Key Differences: Understanding Primary and Secondary Markets in Cryptocurrency

With the rise of cryptocurrencies, the cryptocurrency market has become a hot topic of concern. In the cryptocurrency market, the primary market and the secondary market are terms that investors often hear. So, what are the primary market and the secondary market in the cryptocurrency market? What are their differences? This article will give you detailed answers.

Definition and Characteristics of the Primary Market

The primary market in the cryptocurrency market refers to the stage of the initial issuance of cryptocurrencies, also known as the private placement round or crowdfunding round of the project. At this stage, the project team will sell tokens to specific investors or the public through private placement or crowdfunding.

Characteristics:

(1) Closedness: Investment opportunities in the primary market are usually only open to specific investors or users with specific certifications, and the participation threshold is relatively high.

(2) High risk and high return: Projects in the primary market are in the initial stage, and the investment risk is relatively high, but at the same time, there is also a large potential for investment returns.

(3) Discovery of new projects: The primary market is an important channel to discover and invest in new projects. For investors, they can obtain some potentially promising cryptocurrency projects in the future.

In a popular sense, when a certain token has not been listed on any exchange, we can buy the token of the project party from the primary market channel at a lower price. After the token is listed on the exchange and pulled up to achieve a certain profit.

It can be sold to exchange the lowest cost for the greatest benefit. The primary market is the issuance market (generally referring to subscription from the issuer), and the secondary market is the trading market (transactions among holders).

Taking stocks as an example, for China's A-share market. The IPO we often talk about is carried out in the primary market, and investments in enterprises before the IPO (such as private equity investments such as VC and PE) are generally also called investments in the primary market.

Definition and Characteristics of the Secondary Market

The secondary market in the cryptocurrency market refers to the market where tokens that have been issued in the primary market are traded in places such as exchanges. Participants in the primary market can sell the tokens in their hands to other investors or exchange users.

Characteristics:

(1) Openness: The secondary market is more open compared to the primary market, and any investor who meets the conditions can participate in the trading.

(2) High liquidity: In the secondary market, investors can buy or sell tokens at any time, and the market liquidity is relatively high.

(3) Prices are affected by the market: Token prices in the secondary market are affected by factors such as supply and demand and market sentiment, and prices may fluctuate.

Differences between the Primary and Secondary Markets

Different participation methods: The primary market is usually only open to specific investors or users with specific certifications, while the secondary market is open to any investor who meets the conditions.

Different investment stages: The primary market is the initial stage of the project, with relatively high investment risk but also greater return potential; the secondary market is the stage where the project has entered places such as exchanges for trading, and the risk is relatively low.

Different market liquidity: The primary market is usually relatively closed, and the token liquidity is relatively low, while the secondary market, due to its higher openness, has relatively higher market liquidity.

A project usually goes through the seed round, the private placement round, and the public offering round. The price in each round is increasing, and it is common to have multiple price differences. In particular, the price in the project seed round is very low. After the project token is listed on the exchange, that is, in the secondary market, the price difference between the primary market and the secondary market becomes extremely obvious.

Seed round: In the early stage, institutions mainly provide initial team building funds.

Private placement round: Mainly institutions and specific investors or institutions, with large investment amounts and preferential prices.

Public offering round: You can understand it as some platform exchanges' new offerings, or some platforms that the public can participate in.

The secondary market's currency hoarding plan can keep pace with the primary market. Of course, including the current interaction and airdrops in the cryptocurrency market is also a way to obtain the primary market quota. It's just that some people prefer certainty and convenience, while others are willing to put in the effort.

At the same time, the primary market also comes with certain thresholds and some disadvantages compared to the secondary market: lock-up and release mechanisms.

Since the release mechanisms are formulated by the project party or institutions, it is rare to obtain a quota that is not locked up and 100% released. It may be released within one year or within three months. But the primary market is essentially value.