These times can be anxious for cryptocurrency holders, especially those who entered the market in late 2021 when prices peaked. Bitcoin (BTC), Ether (ETH) and especially altcoins now appear to be undergoing a major reset, down 50% or more from November highs.
Some fear that a whole generation of crypto adopters will be lost if things fall apart further. “If the market decline continues, it will become too painful and retail investors will flee,” Eben Burr, chairman of Toews Asset Management, Told Reuters earlier this month. “Everyone has a breaking point.”
But, all the sadness and unhappiness could be exaggerated.
It’s “unnerving,” acknowledged Callie Cox, US investment analyst at eToro, but that’s only par for the course for a market that barely existed a decade ago. Bitcoin, arguably the most “institutionalized” digital coin, “has actually suffered 16 declines of 50% or more in the past 10 years,” she told Cointelegraph.
The current correction has not deterred young investors, according to Cox. “We surveyed 1,000 investors of all age groups in March, and 58% of investors aged 18-34 believed Bitcoin would present the best buying opportunity in crypto over the next three months.”
Again, more recently, in early May, Glassnode reported that 40% of Bitcoin holders were underwater on their investments at a time when BTC was $33,800; it was $29,000 last weekend, May 28. Are young investors still as optimistic as they were in March?
“Retail traders between the ages of 35 and 45 have reduced their crypto balances amid market volatility over the past few weeks,” Bobby Zagotta, CEO of Bitstamp USA and Chief Commercial Officer of Bitstamp Global, told Cointelegraph. In contrast, “Our younger users seem to be more optimistic and have chosen not to sell.” He added:
“Given the macro headwinds, every asset class is sheltered from risk right now. That said, crypto and Bitcoin in particular are showing quite astonishing resilience.
Has LUNA’s collapse rattled newcomers?
However, not everyone is so optimistic. Over the last bull run, retail investors have been increasingly drawn to the more speculative investments, perhaps hoping to replicate the dramatic gains of early crypto adopters, said Lennix Lai, chief financial markets officer at crypto exchange OKX, at Cointelegraph. Ether and Bitcoin are down around 50% from their late 2021 highs, but many altcoins have fallen further. Meanwhile, the mid-May collapse of Terra (LUNA) and TerraUSD (UST) shook the entire crypto sector, Lai said, adding:
“The devastating impact of the LUNA crash will certainly have soured the perception of crypto among less sophisticated investors – the damage to retailer sentiment will take time to recover.”
Still, Lai doesn’t believe that retail investor confidence in cryptocurrencies is gone. Rather a lesson was learned. “Bear markets teach everyone that the nature of crypto – in addition to other asset classes – is volatile.”
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Are young people inherently optimistic?
In a 2021 article, two researchers explored the impact of investor beliefs on cryptocurrency demand and prices. Focusing primarily on the 2017-2018 bull market, they found that “low-income youth are more optimistic about the future value of cryptocurrencies, as are late investors.” In particular, “‘fear of missing out’ and contagious social dynamics may have contributed to a runaway rise in cryptocurrency prices.”
Could the same dynamic be at play in the price spike at the end of 2021? “I guess not much has changed in terms of the education/sophistication of the average crypto investor,” said Giovanni Compiani, one of the paper’s co-authors and assistant professor at the Booth School of Business. from the University of Chicago, to Cointelegraph, “given that to my knowledge there have not been major education campaigns or policy changes that would make it more difficult for non-sophisticated investors to trade.
If so, one would expect these latecomers or younger crypto enthusiasts to flee now, but that doesn’t necessarily happen. When asked about new retail investors, Cristina Guglielmetti, financial adviser and president of Future Perfect Planning, told Cointelegraph:
“Clients I have who own cryptocurrency haven’t really sold their holdings from last year to this year. They view it more as an educational experience and not an expected return per se. expect it to be speculative and highly volatile.
Will new customers be hard to find?
Even if latecomers don’t flee in droves, won’t it still be difficult to attract new retail customers given the heat waves experienced by some?
“We’ve seen crypto bear markets before,” Zagotta said, “just like we’ve seen rallies. We’re part of a new financial ecosystem that’s growing minute by minute and led by some of the smartest minds of our times, so my bet will always be on innovation versus stagnation.Moreover, he told Cointelegraph:
“The headlines might lead you to believe that there is more volatility than there really is and that investors flee when prices fluctuate. But that’s not really the case. »
“Crypto’s problem isn’t necessarily price, it’s education,” Cox said. Forty-two percent of investors surveyed by eToro in March said they don’t buy crypto because they simply don’t know enough about it: “But the appetite for decentralization and transformation is still there, especially among young investors.
Cox does not accept the assumption by some that young investors are fickle and quick to run at first resistance. On the contrary, “young investors naturally have a higher appetite for risk, and they seemed willing to endure these swings due to their long-term optimism about technology.”
“Although some investors will be lost for good, every market cycle sees newcomers believing in the technology,” Lai added. “Investors who left crypto in 2018 and returned in 2021 are more likely to stay, as they now realize that the industry does not die during market downturns and that investments made during dips have always been the most lucrative.”
Meanwhile, “open interest in OKX continues to rise even when the market is bearish, indicating that users are not exiting the market,” Lai said. “However, we expect investors to reduce their leverage and maintain their positions.”
Are retail customers even necessary?
Maybe we care too much about individual investors. Last week, JPMorgan Chase, the banking giant, was reported experiment with blockchain technology for collateral settlements. If big institutional players like these are bullish on technology, maybe it doesn’t even matter what retail investors do?
“Retail and institutions are critical to the continued adoption of digital assets,” Zagotta said. “Institutional interest certainly establishes maturity and confidence in all other categories of investors.”
“What really matters to the industry is that the right products deliver real value to users,” Lai added. The institutional is only part of the ecosystem, even if it is a crucial part. “The presence of institutional players in the sector promotes fair pricing of crypto assets and better liquidity.”
What advice, if any, would Lai offer to new crypto investors? “DYOR” or do your own research. “Crypto is still an emerging asset class with a relatively short history compared to the traditional financial market. Some of the tokenomics, although very promising, are still experimental.
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“Know what you’re investing in,” Cox added. Investors have different goals, needs and risk tolerances. “So at the end of the day, crypto might not be right for your money right now. There are risks to investing in an emerging asset class.
Overall, the crypto story is compelling, she continued. The world is generally moving towards a decentralized future, and cryptocurrencies are more inclusive and accessible compared to traditional financial instruments. “Focus on the utility of every coin you invest in and always have an exit strategy in place,” Cox concluded.
Most agree that more education is needed. “Our data shows that 76% of retail investors are excited to see crypto reach mainstream status within a decade,” Zagotta said. “This means we see a huge opportunity to support adoption through education. Education and knowledge will create trust between regulators and investors.
In summary, “We haven’t seen investors massively abandon the crypto space,” Cox said, “but we have seen them become more selective about what crypto they buy.”