What became of the legions of ordinary traders who spearheaded the largest bitcoin rallies?
Just $56 billion in customer trade volumes were recorded in the first quarter of 2024 by the U.S. cryptocurrency exchange Coinbase despite bitcoin reaching record highs of about $74,000.
Even though it’s about twice as high as it was in the last quarter of the previous year, the retail interest rate recovery is still in its infancy. It’s far less than the $133.75 billion quarterly average from the previous comparable rally in 2021.
As COVID lockdowns, easy money, and personal savings drove up prices of “meme” stocks and created episodes of acute FOMO, or fear of missing out, the average investor was in control of that crazy ride in 2021. In contrast, the most recent increase was driven by the establishment of U.S. bitcoin exchange-traded funds, making it a more somber, institutional event.
“It’s the million-dollar question in crypto right now – when will retail traders come back?” said Michael Rinko, analyst at Delphi Digital.
Google trends data indicates that search interest for the phrase “bitcoin” in March was only half of its peak in 2021, which is another indication of the retail retreat.
Small-time investors are still feeling the effects of the over two-year-long cryptocurrency winter, during which bitcoin hovered around $20,000 to $30,000.
The collapse of well-known cryptocurrency businesses, including as Three Arrows Capital, Celsius Network, and FTX, whose CEO Sam Bankman-Fried received a 25-year prison sentence for fraud, also stranded billions of consumer cash.
“The key force behind the reduced activity stems from lessons learned throughout the harrowing year, which was 2022,” said Vetle Lunde, analyst at K33 Research.
“The contagion and collapse of a vast portion of retail-facing lending platforms illustrated that considerable risks were hiding behind the attractive yields.”
More than half of the $2.26 trillion market capitalization of digital assets is made up of bitcoin, which some market participants believe may experience a period of rotation as investors take profits on the coin and choose to purchase riskier altcoins like ether, the second-ranked cryptocurrency, and others.
In fact, ether is still below its 2021 top and lagging behind its more powerful rival, bitcoin.
According to John Glover, chief investment officer of the cryptocurrency lending platform Ledn, “people are now focused much more on what is a secure and safe asset to invest in, instead of just blindly jumping into crypto in whatever seems to be hot at the time.”
Whether or when speculative cryptocurrency traders make a significant comeback to the market is still to be seen.
Bitcoin’s current 15% decline to $62,809 from its record high in mid-March serves as a reminder of the asset’s extreme volatility and danger.
According to Rinko of Delphi Digital, “the meme in crypto is – bitcoin needs to hit $100,000 for retail to come back.” “Who knows if that’s the magic number but we do need to get to a number that really ignites FOMO.”
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