail funds. If you raise $500 million before issuance, then the eventual selling pressure will be $500 million (theoretically, if the token price rises, the selling pressure will be even greater).

ARB fell back to bear market lows due to excessive selling pressure.

Raising funds through private placements at a higher FDV means that the final FDV will be higher, which will definitely lead to a downturn.

Price trend of the representative token ICP with high FDV.

The relationship between venture capital and retail investors is not necessarily antagonistic; everyone made money through SOL.

But if you try to put too much risk capital into a market with low liquidity, it becomes more difficult.

We point fingers and argue about meme coins, but that is definitely not the point. Meme coins are not the problem; the problem lies in our current market structure.

We need to break through the current market fog and return to our democratic roots.