This could be a worrying time for holders of cryptocurrencies, especially those who entered the market in late 2021, when prices peaked. Bitcoin (BTC), ether (ETH) and altcoins in particular are now undergoing a major reset, down 50% or more from November highs.
Some worry that an entire generation of crypto adopters could be lost if things get worse. “If the market continues to fall, it will become very painful and retail investors will bail out,” Eben Burr, president of Toes Asset Management, told Reuters earlier this month. “Everyone has their breaking point.”
But, all gloom and doom could have been put to an end.
This is “unnecessary,” acknowledged Kelly Cox, United States investment analyst at eToro, but it’s only par for the course for a market that hardly existed a decade ago. Bitcoin, arguably the most “institutionalized” digital coin, “has actually gone through 16 drops of 50% or more over the past 10 years,” he told Cointelegraph.
According to Cox, the current correction hasn’t disappointed young investors. “We surveyed 1,000 investors aged 18-34 in March, and 58% of investors aged 18-34 thought bitcoin would present the best buying opportunity in crypto over the next three months.”
Yet, more recently, in early May, Glassnode reported that 40% of bitcoin holders were underwater on their investments at a time when BTC was at $33,800; It was $29,000 last weekend, May 28. Are young investors still as optimistic as they were in March?
Bobby Zagotta, CEO of Bitstamp USA and Chief Commercial Officer of Bitstamp Global, told Cointelegraph, “Over the past few weeks retail traders between the ages of 35-45 have decreased their crypto balances amid market volatility. In contrast, “our younger users seem to be more enthusiastic and have opted not to sell.” He added:
“Given the macroeconomic constraints, each asset class is risk-free right now. That said, crypto and bitcoin, in particular, are showing pretty amazing resilience.”
Has the fall of Luna shocked newcomers?
However, not everyone is so serious. During the last bull run, retail investors were most attracted to speculative investments, perhaps hoping to mimic the spectacular gains of early adopters of crypto, Lenix Lai, director of financial markets at crypto exchange OKEx, told Cointelegraph. Told. Ether and Bitcoin are down nearly 50% from their end-21 peaks, but many altcoins have fallen even further. Meanwhile, the mid-May collapse of Terra (LUNA) and TeraUSD (UST) has rocked the entire crypto sector, Lai said:
“The catastrophic impact of the Luna crash will certainly have dented crypto sentiment among less sophisticated investors – it will take time for retail sentiment to recover from the damage done.”
Still, Lai doesn’t believe retail investor confidence in cryptocurrencies has vanished. Rather a lesson learned. “Bearish markets teach everyone that the nature of crypto – apart from that of other asset classes – is volatile.”
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Are youth naturally optimistic?
In a 2021 paper, two researchers explore the impact of investor beliefs on cryptocurrency demand and prices. Focusing primarily on the 2017-2018 bull run, he found that “younger people with lower incomes are more optimistic about the future value of cryptocurrencies than are late investors.” In particular, “the ‘fear of missing out’, and contagion social dynamics may have contributed to the steep rise in cryptocurrency prices.”
Could the same dynamic play out in the price hike towards the end of 2021? “I would guess that not much has changed in terms of how educated/sophisticated the average crypto investor is,” Giovanni Compiani, one of the paper’s co-authors and assistant professor at the Chicago Booth School of Business, told Cointelegraph, “Given that, to my knowledge, there has been no major education campaign or any policy change that would make it harder for unsophisticated investors to do business.”
If so, one might expect crypto enthusiasts of late or underage crypto enthusiasts to opt out now, but that’s not necessarily the case. When asked about retail investors for the first time, Christina Guglielmetti, financial advisor and president of Future Perfect Planning, told Cointelegraph:
“The clients I have that hold cryptocurrencies have not actually sold their holdings from last year to this year. They are seeing it more as an educational experience and not delivering the expected returns per se. They expect Doing that it would be speculative and very volatile.”
Will it be difficult to find new customers?
Even if the latecomers aren’t rushing in en masse, wouldn’t it be difficult to attract new retail customers just because some people have suffered burnouts?
“We have seen crypto bear markets before,” said Zagotta, “as we have seen rallies. We are part of a new financial ecosystem that is evolving minute by minute and led by some of the smartest minds of our time. So my bet is always going to be on innovation versus stagnation.” Furthermore, he told Cointelegraph:
“In the headlines you might believe that there’s actually more volatility out there and investors are running away when prices fluctuate. But, that’s not really happening.”
“The issue of crypto isn’t necessarily the price, it’s the education,” Cox said. Forty-two percent of investors surveyed by eToro in March said they don’t buy crypto because they don’t know enough about it: “But, the appetite for decentralization and digital transformation is still there, especially among younger investors.”
Cox doesn’t accept the notion held by some that young investors are the first to blow up the resistance and run fast. In contrast, “young investors have a naturally high risk appetite, and they are willing to stomach these swings because of their long-term optimism about the technology.”
“While some investors will be lost for good, each market cycle sees newcomers believe in the technology,” Lai said. “Investors who left crypto in 2018 and returned in 2021 are more likely to stick around, as they now know that the industry does not die during market downturns and that those made during lows Investments have historically been the most attractive.”
Meanwhile, “open interest in OKEx continues to rise even when the market is bearish, indicating that users are not leaving the market,” Lai said. “We expect investors to reduce their leverage and maintain their positions.”
Are retail customers even needed?
Maybe we’re worrying too much about individual investors. Last week, JPMorgan Chase, the banking giant, was reported to be experimenting with blockchain technology for collateral settlement. If such big institutional players are bullish on technology, then maybe it doesn’t matter what retail investors do?
“Both retail and institutions are critical to the continued adoption of digital assets,” Zagotta said. “Institutional interest certainly establishes maturity and confidence over all other investor classes.”
“What really matters to the industry is that good products are delivering real value to users,” Lai said. Institutional ecosystem is only one part, though a significant part. “The presence of institutional players in the sector promotes fair value and better liquidity of crypto assets.”
What advice, if any, will Lai provide to new crypto investors? “Dior,” or do your own research. “Crypto is still an emerging asset class with a relatively short history compared to traditional finance markets. Some tokenonomics, while very promising, are still experimental.”
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“Know what you’re investing in,” Cox said. Investors have different goals, needs and risk appetite. “So, ultimately, crypto may not be right for your money at the moment. Investing in an emerging asset class has risks.”
Overall, the crypto story is a compelling one, he continued. The world is generally moving towards a decentralized future, and cryptocurrencies are more inclusive and accessible than traditional financial instruments. “Focus on the usefulness of the coin you’re investing in, and always have an exit strategy,” Cox concluded.
Most agree that more education is needed. “Our data shows that 76% of retail investors are excited for crypto to reach mainstream status within a decade,” said Zagotta. “This means we see a huge opportunity to support adoption through education. Education and knowledge will build trust between regulators and investors.”
In short, “we haven’t seen investors leave the crypto space en masse,” Cox said, “but we have seen them become more selective about the crypto they buy.”
