From crypto dumping to US stock market taking over: Seeing through the capital's universal cash-out tactics

By: Tulip King

Compiled by: Saoirse, Foresight News

You may have noticed that after inflating the valuation of private companies to the tens of trillions of dollars, venture capital firms are finally ready to cash out and exit. Their only challenge is finding enough exit liquidity for themselves.

First, let’s be clear: I am not accusing San Francisco’s venture capital circle of engaging in illegal activities. What I’m criticizing is that what they do is profoundly unethical, and that they have destroyed the social contract that capitalism was supposed to rest on.

The Original Agreement

The Baby Boomer generation is the last group to have benefited from the windfall of the times.

The United States did not have a European-style high-welfare state system, and it never really needed to. The social contract once was: the stock market is America’s welfare system. Traditional fixed-income pensions were phased out and replaced with personal contribution accounts; the retirement system was replaced by the 401(k) pension plan; and Social Security could only serve as a backstop bottom line—no one was supposed to rely on Social Security alone for retirement.

The implied rule behind it was this: every ordinary worker would become a shareholder, and the dividends from rising capital would rise alongside ordinary workers as well. Even if wage growth stagnated and the wealth gap widened, it didn’t matter, because everyone’s retirement account would compound and grow in the background, and everyone would ride the same train of wealth—so the final outcome, in the end, was not supposed to be too bad.

This is also why the political system in the U.S. can tolerate the wealth gap. You can accept that your boss’s income is 400 times yours, as long as your retirement account and your boss’s assets climb along the same curve. Passive index funds are the purest expression of this agreement. Supermarket cashiers, teachers, and plumbers alike can enjoy, for free, the market gains brought by professional capital discovery, sharing the dividends steadily and safely. At that time, the capital market belonged to the public dividend pool.

But this agreement only held under certain conditions: the public market had to be the place where value was truly created; the gains from wealth appreciation had to be made widely available; and every increment of newly growing capital had to be eligible to be included and held by index funds. These conditions once held for a long time—now, they have all stopped working.

This is everything they have stolen from you.

When companies remain private until their valuation reaches the trillion-dollar level before going public, the public market no longer creates value—it only realizes it. Everything happening in the stock market today is merely the distribution of wealth, not the compounding growth of it. Every single unit of profit that should have flowed into ordinary retirement funds during a company’s growth phase now ends up in the pockets of the pre-IPO equity holders. After Figma went public, its valuation was slashed by half within just a few weeks; Klarna’s valuation collapsed by 90%. And all of this is, in fact, the outcome that this system was designed to produce.

Industry players also noticed that ordinary retail investors were being cut off from the dividends, so they rolled out a narrative: make investing more democratized, broaden investment channels, and bridge the wealth gap—opening the private market so retail investors can enter. But the reality is the exact opposite: they are only giving retail investors the right to step in at the very peak of a private-market bull run that lasts for as long as 10 years, to take over the chips that insiders had stockpiled at low prices when company valuations were only one-thousandth of what they are today. For retail investors, these private-equity/venture-capital products are not investment opportunities at all—they are just tools for insiders to distribute high-level chips at the top. Even Naval Ravikant’s own promotional logic proves this.

(Note: Naval Ravikant is the leading spokesperson in Silicon Valley’s venture-capital circle for “mass adoption” of private investments; the author of this article directly points out that the “private investments for ordinary people” he advocates is the propaganda engine that helps venture capital complete high-level exits and harvest retail investors’ liquidity.)

Carefully Designed Exit Playbook

For a long time, the crypto world was the first to see through this harvesting playbook.

Early crypto project foundations held huge amounts of locked native tokens. Retail buying power was already depleted, and as token unlock periods drew near, there was no one left to buy.

So they came up with a solution: package these locked tokens that no one wanted into compliant equity-like assets, so that traditional financial institutions could enter and buy them. Tokens that retail investors would never buy directly were transformed—overnight—into stocks. Institutional compliance allowed institutions to buy in, and retail investors could also participate through brokers. The chips were distributed smoothly; the U.S. Securities and Exchange Commission (SEC) effectively turned a blind eye throughout; the project team successfully cashed out; and the people taking over were, from the very beginning, the ones being harvested.

By the way, Naval got involved in crypto very early and understands this approach well.

After observing this play working in the San Francisco venture capital circle, they scaled the same model up to the trillion-dollar capital markets. Private equity and venture-capital products aimed at retail investors became the first channel, and Nasdaq’s modifications to listing rules became the second.

Nasdaq’s new rule plan: for companies where the publicly tradable free float of newly issued shares is extremely limited, the index weight will be increased by 5x, and the weight will be updated whenever the index is rebalanced each quarter. Take SpaceX as an example: when it went public, only 5% of its shares were available for trading publicly, with a total valuation of $1.75 trillion. Under the new rule, passive index funds would be forced to buy this stock based on a pool size of $438 billion, and the purchase would be carried out 15 days after listing—without any refinement by market value. The company’s internal equity lock-up period would be precisely timed to expire at the next index rebalancing point; at that moment, the weight would be maximized, and passive funds would be required to buy large amounts, while insiders would legally cash out right on schedule. SpaceX planned to go public in mid-year, and the end-of-year index rebalancing would line up perfectly—so the entire process fits together seamlessly.

Index funds used to be the protection umbrella that helped ordinary retail investors resist the harvesting of internal capital. Now they’ve become a tool for capital to cash out and exit. Your retirement savings are being harvested away by this mechanism, for free.

The logic behind the tactics in both crypto and venture capital is completely identical: insiders first take low-cost positions in markets that retail investors can’t access; then the assets appreciate; the buying power of the original native market cannot support a high-level distribution of the holdings; next, they create a brand-new packaged vehicle to connect with another batch of capital—namely, pension funds and passive index funds that buy blindly based on rules, without considering price. Internal capital escapes smoothly, while new retail investors take on the high-level chips. The whole process is fully legal because the packaging itself is compliant; regulators are effectively absent, because this kind of institutionalized harvesting, within the rules, is not considered a violation “technically.”

Final Consequences

Many of today’s chaos all stem from this: Sam Altman faces public backlash, autonomous vehicles are maliciously sabotaged, and data centers are met with public protests. The ordinary people who start resisting don’t understand any “exit liquidity” theory, but they feel something immediately: the world has been divided into two classes—early entrants and late bag-holders—and the speed at which the gap between classes is widening far exceeds the limits of what so-called personal effort, talent, or opportunity can make up for.

The elite tech class has proven with reality that ordinary people’s public capital is being harvested continuously, to generate excessive wealth for groups that already hold an advantage.

Wealth polarization will become even more extreme. The next phase won’t be a normal market pullback, because a market pullback assumes that participants still believe the current rules are fair.

Today’s public resistance and conflicts have, in essence, evolved into social-level political contradictions.