Venture capital and whales dominate, how to break through in an unfair crypto market?

Cryptocurrency investor and analyst Miles Deutscher explains the harsh realities of the crypto trading market in five points, while also providing ways to cope with them.

Original link: https://twitter.com/milesdeutscher/status/1521606009495728129

Unfairness in the Cryptocurrency Market

The fact is, 99% of "retail" investors are often led by top whales and VCs. How can you break this pattern?

Here are five things that big cryptocurrency holders and insiders don't want you to know, but you should.

1. Harsh Reality: Most DeFi Protocols Don't Need Tokens

I support the tokenization of the future. Many companies can benefit from the token model because it:

• Facilitates governance distribution
• Increases liquidity
• Promotes secondary markets

However, in the world of cryptocurrencies, token issuance is often to fill the team's pockets rather than providing strategic benefits to everyone.

There are many great projects, but unfortunately, the competition for users' cash is extremely fierce in this space. They may have great products, but the tokens have little utility.

To avoid this situation, if you invest in a project, make sure their tokens:

• Have a strong value growth mechanism where price growth reflects user growth
• Meet a market demand/application
• Have a competitive advantage over alternatives
• Have purposes beyond benefiting token holders

2. Most VCs Make Money Through Early Seed and Private Rounds

You might think a project's tokens are "cheap," but the reality is that the cost at which VCs entered is much lower.

For instance, the initial private round entered SOL at a price of $0.04, and they also bought:

• FTM: $0.043
• AVAX: $0.5
• BNB: $0.15

You can check the financing round information at icohigh.net. This is a crucial evaluation factor.

Private and seed rounds of financing are crucial in the development process. Without venture capital, new projects cannot secure the necessary funds for development.

These financing rounds are not the issue. The problem arises when retail investors forget at what price most VCs bought in, leading to massive dumping events.

While tokens may drop by 50%, in reality, early investors' holdings have increased by over 500 times, prompting them to take profits or as some say, "shearing the sheep."

For example, Moonbeam GLMR is essentially a great project, but its token performance is poor due to its vesting and unlocking schedule.

We can see the main unlocking schedule in the image below:

Prior to investing, pay attention to the unlocking dates. Each project should disclose the token vesting schedule in the "tokenomics" section of the whitepaper. Evaluate:

• When it unlocks
• If the unlocking schedule seems steep, indicating short and large unlocks
• Where the token release falls on the schedule

3. Many Projects Have No Product

Projects typically lead development funding through seed and private rounds, releasing a beautifully crafted whitepaper and ambitious roadmap before actual development.

This is how the crypto space operates.

However, when the market assigns an inflated valuation to a project even before it has a product, it raises investment risks and other issues. For example, many gaming projects are valued at over $100 million, yet few or none have showcased their products.

Ultimately, this is still a nascent industry, and the market is valuing its future. However, the downside is equally profound. Except for a few exceptions, nearly every NFT project has overpromised and underdelivered.

So before investing, ask yourself:

• Does the team have a proven track record of experience?
• Who are the key supporters behind the project?
• Is their valuation reasonable compared to other projects?

4. APR's Main Purpose: Increasing Liquidity

In the real world, when companies launch products, they use a series of promotions to entice people to spend money/become accustomed to their product.

• Buy one, get one free
• First hundred users get 50% off
• Sign up bonus of $

Similarly, in the crypto space, DeFi projects stimulate early liquidity by issuing tokens. This model has been very successful for LUNA through Anchor Protocol and Curve Finance applications.

However, for most DeFi projects, continuous token issuance rewards have led to their downfall. Poorly designed token economics often dilute value excessively. For example:

Therefore, the critical issue DeFi needs to address is "what happens when the rewards run out?"

Protocols need to shift from incentivizing liquidity to fostering protocol fee growth, where token holders primarily generate revenue through protocol fees rather than token rewards.

Look for projects that:

• Have token rewards directly proportional to protocol fees
• Have real users and trading volume leading to protocol revenue growth
• Have a strong token appreciation mechanism
• Have practical applications

This way, you won't hold onto farm tokens that continuously print money. Investing in liquidity mining tokens is good, provided you benefit continuously from the liquidity mining rewards released by the protocol, offsetting token declines.

Many naive investors buy DEX and similar tokens but fail to use these tokens for their intended purpose of generating income.

Since APY figures are often used to incentivize user liquidity injection, the most important lesson is "never chase high APY."

Don't buy tokens solely based on high APY. The main reason for investing in tokens is belief, and then you engage in liquidity mining. This mindset shift can alleviate many concerns.

5. Whale Behavior Contrary to the Market

Just like Warren Buffet's famous quote: "Be fearful when others are greedy and greedy when others are fearful."

Looking at both traditional and crypto markets, those who buy in extreme market fear tend to gain the upper hand over time. Whales hoard coins at market lows and take profits at highs. Their actions are:

• Profit-taking in May 2021
• Hoarding in September
• Profit-taking in November
• Currently hoarding

We can clearly illustrate this viewpoint through a chart of whale holdings:

What does this chart represent? Whale holdings are inversely proportional to price. Their actions are entirely opposite to those of retail participants. In simple terms:

• Take profits during sharp rises - Greed
• Buy during sharp falls - Fear
• Repeat

Hopefully, these 5 tips can help you navigate the crypto market. Cryptocurrency trading is a tricky game, but if executed successfully, it can bring life-changing wealth.

If you want to be rich like a whale, it's time to act like one.