These can be troubling times for holders of cryptocurrencies, especially those that entered the market in late 2021 when prices began to rise. Bitcoin (BTC), Ether (ETH) and especially altcoins now seem to be undergoing a major reset, falling by 50% or more from highs in November.
Some people are worried that a whole generation of cryptocurrencies could be lost if things crumble further. “If the market continues to decline, it will become too painful and retail investors will return,” Eben Burr, president of Toews Asset Management, told Reuters earlier this month. “Everyone is vulnerable.
But it could make too much of all the darkness and death.
It is “interesting,” admitted Callie Cox, an American investment analyst at eToro, which is only a couple for the market course that barely existed a decade ago. Bitcoin, arguably the “most institutionalized” digital currency, “has actually gone through 16 drops of 50% or more in the last 10 years,” she told the Cointelegraph.
The current correction has not reduced the number of younger investors, according to Cox. “We surveyed 1,000 age-group investors in March and 58% of 18- to 34-year-old investors thought Bitcoin would offer the best cryptocurrencies in the next three months.”
Yet, recently, in early May, Glassnode reported that 40% of Bitcoin owners were underwater on their investments at a time when BTC was $ 33,800; it was $ 29,000 last weekend, May 28th. Are younger investors still as optimistic as they were in March?
“Retailers between the ages of 35 and 45 have reduced their cryptocurrencies amid fluctuations in the market in recent weeks,” Bobby Zagotta, CEO of Bitstamp USA and chief trading officer at Bitstamp Global, told Cointelegraph. In turn, “Our younger users seem to be more bullish and have chosen not to sell.” He added:
“Given the macroeconomic headwinds, all asset classes are risky now. That said, crypto and bitcoin, in particular, show rather incredible resilience.
Has the collapse of LUNA confused newcomers?
However, not everyone is happy. In the last bull run, retail investors were increasingly drawn to speculative investments, perhaps hoping to replicate the dramatic benefits of first-time cryptocurrencies, Lennix Lai, CFO of the OKX cryptocurrency exchange, told Cointelegraph. Ether and Bitcoin will fall by 50% from the peak in late 2021, but many altcoins have fallen even further. Meanwhile, the collapse of Terra (LUNA) and TerraUSD (UST) in mid-May has shaken the entire cryptocurrency sector, Lai said, adding:
“The devastating effects of the LUNA collapse will certainly have soured the perception of cryptocurrency among sophisticated investors – the damage done to retailers’ attitudes will take time to recover.”
However, Lai does not believe that small investors’ confidence in cryptocurrencies has disappeared. Rather, the lesson has been drawn. “Bearish markets teach everyone that the nature of cryptocurrency – as well as other asset classes – is volatile.”
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Are teenagers by nature optimistic?
In a 2021 article, two researchers examined the impact of investor beliefs on the demand and price of cryptocurrencies. By focusing primarily on the 2017-2018 bull market, they found that “younger individuals with lower incomes are more optimistic about the future value of cryptocurrencies, as later investors. In particular, the “fear of losing,” and contagious social dynamics could have contributed to an unbridled rise in the price of cryptocurrency.
Could the same force be playing late in 2021 prices? “I would like to think that it has not changed much in terms of how educated / sophisticated a cryptocurrency investor is,” said Giovanni Compiani, co-author of the paper and an associate professor at the University of Chicago Booth Business of Business, at Cointelegraph. that in my opinion there have been no major educational campaigns or policy changes that would make it more difficult for unscrupulous investors to do business. “
If that’s the case, you might expect these late or younger cryptocurrency enthusiasts to save themselves now, but that’s not necessarily the case. When asked about the first time for retail investors, Cristina Guglielmetti, financial advisor and president of Future Perfect Planning, told Cointelegraph:
“The clients I have who own cryptocurrencies have not really sold their assets from last year to this year. They are looking at it more as an educational experience and not allocating expected returns per se. They expect this to be reflective and very volatile. “
Will it be difficult to find new customers?
Even if the latecomers are not fleeing to the masses, it will not be difficult to attract new retail customers in light of the frying that some have experienced?
“We’ve seen a cryptocurrency market before,” Zagotta said, “just like we’ve seen parties. 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 will always be on innovation against stagnation. ”In addition, he told the Cointelegraph:
“Headlines could lead you to believe that there are more fluctuations than is actually the case and that investors are on the run when prices fluctuate. But that’s not really happening. “
“Crypto’s problem is not necessarily price, it’s education,” Cox said. Forty-two percent of investors surveyed by eToro in March said they did not buy cryptocurrencies because they simply did not know enough about it: “But the will for decentralization and digital transformation is still there, especially among younger investors.
Cox does not accept the premise that some investors think younger investors are agile and quick to establish themselves at first resistance. On the contrary, “younger investors naturally have a higher risk appetite and they have seemed willing to tolerate these fluctuations due to long-term optimism about the technology.”
“Although some investors will be completely lost, every market bout sees newcomers who believe in the technology,” Lai added. “Investors who left the cryptocurrency in 2018 and returned in 2021 are more likely to continue, as they now realize that the industry is not dying in market downturns and that investments made in the recession have historically been profitable. .
At the same time, “OKX’s open interest continues to grow, even when the market is bearish, indicating that users are not leaving the market,” said Lai. “We expect investors to reduce their indebtedness and maintain their position.
Is there even a need for retail customers?
Maybe we’re too worried about individual investors. Last week, it was announced that JPMorgan Chase, the banker, was experimenting with blockchain technology for collateral settlement. If big institutional investors like these are bullied about technology, maybe it does not even matter what retail investors do?
“Both retailers and institutions are important for the continued adoption of digital assets,” said Zagotta. “Institutional interest certainly creates maturity and trust in all other categories of investors.”
“What really matters to the industry is that good products deliver real value to users,” Lai added. Institutional systems are only a part of the ecosystem, though a crucial part. “The presence of institutional players in the sector contributes to fair prices for cryptocurrencies and better liquidity.”
What advice, if any, would Lai offer new cryptocurrency investors? “DYOR,” or do your own research. “Crypto is still a growing asset class with a relatively short history compared to the traditional financial market. Some of the icons, despite being very promising, are still experimental. ”
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“Know what you’re investing in,” Cox added. Investors have different goals, needs and risks. “So in the end, cryptocurrency might not be right for your money right now. It’s a risk to invest in a rising asset class. “
Overall, the cryptocurrency story is compelling, she continued. The world is generally moving towards a diversified future, and cryptocurrencies are more inclusive and more accessible than traditional financial instruments. “Focus on the usefulness of each currency you invest in and always have an exit policy in place,” Cox concluded.
Most agree that more education is needed. “Our data show that 76% of retail investors are excited to see cryptocurrencies take over within a decade,” said Zagotta. “It means we see a huge opportunity to support adoption through education. Education and knowledge will create trust among regulators and investors. ”
In short, “We have not seen investors leave the encryption space en masse,” Cox said, “but we have seen them become more specific about what encryption they buy.”
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