Retail Investors Are Largely Uninvolved As Bitcoin Price Chases $40K

Bitcoin looks set to achieve many new all-time highs in 2021 but when will retail investors join the party? Retail Investors Are Largely Uninvolved As Bitcoin Price Chases $40K

There are many investors feeling validated in the cryptocurrency market now that Bitcoin’s price has established a new all-time high of $34,778.

The last time Bitcoin (BTC) traded anywhere near this level was during the bull run of 2017, when it reached a peak of about $19,783. Even the mainstream media took notice, including the New York Times, which observed that the current rally had “a very different feel to it than the last time around.”

Many in the cryptocurrency community would agree. Therefore, it’s essential to take a deeper look at the factors that are driving the current rally.

The “Average Joe” Is No Longer Running The Show

Bitcoin hits a new all-time high with a very different feeling to it than the last time around. https://t.co/N5M4EzblOW

— Nathaniel Popper (@nathanielpopper) November 30, 2020

In 2017, Bitcoin’s bull run was largely believed to have been fuelled by retail investors who were placing speculative bets on a nascent BTC market and other smaller-cap cryptocurrencies from the initial coin offering craze.

At that time, there were reportedly millions of retail investors in South Korea, Japan and China that became a force in the market. Back then, it was the “average Joe” powering Bitcoin’s more-than-1,300% gain that year, as pointed out in the Wall Street Journal by IG Group chief market strategist Chris Weston.

U.S. Dollar Trading Increases As Wall Street Arrives

Fast forward to 2020, and the investor landscape has changed dramatically. Institutional investors, who largely remained on the side-lines in the first bull run, have been the face of the rally this time around.

These investors are largely expected to take long-term holding positions with no intentions of selling anytime soon. They are also flocking to the Bitcoin futures markets, where open interest on the Chicago Mercantile Exchange recently surpassed $1 billion, and they are strengthening their balance sheets with BTC rather than letting it sit in cash.

While it is not unusual for institutional investors to be ahead of the curve, it’s worth repeating that they were not the first ones out of the gate in crypto. In fact, many of the leaders in corporate America who are now entering Bitcoin for the first time are now the very people who dismissed Bitcoin back then.

For example, in October, PayPal announced that it would support cryptocurrency transactions across the 26 million merchants on its platform. Users can also buy, hold or sell cryptocurrencies on the PayPal platform, including Bitcoin, Ether (ETH), Litecoin (LTC) and Bitcoin Cash (BCH).

The irony is that Bill Harris, the former CEO of PayPal, warned in 2018 that Bitcoin had no value and was headed toward zero — he even labeled it as a scam. PayPal is rivaled only by Jack Dorsey’s Square for the pace at which large companies are buying up Bitcoin.

Wall Street firms previously shied away from Bitcoin because of its volatility, chalking it up as a risky asset at best and “rat poison squared” at worst, according to Berkshire Hathaway’s Warren Buffett. While Buffett has yet to come around on crypto, other big investors are diving in.

Billionaire traders from Paul Tudor Jones to Stanley Druckenmiller have turned bullish on Bitcoin, both of whom have been touting the leading cryptocurrency over physical gold.

In 2017, JPMorgan CEO Jamie Dimon threatened to fire employees who traded Bitcoin, but now the firm is publishing bullish analyst reports on the digital asset. Larry Fink, CEO of BlackRock — the world’s largest asset manager — also seems to be warming up to Bitcoin, suggesting that it is not outside the realm of possibility that Bitcoin would “evolve into a global market.” He stated:

“Bitcoin has caught the attention and the imagination of many people. Still untested, pretty small market relative to other markets.”

Meanwhile, MicroStrategy CEO Michael Saylor was a first mover in corporate America into the Bitcoin space, but he wasn’t always a fan. Back in 2013, Saylor said that Bitcoin’s days were numbered and that the market was destined to suffer a similar fate as online gambling.

Then, in an unexpected turn of events, Saylor decided to make Bitcoin the company’s primary treasury reserve asset, scooping up $425 million worth of BTC for the balance sheet. That investment is worth $1.56 billion at last check. On Dec. 4, Saylor upped the ante by purchasing even more BTC.

MicroStrategy has purchased approximately 2,574 bitcoins for $50.0 million in cash in accordance with its Treasury Reserve Policy, at an average price of approximately $19,427 per bitcoin. We now hold approximately 40,824 bitcoins.https://t.co/nwZcM9zAXZ

— Michael Saylor (@michael_saylor) December 4, 2020

That Was Then, This Is Now

Another key difference is that Bitcoin’s price started off the year in 2017, trading at about $1,000. In 2020, BTC’s price began trading at $7,200. So, it’s much more expensive today, and not all retail investors may realize that they don’t have to buy an entire Bitcoin to gain exposure to the asset.

The fly in the ointment in 2020, however, was COVID-19. For individual investors, the economic slowdown might have thrown a wrench into any investment plans. U.S. unemployment, for instance, is hovering at 6.7%, which means that the economy still has a steep hill to climb if mom-and-pop investors are going to dig themselves out of the hole from the pandemic.

High unemployment translates to low disposable income, and Uncle Sam hasn’t been too helpful. While BTC might be designed to be a great democratizing force, that control can’t be harnessed by people who are struggling with the economic realities of 2020.

Additionally, unlike 2017, East Asian investors have reportedly been unloading their Bitcoin this year at an unprecedented pace.

While #Bitcoin has hit ATH this week, a trend has been playing out that could change face of crypto market: a massive flow of coin to US from East Asia. Shift in center of gravity being driven by an increasing appetite for bitcoin among bigger US investors https://t.co/8Zo3CBbjBW pic.twitter.com/8hoCiTfT0i

— Holger Zschaepitz (@Schuldensuehner) December 3, 2020

Bitcoin ATMs Are Out Front

While the cryptocurrency market may remain in its early innings, it is more mature than it was in 2017. Much of the froth has been weeded out, and it is no longer considered to be the Wild West in many ways.

Despite any retail investor hesitation, channels to entry are growing rapidly, with new exchanges increasingly coming online, including those that are decentralized in nature. Meanwhile, Bitcoin ATMs, which are becoming a competitive and convenient gateway for retail investors, are expanding their footprint across the globe.

Unlike institutional investors, such as Jack Dorsey, whose approach to buying Bitcoin is so complex that he published an investment white paper about it, retail investors can turn to something familiar with Bitcoin ATMs, or BTMs.

As the BTM market begins to mature and the list of genuine operators expands, crypto retail investors may finally have an easy gateway to entry. For example, CoinFlip, one of the largest BTM operators, rolled out thousands of BTMs across the U.S., focusing on locations where people are without bank accounts or internet access.

This cash-to-Bitcoin approach offers retail investors a simple and convenient method to enter the Bitcoin market and, according to Ben Weiss, chief operating officer of CoinFlip, is designed to empower those locked out of the traditional banking system.

Not all Bitcoin ATMs are equal, however, and there are some shady operators out there that are charging fees in the 20% range — a practice that runs against the democratizing principles on which Bitcoin was founded. Fortunately, a growing number of companies are trending toward slashing fees, with CoinFlip and CoinSource taking 6.99% and 11%, respectively.

More important than Square investing $50mm in #Bitcoin is sharing how we did it (so others can do the same): https://t.co/35ABYHuz4f

— jack (@jack) October 8, 2020

As the moderate companies lower their fees and the predatory Bitcoin ATM operators fade, retail investors can once again enjoy easy access to a digital asset whose popularity is only growing stronger.

Updated: 1-22-2021

Retail Is Here: The Virtuous Cycle Of Social Engagement With Crypto

The recent Bitcoin rally is driving crowds of new retail investors to crypto markets, and the Main Street itself deserves the credit.

One of the tropes that observers commonly invoke to explain the forces behind the crypto markets’ surge at the end of 2020 and in early 2021 is that the process has been mainly driven by the inrush of institutional investment.

While there are many good reasons to believe that the race among the big players of traditional finance to get into digital assets has indeed provided much fodder for the blast, the overwhelming focus on this narrative can make it seem that retail investors had a little role to play.

Shifting the spotlight away from the public can be misguided because blockchain is fundamentally a social technology. Bitcoin (BTC) as an investment vehicle would struggle to exist without the bustling Main Street marketplace and a social media arena where market-driving narratives emerge and clash.

Heightened social engagement with crypto has been both a precursor for the recent rally and its direct consequence. Is there a way to quantify the crypto industry’s recent gains in terms of user inflow?

Surging Prices = Surging Interest

Perhaps the easiest trend to capture is the surge in search activity coinciding with rapid gains in crypto prices. One established metric is the volume of Google searches of cryptocurrency-related terms. In the week of Jan. 3, Google Trends’ global interest over time index for the term “Bitcoin” reached the value of 68, which amounts to more than two-thirds of the all-time high registered in the week of Dec. 17, at the height of the previous record-breaking bull run in 2017–2018.

Frantically, searching for the meaning of basic crypto terms amid the hype waves rocking the internet in the wake of a major price rally could be indicative of a potential newcomer’s first impulse to educate oneself on the subject.

While this is a necessary first step for eventually becoming involved with digital assets in a more tangible way, search data alone only reveals a fraction of how deep engagement truly is. Spikes in searches could as well be a marker of a FOMO-driven behavior that does not translate into more meaningful activity once the hype dies down.

The volume of traffic going to specialized cryptocurrency analytics websites could be a somewhat more precise marker of the arrival of a new wave of the crypto-curious who are willing to do their reading beyond headlines.

CoinGecko, one of the major crypto data aggregators, shared some of its internal analytics to provide a sense of how much more engagement they have received against the backdrop of the recent market surge. The firm’s co-founder and chief operating officer, Bobby Ong, commented to Cointelegraph:

“We saw a 77% increase to our Bitcoin page in the past 30 days [between Dec. 13 and Jan. 13] when compared to the previous period. Views to our Ethereum page increased by 90% during this period, too. Overall, our traffic increased 43% during this period.”

Still, there is no way to tell what share of these gains has been driven by newcomers versus returning crypto investors.

Sprawling Conversation

If we accept that participating in a Twitter discussion about cryptocurrency is more likely to reveal a meaningful engagement with the digital asset space than simply looking up what Bitcoin is, there is some good news in fresh data.

While the indicators of generic interest as gauged by Google Trends in the wake of the recent rally failed to surpass the highs of late-2017, several metrics related to Twitter conversations have hit all-time highs. Treyce Dahlem, a research analyst at The Tie — a digital assets data provider — explained to Cointelegraph:

“While institutions may have started this crypto rally, retail has definitely arrived. The average number of daily Twitter users talking about Bitcoin has hit a new all-time high of 35,883, breaking the previous high of 35,181, set back in January of 2018. This is huge, as this shows that retail investors are here and excited about Bitcoin.”

Dahlem added that the share of tweets about Bitcoin coming from unique Twitter accounts has also reached a record high at 53.3%, suggesting that the increased volume of conversation is fueled by new users jumping in and not just the intensified discussions among the existing participants of Crypto Twitter.

Demographic Trends

An even more challenging task is to gauge the state of crypto awareness and adoption that predated the latest price spike. This type of insight could lend credence to the argument that increased retail investors’ engagement could not only stem from the crypto markets’ surge but at least partly fuel it.

The type of data best suited for answering broad, population-level questions around the share of people who know about digital assets and use them can be obtained through surveys. While there are plenty of crypto-related surveys, few of them even aspire to reach any level of representativeness, much less systematically apply the same methodology across several time points to reliably track the dynamics.

One exception is perhaps the Crypto Survey fielded by venture company Blockchain Capital every 18 months, starting in the fall of 2017. It uses a sample of U.S. adults that is weighted such that all key demographic characteristics are represented in a proportion similar to the general population.

The latest round of data, collected in October 2020, speaks to the Americans’ rapid progression through what the authors of the report labeled the “adoption funnel.”

According to the survey results, less than two months before crypto markets rallied in December, 90% of U.S. residents reported having heard of Bitcoin; 45% were at least somewhat familiar with it; 45% agreed that it is a positive innovation; 41% were convinced that most people will be using Bitcoin in the next 10 years; and 34% said that they were likely to purchase Bitcoin in the next five years. For each of these metrics, sizable increases from respective spring 2019 values were apparent.

These trends are not exclusive to the United States or even to the elite club of the world’s most developed economies.

Occasional reports from a wide array of nations, from Australia to Nigeria, highlighted that in 2020, people around the globe have been getting familiar with digital assets and joining the ranks of crypto users at rates that could only be explained by fundamental factors.

Granted, newsworthy bull runs and accompanying spikes in online attention help accelerate engagement and subsequent adoption of crypto, but it’s this virtuous cycle that is the expanding adoption that, in turn, allows markets to thrive.

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