Introduction

Having spent some time in the crypto space recently, I've noticed many peers asking: Why do we always chase highs and sell at lows in the cryptocurrency market? It feels like we always buy at peaks and sell at bottoms, truly living up to being "retail investors." This situation mainly occurs because we don't truly understand how institutional investors operate. Today, I'll share my observations and experiences about what constitutes true sophisticated capital in the cryptocurrency market and how it operates.

Basic Understanding

When many people first encounter cryptocurrencies, they think it's just a digital version of Bitcoin - how complex could it be? In reality, cryptocurrency is essentially a decentralized value transfer system. This concept might sound abstract, so let me give you an analogy.

Imagine playing a massive online game. Traditional banks are like the game's official servers, where all transactions must go through official verification and recording. Cryptocurrency, however, is like an online game without an official server, where all players are interconnected and collectively maintain the game world's operation. In this model, no one can arbitrarily alter the rules because every player maintains a complete record of the game.

In this system, each transaction uses extremely complex encryption technology to ensure security. Just like you need a username and password to play games, in the cryptocurrency world, you have two key elements: public keys and private keys. The public key is like your game ID, which you can freely share; the private key is like your password, which must be kept secure, or your account could be compromised. I've heard of someone who lost millions in crypto because they stored their private key in their phone's notes, and their phone was hacked.

The most impressive aspect of this system is its decentralized nature. With traditional banking systems, a transfer might take several days and require various approvals. But in the cryptocurrency system, transfers can be completed in minutes with the correct private key, and it works globally without any cross-border concerns.

Characteristics of Institutional Investors

In traditional financial markets, institutional investors typically refer to professional funds. According to the latest 2023 data, institutional investors' holdings in the global cryptocurrency market have surged from a mere 4% in early 2020 to nearly 20%. This isn't ordinary retail money - it's backed by professional investment teams with top-tier research capabilities and market insights.

Let me give you an example: In May 2021, when Bitcoin was hovering near its historical high of $60,000 and the market was euphoric, a well-known institutional investor quietly began large-scale position reduction. At the time, I saw many retail investors frantically buying, believing Bitcoin would soon reach $100,000. What happened? The subsequent crash left many stranded at the peak. This perfectly illustrates the difference between institutional investors and retail investors.

The biggest characteristic of institutional investors is that they never chase highs or sell at lows. I've observed many institutional investors' operations, and they're particularly focused on risk control. For instance, they set strict stop-loss levels and tend to reduce positions when market sentiment is particularly excited. This operation style is completely opposite to typical retail investors, who often buy only after seeing dramatic price increases, usually buying at the top.

Operating Model

So how do institutional investors actually operate? Let me share a case study from my personal experience:

Last year, I participated in investing in a new DeFi project. When the project had just launched and the token price started rising, many retail investors rushed in immediately. However, I noticed that several large holders operated very differently. They would thoroughly research the project from several aspects:

First is the technical architecture. These institutional investors would have professional technical teams audit the project's code for security vulnerabilities. They would also evaluate the project's technical innovation, as in the cryptocurrency market, only projects with solid technical capabilities truly survive.

Second is the team background. I know some institutions specifically send people to investigate the project team's background, examining what projects the core developers have previously worked on and their relevant experience. Some projects might have impressive white papers, but if the team background check reveals they're all parachuted in, such projects can be immediately passed over.

Third is tokenomics. This is particularly important as it directly relates to token value. Institutional investors carefully study token issuance mechanisms, inflation rates, lock-up mechanisms, and so on. I've seen projects claiming to revolutionize Web3.0, but their token distribution allocated 70% to the team and investors - such projects are basically designed to exploit retail investors.

Finally, market competition. In the cryptocurrency market, homogeneous competition is particularly severe. True institutional investors analyze a project's competitive advantages in the market to see if it can stand out among numerous competitors.

Market Impact

Regarding market impact, let me share some latest data. According to early 2024 statistics, when institutional investors move, it often brings unprecedented market impact. In DEX (decentralized exchange) trading data, over 60% of large transactions exceeding $1 million come from institutional accounts. These large transactions usually trigger dramatic market fluctuations.

I've encountered such situations myself. Once while trading a token, I suddenly saw a huge buy order come in, directly pushing the price up by 20%. Later, when I checked the on-chain transaction history of this address, I discovered it belonged to a well-known investment institution. Each of their large transactions triggers market follow-on effects.

However, it's important to note that the influence of institutional investors isn't just reflected in price movements. These institutional-level players often participate in project governance, influencing project direction through voting. I've observed that important decisions in some projects are often driven jointly by several large holders who control substantial governance tokens, making them the project's de facto controllers.

Innovation Development

Today, institutional investors aren't just about simple buying and selling anymore. Through my recent observations, many institutions have started employing high technology. They implement automated investment strategies through smart contracts, taking trading to new heights.

For instance, I know of institutions that have developed sophisticated arbitrage bots. These bots automatically search for price differences between various DEXs and execute arbitrage trades when the spread exceeds certain thresholds. These operations are too fast for human reaction.

Some institutions have developed market sentiment analysis tools that monitor discussion intensity on social media in real-time to analyze market sentiment. When they detect a sudden increase in discussion about a token, they position themselves early and gradually sell when retail investors chase the trend.

I've recently observed a new approach using flash loans for leverage trading. These institutions borrow large amounts within a single block for arbitrage or investment operations, then repay within the same block. This operation requires extremely high technical capabilities that most retail investors can't match.

Experience Sharing

At this point, I must share a painful lesson. Last year, I made a typical mistake - seeing a token surge 50%, I thought it could still rise, but it started falling immediately after I bought in, resulting in significant losses.

Later, when I carefully analyzed the trading data, I discovered that large holder addresses had already begun quietly selling when I bought in. They had built positions early when the price started rising, and began selling in batches when retail investors started buying frantically.

This taught me a lesson: never chase highs or sell at lows. When the market shows large fluctuations, retail investors tend to be driven by emotions, buying at highs and selling at lows. Institutional investors do the opposite - they buy during market panic and sell during market mania.

Future Outlook

Looking ahead, I believe the cryptocurrency market will see institutional investors becoming increasingly professional and diverse. Particularly in the DeFi sector, automated investment strategies implemented through smart contracts may become mainstream.

I expect more professional cryptocurrency investment institutions to emerge, developing more advanced trading strategies and risk control systems. Meanwhile, as the market matures and regulation improves, this may attract more traditional financial institutions to enter the market.

For ordinary investors like us, establishing correct investment principles is most important. Don't expect to get rich overnight; instead, learn to analyze rationally and control risks. Try to observe large holder address operations and learn from their investment strategies, but never blindly follow trends.

Finally, I want to say that in the cryptocurrency market, never put all your eggs in one basket. Proper asset allocation and risk control are key to long-term survival.