By Medha Singh
(Reuters) – What happened to the army of retail traders who were behind Bitcoin’s biggest rallies?
US crypto exchange Coinbase reported just $56 billion in consumer trading volumes in the first quarter of 2024, when bitcoin hit record highs near $74,000.
While this represents a further uptick in retail interest – almost double the level of the final quarter of last year – it is well 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 this wild 2021 ride, as COVID lockdowns, cheap money and personal savings drove up meme stock prices and spawned bouts of intense FOMO, or the fear of missing out. In contrast, the latest rally was a more solemn institutional affair, propelled by the birth of US Bitcoin exchange-traded funds.
“It’s the million-dollar question in crypto right now: When will retail traders come back?” said Michael Rinko, an analyst at Delphi Digital.
In another sign of retail’s retreat, Google trends data shows that search interest for the term “bitcoin” in March was only half of the 2021 peak.
Some small investors are still nursing the chills of the crypto winter of more than two years, when bitcoin remained soft at levels between $20,000 and $30,000.
Billions of 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 main force behind the reduction in activity comes from the lessons learned throughout the painful year that was 2022,” said Vetle Lunde, analyst at K33 Research.
“The contagion and collapse of a large proportion of retail lending platforms illustrated that considerable risks were hidden behind attractive returns.”
Some market participants believe that bitcoin, which accounts for more than half of the $2.26 trillion digital asset market capitalization, will be hit by a rotation period as investors take profits on the coin and decide to move forward. ‘buy riskier altcoins such as no. 2 crypto ether and others.
Indeed, Ether is lagging behind its biggest rival, Bitcoin, and has yet to surpass its 2021 high.
“Instead of blindly jumping into crypto in what seems to be the fashion at the time, people are now much more focused on what constitutes a safe and secure asset to invest in,” said John Glover, director investments from crypto lending platform Ledn.
It remains to be seen if or when speculative crypto traders will return to the market in force.
Currently, Bitcoin’s fall to $62,809, 15% below its mid-March record high, is a reminder of the high volatility and risk that comes with this asset.
“The principle of crypto is this: bitcoin needs to hit $100,000 for retail to come back,” said Rinko of Delphi Digital. “Who knows if it’s the magic number, but we need to get to a number that really ignites the FOMO.”
(Reporting by Medha Singh in Bengaluru; editing by Vidya Ranganathan and Pravin Char)
