Investment

The Bitcoin bull market led by institutional investors is pushing retail investors from countries like Russia, Vietnam and India toward cryptocurrencies.

Institutions have been at the forefront of the crypto bull run seen since Q4 2020, but now retail investors have been taking the center stage as well. Bitcoin (BTC) is getting more popular all around the world and it officially became a legal tender in El Salvador on Sept. 7, making it a landmark event for retail and sovereign adoption of the asset.

However, it turned out to be a chaotic event for the premier cryptocurrency token as the country celebrated “Bitcoin Day.” Soon after the day began, BTC’s price suffered a flash crash of over $8,000 to bottom out at $42,900. Even though this flash crash coincided with this major adoption event for the token, its significance for retail consumers and investors far outweighs the short-term price impact seen in the token’s price.

Interesting developments have followed in the aftermath as Fidelity Investment director Jurrien Timmer called this adoption a coming of age for the asset similar to gold in the sixties. Within the Latin American country, global food and beverage brands like McDonald’s, Starbucks and Pizza Hut have now started accepting Bitcoin as a payment option for their products. Large-scale adoption by brands like these is bound to push retail interest in Bitcoin and cryptocurrencies as a whole to new heights, as now it is becoming more evident that there are real use cases for digital currencies.

The founder of Cardano and co-founder of Ethereum, Charles Hoskinson, even predicted that many more countries would eventually follow suit to El Salvador’s adoption. Along with him, whistleblower Edward Snowden also lauded this move on Twitter, mentioning that the pressure is now on competing nations to acquire Bitcoin “even if only as a reserve asset.” Even if major global economies start considering the adoption of BTC as legal tender, it will give a huge boost to retail usage.

Bitcoin adoption by El Salvador has been a big part of the mainstream hype and narrative on cryptocurrencies at the end of the summer. Especially for retail investors, it often could become a case of FOMO (fear of missing out) which, due to the consistent gains of BTC throughout the year, often regret not buying the token a certain number of months ago. This could lead to a huge influx of funds from retail traders in the aftermath.

Retail investors have an eye on crypto

A survey conducted by the Association of Forex Dealers (AFD), a regulatory organization for the foreign exchange market, attempted to gauge investor sentiment on digital currencies in Russia. The results of the survey revealed that 77% of the 502 investors that participated preferred cryptocurrencies like Bitcoin, Ethereum (ETH) and Litecoin (LTC) to traditional financial assets like gold and forex.

Cointelegraph discussed more on this comparison with gold with Jaime Rogozinski, founder of WallStreetBets, a subreddit group made for retail investors. He said, “gold is synonymous with store of value in the U.S., which holds nearly three times more gold than the next three countries combined, but global investors have the opportunity to level the playing field with BTC’s emergence and boundless potential.”

Rogozinski also mentioned that all the other participants in the global economy, apart from the U.S., have an interest in the U.S. Dollar and gold losing the financial hegemony that assets currently hold. Comparing the performance of gold and BTC, there is a vast difference in the results. In the short term, BTC has posted 62.76% gains year-to-date (YTD) and 351.62% yearly gains, while gold has posted 5.79% losses YTD and 7.91% losses yearly.

In addition to Russia, even India is witnessing millennials shifting their interest to cryptocurrency during the global COVID-19 pandemic. Nischal Shetty, CEO of WazirX, an Indian cryptocurrency exchange, told Cointelegraph that in the global perspective, institutional participation has paved the way for retail interest in cryptocurrencies:

“The pandemic had an equal or maybe greater contribution in accelerating crypto adoption, especially in countries like India. In such uncertain times, crypto has provided common people with new ways to earn online whether they are from urban or rural areas.”

According to data provided by WazirX, the exchange has witnessed a 2,648% increase in users signing up from Tier-II and Tier-III cities in India. Users from these two segments of cities are responsible for 55% of the user signup growth in 2021, even outpacing Tier-I cities that showed a growth of 2,375%. Furthermore, 70% of the platform’s users are below the age of 35.

Perhaps echoing the surge in interest is the U.S.-based cryptocurrency exchange CrossTower announcing that they would be expanding their operations to India and “use the country as a hub to expand into other geographies.”

In a country of 1.36 billion people with more than 65% of them being under the age of 35, i.e., over 880 million, the potential for the market to grow further is humungous. Data from blockchain analytics provider Chainalysis showed that the amount of funds Indians have invested in cryptocurrencies had grown 600% from $900 million in April 2020, to $6.6 billion in May 2021.

Related: Dreading September? Bitcoin price hopes to break the slump trend

A report by Chainalysis attempted to rank countries by their level of retail adoption using a metric known as the Global Crypto Adoption Index. Using this metric, the report found that Vietnam ranked number one and India ranked number two, with Pakistan, Ukraine and Kenya following closely behind.

For Vietnam, confirmation of the adoption in tandem with this metric is evident by taking a closer look at the trading volumes and number of users in the country. According to the data provided to Cointelegraph by the Binance Research team, the total number of Binance users and trading volumes across all the cryptocurrency pairs offered in Vietnam have jumped by an average of 288.51%, and 235.66%, respectively from Jan to May 2021. To compare with this growth, Vietnam’s gold reserves only increased by 3.37% in the same period.

Rogonzinski further opined on how the institutional interest impacts retail investors, saying, “Institutional investors can afford to weather Bitcoin’s dips and have more of an eye toward long-term gains, but I have faith that each bull run succeeds in bringing more retail investors into the market and hopefully teaching them to HODL.”

Retail brings numbers, institutions bring movements

An industry analysis report by cryptocurrency exchange OKEx in collaboration with on-chain data provider Catallact revealed that despite the growth of the small BTC addresses (holding less than 10 BTC), retail investors have had a relatively smaller contribution to the overall transaction pool in Q1 2021.

Data provided to Cointelegraph by Binance Research outlines that when looking solely in terms of the BTC trading volume, the recovery in BTC’s price and interest levels could be due to the combination of retail and institutional investors. Between June 2021 and August 2021, Binance witnessed a 3.29% and 1.36% increase in the number of retail and institutional investors respectively.

In line with this number, the total number of BTC traded by retail and institutional investors on the exchange grew 4.61% and 3.99% respectively. In the same period, the overall BTC trading volume grew by 1.98%.

The chart represents how an increase or decrease in the retail and institutional investors trading BTC on the platform is aligned with the movement of the overall BTC volume. The representative from Binance’s research team further said: 

“This shift in investor mindset from traditional assets like gold or forex to crypto is definitely not confined to developing countries. In fact, it is also prevalent in more developed countries where the sentiment of favoring crypto investments is seen more as a move to gain exposure to the emerging asset class, as opposed to just a store of value or hedge against inflation.”

While discussing with Cointelegraph, co-founder of Huobi Global cryptocurrency exchange Du Jun pointed toward the Bitcoin balance on all exchanges as a metric to gauge the institutional involvement in the market. According to the data from Glassnode, the amount of Bitcoin held in exchange wallets bottomed out at 2.48 million this year, adding further: “Bitcoin balances on Coinbase dropped to about 700,000, the lowest level recorded throughout the year. Over the past month, mainstream exchanges have seen net Bitcoin outflows.”

As most institutions use Coinbase to invest, Jun inferred that institutions have purchased more BTC over the past month. He also mentioned that large banking institutions like Rothschild and Morgan Stanley have increased their exposure to crypto assets through their holdings in the Grayscale Bitcoin Trust (GBTC).

Institutions investing in Bitcoin or getting into digital currencies as a payment mechanism are still at their nascent stages. Thus, the untapped potential for its proliferation of cryptocurrencies into retail investors is served well by being spearheaded by institutional investors, as it gives retail investors a sense of security, along with the upside potential that the hype of crypto markets captures.