Retail Traders Cool on Cryptocurrency

  • Retail flows fall off as investors cool on cryptocurrencies like Bitcoin 
  • Institutional interest should help to pick up some of the slack and hopefully act as a more measured force, reducing volatility in Bitcoin 
 
Bitcoin’s relentless rally started to stutter this week as the benchmark cryptocurrency fell to as low as US$50,000 before recovering to around US$52,000 on bargain hunting.
 
Now on its fifth consecutive day of losses, the longest since last December, there is growing speculation that the latest round of fiscal stimulus checks will be spent in the real economy and not on digital goods.
 
Unlike the previous round of stimulus checks, when the coronavirus pandemic still kept everyone mostly confined to their homes, lifting movement restrictions and a reopening of the U.S. economy has some analysts now speculating that the bulk of spending will be on physical goods and services.
 
Bullish call option activity (the right to buy a security at a predetermined price) has slipped and interest in pandemic trades such as ARK Innovative ETF (-0.31%) and GameStop (+52.69%) has waned.
 
A general rotation into value stocks, including airlines, cruise operators and financials may also be accelerating the downward trend for Bitcoin.
 
Yet if nothing else, the most recent decline is relatively mild by Bitcoin’s standards at least – in the past decade, Bitcoin has experienced four crashes of over 80% and 16 crashes over 30%, and intraday swings of 20% are common for the nascent asset class.
 
But recent day closes below certain key levels of price support may spook some momentum traders.
 
Regardless, Bitcoin still remains some 700% higher over the past year, and spiked briefly midweek as Elon Musk, CEO of Tesla (+1.61%) tweeted that the electric vehicle maker would now be accepting Bitcoin for payment.
 
But where retail investors are losing interest in the speculative trade in Bitcoin, institutional investors are just getting started.
 
Earlier this week, Goldman Sachs (+0.58%) revealed a structured product that included a mandate for allocation into Bitcoin derivative products, but not the underlying asset itself.
 
And Fidelity Investments, the US$4.9 trillion asset manager has filed for an ETF this week as well with the U.S. Securities and Exchange Commission.
 
Longer term, if Bitcoin is to settle into an established asset class, lower levels of volatility would be helpful to its role in a portfolio and perhaps the rise of institutional investment just as retail investor retreat might be welcome. 
 
 

Novum Digital Asset Alpha is a digital asset quantitative trading firm.

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