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Retail traders refrain from bitcoin rally
By Medha Singh
(Reuters) – What happened to the army of retail traders who once led bitcoin’s biggest rallies?
US cryptocurrency exchange Coinbase recorded trading volumes of just $56 billion in the first quarter of 2024, when bitcoin jumped to record highs near $74,000.
While this represents a fledgling recovery in retail interest – nearly double the level of the final quarter of last year – it is far below the quarterly average of $133.75 billion during the last comparable rally in 2021.
The retail investor was in the driver’s seat of that wild ride into 2021, as COVID lockdowns, cheap money and personal savings drove up the prices of “meme” stocks and generated bouts of intense FOMO, or fear of missing out. By contrast, the latest rally was a more solemn institutional event, fueled by the rise of US bitcoin ETFs.
“The million-dollar question in the cryptocurrency industry right now is: when will retail traders return?” said Michael Rinko, analyst at Delphi Digital.
In another sign of retail’s retreat, Google Trends data shows that search interest in the term “bitcoin” in March was only half of its 2021 peak.
Some small investors are still reeling from the more than two-year crypto winter, when bitcoin remained sluggish at levels between $20,000 and $30,000.
Billions in customer funds were also trapped in the implosion of high-profile crypto firms, including Three Arrows Capital, Celsius Network and FTX, whose founder Sam Bankman-Fried was sentenced to 25 years in prison for fraud.
“The key force behind the reduction in activity comes from the lessons learned during the harrowing year, which was 2022,” said Vetle Lunde, an analyst at K33 Research.
“The contagion and collapse of a large portion of retail-facing lending platforms demonstrated that considerable risks lurked behind attractive returns.”
Some market participants believe bitcoin, which accounts for more than half of the $2.26 trillion market capitalization of digital assets, will be hit by a period of rotation as investors profit from the coin and decide to buy riskier altcoins like no. 2 crypto-ether and others.
In fact, Ether lags behind its larger rival, Bitcoin, and has yet to surpass its 2021 peak.
“Instead of blindly jumping into the world of cryptocurrencies into whatever seems to be hot at the time, people are now much more focused on what is a safe, secure asset to invest in,” said John Glover, chief investment officer at the Ledn cryptocurrency lending platform.
It remains to be seen if and when speculative cryptocurrency traders will return to the market in force.
The story continues
Right now, Bitcoin’s collapse to $62,809, 15% below its record high in mid-March, serves as a reminder of the strong volatility and risk that comes with the asset.
“The cryptocurrency meme is that bitcoin needs to hit $100,000 for retail to return,” said Rinko of Delphi Digital. “Who knows if this is the magic number, but we need to get to a number that really inflames the FOMO.”
(Reporting by Medha Singh in Bangalore; Editing by Vidya Ranganathan and Pravin Char)