Severe fluctuations in the Iranian stock market over recent years indicate that capital market developments, rather than following intra-market logic, are heavily influenced by political economy and the contradictory role of the government. The unconventional growth of indices during the COVID-19 pandemic, accompanied by official encouragement to invest and the formation of the perception of a "government guarantee," triggered a massive influx of retail capital; however, the subsequent crash from the second half of 2020 and into 2021 led to capital destruction, public dissatisfaction, and political instability. The analysis of the current situation emphasizes several key issues: the government's squandering of opportunities in the timely offering of state-owned assets and financing without bubble creation, monopolization and the formation of interest groups in the market alongside resistance against anti-monopoly policies, regulatory weakness and the lag of rules behind market developments, the expansion of rent-seeking resulting from licensing-centrism and structural corruption, the entanglement of capital market policymaking with electoral cycles, and the persistence of the government's dual role as both policymaker and corporate owner. Proposed strategies include readjusting rules to enhance oversight, competition, and transparency; drafting anti-monopoly laws; replacing rigid ex-ante licensing with stringent ex-post monitoring; reducing rent-seeking advantages in state-owned enterprises and reforming the reward-and-punishment mechanism of privatization; gradually ending price controls; and guiding retail investors toward investment funds in a competitive environment.