Today, I want to educate everyone on how to avoid the traps of 'crypto scammers'.
Many crypto projects have nothing at all, yet are valued at dozens of billions of dollars, treating retail investors as fools.
High valuation projects, these institutions and project parties are like telecom scammers; they are all fraudsters.
Because they treat retail investors as fools, as exiters, giving them no chance to benefit, leaving them with nothing.
Retail investors who got in for free should not defend the project; at most, they give you a little sweetness, the goal is to get you to take on more.
For instance, the previously listed WLD, ICP, STRK, especially WLD, exceeded Dogecoin's market cap right at its FDV. STRK also had a valuation of tens of billions right after its launch, with on-chain users not exceeding three digits, with nothing to show.
Many people speculate on its rise in the short term.
Because the circulation market cap is small, it is easy to pump.
Some say that institutional financing costs are high, around 1 dollar (not sure how that came about), and the current token price is undervalued.
But the institutions are much smarter than retail investors; they know all the details.
Its cost is low enough, especially for the project party; it's like free money.
Of course, I would quickly sell at 2 dollars.
(Little knowledge: Star project institutional financing costs are generally below 10 times the opening price; this is the industry's unspoken rule.)
There are too many high valuation scam projects.
For example, our usual discussions about ICP, WLD, EOS, etc.
Let's take ICP as an example, as it is so classic.
When it first came out in May 2021, the price was around 500 dollars, with an FDV of about 250 billion dollars, close to Ethereum's market cap of 270 billion dollars at that time. It peaked at launch, and the current price is around 5 dollars, a drop of 99%.
CZ has also said that he doesn't like high valuation projects.
He listed the harms of high valuation projects: high valuation projects are not a good thing; once the project tokens enter the exchange, they bring various harms.
1. High valuation inevitably experiences the pain of value regression; early price drops can easily trigger FUD.
Assuming your project is valued at 200 million dollars, and you sold 50% at a price of 100 million during the ICO. If you trade on Binance one day, ignoring speculation and market overreaction, unless you enhance the project's value on that day (such as breakthrough progress, profitability, etc.), the token cannot continue to rise after being listed.
If the token cannot rise, it will fall. Especially when short-term traders holding a certain amount sell tokens to pursue higher short-term returns in other projects. The sell-off by short-term traders can cause retail investors to follow suit, resulting in significant selling pressure and further price drops.
A drop in price will lead people to start FUD-ing the project, calling it a scam. Suddenly, the project becomes worthless; grand promises, disharmony in the team, poor market cap management, etc. There are criticisms of the project everywhere on X and YouTube.
Negative news is very detrimental to newly launched projects, not only affecting the normal operation of the project party, but also impacting recruitment and continuing construction, and employees may blame each other. You also have to bear the heavy responsibility of raising the project's valuation from 200 million to 400 million in a short period, which is very challenging.
2. The team is laid back, spending every day with models in clubs.
After the project team secures large funding, they lose their hunger; teams with huge financing may lose the passion and motivation they had in the early stages of entrepreneurship. The project hasn’t even officially begun to build, yet they became rich relying solely on PPT; who would still do serious work and not just party with models?
Just manage the operation, do a soft exit, tweet, open AMMs, and show that the team is doing something.
3. Losing institutional exiters, high valuation turns into low valuation.
High valuation projects are determined from the start to be a one-off financing deal. Because the valuation of the project has no room for increase. When the project party needs to finance again, especially during a crypto winter, the project's valuation must be further lowered, which is a fatal blow for early projects. A decrease in valuation often means an inflated token price, leading to further decline and a death spiral.
How to avoid these catastrophic projects? I think there are three typical characteristics:
1. The project enters the top 50 in web3 market cap right at the launch FDV (note, this refers to market cap ranking, not FDV ranking).
2. Grand visions, like castles in the air, are a typical characteristic of all high valuation PPT projects. High valuation projects like to make grand promises, such as ICP's so-called creation of a world computer, overturning the internet, even looking down on Ethereum. For example, WLD claims to create a global financial fairness and inclusive open-source protocol.
These visions are all grand but impractical and hard to achieve.
3. It is well-known that the funding has dried up. The early promotional efforts were unprecedented; the project was known by everyone even without anything, bolstered by a star team and top institutions, with grand visions that everyone thought were impressive and valuable. However, what is popular will ultimately fail; the saying 'everyone knows' means that there are no retail investors to take over later, leading to selling pressure and the funds of the retail investors running out.
So do not blindly trust star teams and invest in high valuation projects.
High valuation projects are more like scams organized by institutions and project teams, a high-level scheme aimed at exploiting retail investors.
