Crypto market influx as some investors double down, while others remain sceptical

The mid-May crypto crash was one of the worst downturns that the crypto market has ever seen. Over 500 billion dollars of investment has been wiped away as concerns surrounding government crackdowns caused several investors to liquidate their positions and quit. Over two weeks later, while there are some signs of recovery, the overall mood of the market remains largely unpredictable.

An influx of new money

The last bull run in crypto started in December 2020, as favourable election results in the US caused many forward-thinking investors to put their money in speculative assets. Bitcoin, by then, had been through a few slow years but the US Elections coupled with Tesla’s announcements to start accepting bitcoins as payment for their cars reignited public interest.

Several other large companies, including Mastercard and BNY Mellon, also expanded their portfolio of crypto-oriented services, all of which hinted that the bigwigs of traditional finance were starting to finally take cryptocurrencies seriously. Amateur investors joined in, too, fresh out of shorting GameStop, with their sights set to take cryptocurrencies “to the moon.”

Statistics show that over 9.5 million people traded cryptocurrencies in the first quarter of 2021 on the Robinhood app. This is in sharp contrast to the 1.7 million people who had used the app for similar purposes in the last quarter of 2020. Coinbase reported 6.1 million active traders on the platform during the first three months of 2021.

Such rapid interest from retail investors, fuelled by hype generated from tweets by personalities such as Elon Musk, meant that cryptos grew to a $2 trillion market before it all imploded following the news of China’s crackdown and Tesla’s retreat. The crash wiped off over $500 billion from the market.

Mixed Signals across the board

Regardless of the devastating nature of the crash, industry leaders such as Vitalik Buterin remain invested in the future of crypto. Buterin, who became a billionaire during the bull run, said in an interview that the bursting of this bubble is nothing that he’s not seen before, and it means nothing except that cryptos aren’t as ready for primetime as some may have hoped.

Some retail investors are not quite so confident as countries like China and India have continued tightening their ropes around cryptos. Recently, China suspended the Weibo accounts of several long-running crypto proponents while many Indian banks have started distancing themselves from homegrown crypto exchanges. This has caused a number of people in these countries to sell off their positions or at least become more sceptical than they were before.

There are some others, though, who remain devout. Following the crash, Glassnode statistics show that retail investors holding between $37 and $37000 have actually increased their holdings from 4.8% to more than 5% as prices fell. This has been in part due to proponents of crypto on Reddit encouraging each other to “buy the dip” and “HODL.”

References

1. Bitcoin’s price slips as Weibo suspends crypto influencer accounts https://www.theblockcrypto.com/linked/107373/bitcoin-slip-weibo-crypto-influencer-suspend
2. Crashing crypto prices spooked some new investors. Others are doubling down https://edition.cnn.com/2021/06/05/investing/cryptocurrency-investing-crash/index.html

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