Analyzing venture capital, KOLs acting in bad faith, why "HODL" has become a fatal flaw for retail investors?

In recent years, sentiments such as "Venture capital is evil" and "Venture capital will dump" have taken root in the cryptocurrency community. In this article, cryptocurrency trader Cobie once again describes the profit-making methods of crypto venture capital and points out why the intense emotions mentioned above have become an effective marketing tool for project parties.

Original article link: https://cobie.substack.com/p/33

It is difficult to blame retail investors for having such emotions. Firstly, venture capitalists can obtain the most favorable trades, making money as easily as drinking water. Venture capitalists also have various cheat codes. They appear in the right place at the right time, accompanied by the appropriate shame or courage, and then the SEC gives them the most powerful cheat code:

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They make founders only dare to raise funds from professional investors.

Note: Cobie is referring to the SEC's ban on ICOs, hence project parties can only raise funds through institutional financing.

Therefore, retail investors can only buy from high-priced IDOs or the secondary market, as many markets operate in this manner. There is also a large amount of data to support that the probability of retail investors winning approaches zero, indicating that somewhere in this game, manipulation is targeted at retail investors.

Cobie points out:

These venture capitalists don't even pretend and proudly publish their investment portfolios on their official websites, boasting about providing a hundredfold return for the "Fuck You" token, while retail investors fail to notice that the chart shows a vertical downward line. Only insiders will win.

He emphasizes that many people are doing things similar to venture capitalists, such as crypto YouTubers, Frog Nation traders, etc., and their motivation for promotion comes entirely from selling the project to others for profit in the future.

Two Types of Venture Capitalists

Long-Term Builders

These are native long-term thinkers and project co-builders in the crypto space. These venture capitalists work together with projects to ensure their operation even in bear markets, a type of VC that is very rare.

Get-Rich-Quick Types

The second type of venture capitalist has no arguments, vision, or belief. They exist only in the bubble bull market, providing funding for projects with short-term lockups, seeking quick returns, investing in projects with flawed technology. Cobie stated:

Thanks to the outstanding transparency of blockchain, you can see many "reputable" venture capitalists have long sold tokens of their L1 competitors, funding worthless projects. To me, this seems more like a joke than an investment, all because they know they will profit when it gets listed on Binance.

The difference between the two types of venture capitalists lies in their timeframes.

If the former expects to achieve the top 1% of trades in 15 years, reputation will be very important; if the latter just wants to maximize returns in two years, reputation is not as crucial, no need for top trades or VC reputations, just sell after the token unlocks.

Cobie pointed out that many new venture capitalists lean more towards the latter, which doesn't surprise him at all.

Origin of Scams: Fundraising

In a bull market, founders can guarantee early investors' returns through aggressive tokenomics, meaning almost any project can easily raise funds.

Case Study One:

• Valued at $250 million project
• Tokens locked for 4 years
• Substantial airdrops as rewards for the first decade

Cobie suggested that this might have a 20x upside potential but with extremely high risks. The market conditions after 4 years and whether the product can be delivered are unknown factors.

Case Study Two:

• Valued at $10 million
• 80% of tokens locked for 3 months
• 20% of tokens unlocked on the first day

This means that as long as the project reaches a $50 million valuation on the first day, the VC holding only 20% of the tokens can break even. Not to mention that the IDO price is already more than 20 times its cost, and the market conditions within 3 months are easier to predict than 4 years.

In Case One, the VC has a profound belief in the project; in Case Two, it's like a free lunch for the VC, as the only thing they need to ensure is enough liquidity to sell that 20% of tokens, with no need for faith in the project.

The project in Case Two offers VCs "risk-free trading" to ensure successful fundraising. The team information released to the market and the project quality are both zero, yet retail investors find it profitable.

KOLs?

Cobie stated that the fundraising model of venture capitalists can also be applied to anyone in the market, as their motivations are the same. Project teams are aware that the community, users, and attention are crucial to project success, discovering the cheat code to attract retail investors:

Come join us! Screw suits, VCs, banks, exchanges; these systems are rigged, join us to make money together.

This means shifting the fundraising from VCs to KOLs, anonymous Twitter accounts, and crypto YouTubers. Some KOLs view their anonymous identity as precious until they earn enough dollars, which will be their mask for the next few years. Cobie noted:

When your favorite anonymous Twitter account or crypto YouTuber tells you to screw suits and doesn't prioritize your interests, don't be too surprised. They certainly won't take risks on the projects they promote; the project is free: you are the product.

Incentive Structure

Cobie emphasized that if you understand the motivations of market participants, you wouldn't be too surprised by the above situations. However, retail investors always seem to hold a mindset similar to (3,3), leading the crypto space to be the only financial market where selling assets by a user is considered betraying the community.

This perception of betrayal may stem from slogans like "WAGMI" or "HODL," or the ideology of escaping the tyranny of traditional finance, but this concept instead leads retail investors to hold onto bad projects for too long.

This allows opportunists to exploit these ideals; while shouting "WAGMI" on Twitter, they also participate in the fundraising of "Let Them Eat Cake Coin," not believing in the project but knowing the low cost will guarantee profits.

Note: In the biography, "Let Them Eat Cake" means "let them eat meatloaf," which here implies "I don't care if retail investors live or die."

Cobie stated:

If you don't understand the economic motivations of other market participants and make decisions in such a situation, I hope you don't invest more than you can afford to lose.