Research Summary
The report discusses the dynamics of the crypto market, focusing on the role of venture capitalists (VCs) and retail investors. It highlights the advantages VCs have, the limitations faced by retail investors, and the different incentive structures that influence market behavior. The report also emphasizes the importance of understanding these incentives for informed decision-making.
Key Takeaways
VCs vs Retail Investors in Crypto Market
- VCs’ advantages: VCs have access to the best deals and can easily make money. Some also benefit from being in the right place at the right time.
- Retail investors’ limitations: Retail investors often have limited options, such as buying overpriced Initial DEX Offerings (IDOs) or buying on the market, which can be rigged against them.
- SEC’s regulations: The SEC’s regulations have scared founders into only raising from professional investors, further limiting opportunities for retail investors.
Types of Crypto VCs
- Legitimate co-builders vs short-term flip-focused VCs: The crypto VC spectrum ranges from legitimate co-builders to short-term flip-focused VCs. The main difference in their incentive structure is the time horizon.
- Transparency in blockchain: Blockchain transparency allows visibility into which VCs still hold positions and which ones funded meritless projects.
Founders’ Strategies in Bull Market
- Tokenomics favoring early backers: In a bull market, founders can create tokenomics that favor early backers and virtually guarantee profits, making it easier to raise money.
- “Free-money deals”: Founders can offer “free-money deals” to investors with little signal on team or project quality, leading to populist rhetoric and community building.
Understanding Incentive Structures
- Importance of understanding incentives: Understanding the incentive structures behind financial products and crypto schemes is crucial for informed decision-making in the market.
- Market participants’ mindset: Crypto market participants often have a mindset that selling an asset is seen as a betrayal to the community, unlike in other financial markets.
Trust and Verification in Crypto Market
- Don’t trust, verify: The phrase “don’t trust, verify” became popular in the Bitcoin community as a reminder to be skeptical and not blindly trust market actors.
- Trust less, understand more: Market participants would benefit from adopting a mindset of trusting individual market actors less and understanding their financial incentives.
Actionable Insights
- Consider financial incentives: It is important to make investment decisions while considering the financial incentives of others in the market.
- Adopt a skeptical mindset: Crypto market participants should adopt a skeptical mindset and not blindly trust market actors.
- Understand the market dynamics: Retail investors should strive to understand the dynamics of the crypto market, including the roles and strategies of VCs and founders.
