The stock market is rigged against most people.
It’s not obvious.
Most of the money made from stocks happens before the IPO (Initial Public Offering). You and I can’t invest in a cool startup from Silicon Valley until this point. You can still make money as an investor after an IPO, but that’s not where most of the money is made.
The IPO is where the people who got rich off the company dump their stocks onto the public and realize their profit in US dollars. The rich people need someone to sell their overpriced stocks to. They use hype to increase their profits at the last minute.
Let me explain how this occurs and then how you can use it to your advantage.
I can’t believe this term hasn’t created another “Occupy Wall Street”
In 2008 the financial system nearly collapsed. The US investment banks that caused the issue got a huge bailout. This led to the “Occupy Wall Street” protests in America. In comparison, the problem I’m about to share with you is far more significant.
Businesses can bring on investors before an IPO. This is done through private equity, hedge funds, venture capital, and equity crowdfunding. There is one catch in countries like Australia and the US. According to the SEC that regulates the US stock market, you must meet these criteria:
[Have] a net worth over $1 million, either alone or together with a spouse or spousal equivalent (excluding the value of the person’s primary residence)
Let me translate: You must be rich already to gain access to investment opportunities that have the majority of the gains before an IPO. I learned the hard way when an equity crowdfunding platform came to Australia.
I worked in a bank at the time, surrounded by the world of investing. A business I liked listed on the crowdfunding website. I went to sign up to the platform and invest, only to be told “sorry you’re not an accredited investor.”
Another guy I met at a meetup, who drove a $1M Rolls Royce with his pocket change, got to invest in the same company. A few years later he made a fortune from it. He thought it was hilarious that I couldn’t invest.
Why the qualification is stupid
The idea of the accredited investor regulation all around the world is that it keeps Joe Citizen safe. They’re trying to protect us, people. Investing in businesses is risky. So is crossing a busy road with cars that can run you over.
I can’t invest in stocks before they go public via an IPO. But I’m allowed to walk into a casino and have them drain my bank account. That’s not illegal. Nobody is looking out for my safety in Las Vegas.
When a person magically passes the $1 million net-worth status nothing changes. They aren’t magically smarter than a person who has a $10,000 net-worth. They didn’t do some college course on finance to better understand the risks. They didn’t have to pass a qualification interview to protect them.
Nope.
They just need to be able to prove their net-worth. They could have inherited $1 million yesterday from their dead grandmother and now they’re miraculously an accredited investor.
This stupid rule makes my blood boil. Regular people can’t invest in good businesses until Wall Street has sucked all the value out of them so they can buy more overpriced yachts.
I don’t understand the logic for the accredited investor rule. But I do know that it conveniently stops large numbers of the global population from investing their money the way they want based on their own research.
The accredited investor rule causes inequality. The rich get richer faster because they can invest in a business and front-run the public before the rest of us can buy the stock on the US stock exchange.
Don’t cry “life is unfair.” Get even.
No point getting angry about it. Innovation eventually disrupts those who seek to exploit their power and benefit unfairly.
This bug in the financial system now has another avenue for the general public to be involved and balance the scales again. Let me explain. There is a new form of organization called a DAO (Decentralized Autonomous Organisation). A DAO is simply a fancy way of saying a startup in the new world of blockchain and Web 3.0.
Anybody can freely create a DAO for their new business and sell tokens. When tokens are sold by a DAO it’s effectively an unofficial capital raise to gain investment from anybody. It gets around the stupid accredited investor nonsense.
Now we don’t need venture capital vultures or angel investors. Nope. A startup can raise money directly from the public in the early stages.
The public can now beat Wall Street for the first time
DAOs are built on blockchain. You might be thinking the old world of finance and Wall Street will simply come to blockchain.
There’s one huge problem: They can’t do it easily.
If a traditional hedge fund or venture capital firm wants to invest in the blockchain space — with high-quality assets like bitcoin and ethereum — they need a product called an ETF.
An ETF acts like a regulated product that holds the assets Wall Street wants to own. This is crucial because Wall Street isn’t going to buy billions of dollars of ethereum and then store it on a USB stick somewhere. No. They need an ETF.
In America (and most countries) regulators haven’t approved ETFs yet. So Wall Street has to watch everybody else (the general public) make all the money on blockchain that will no doubt be the future of the internet.
This phenomenon in finance is called “front-running.” It means that you know information about an investment before anybody else does which can make its price go up.
Blockchain and Web 3.0 are now worth more than $2.02 trillion. Wall Street and traditional finance are still on the sidelines with drool coming out of their mouths, waiting for an ETF.
Gary Gensler, SEC chairman, has hinted that a US ETF for cryptocurrencies such as bitcoin and ethereum is coming. The finance world that has benefited from the accredited investor rule is about to enter blockchain. When they do, the money they invest will most likely cause the prices of established cryptocurrencies to go up. But in the meantime, and for the last few years, everyday investors have had an information advantage.
What I’ve just described has the potential to cause a massive transfer of wealth. Ex-Goldman Sachs banker, Raoul Pal, says this is one of the greatest times in history to be an investor. I agree.
Takeaway
The accredited investor rule has stopped normal people like us from investing money into internet companies and being part of the gains. We got the scraps from IPOs. We nearly got shilled IPO disasters like WeWork.
Blockchain changes everything. You don’t need to be an accredited investor. Nobody checks how much money you have. For the first time you can invest and do your own research. No greedy banker, like the ones in 2008, can bet against you.
What starts out as unfair eventually becomes fair thanks to human evolution. A decentralized world built on blockchain will crush traditional institutions like Wall Street, which have abused their power for too long. It’s an exciting time to be alive. Learn about Web 3.0 to take part in the opportunity.
This article is for informational purposes only, it should not be considered financial, tax or legal advice. Consult a financial professional before making any major financial decisions.
