"LongHash Column: Bitcoin's 50% Plunge in March Did Not Deter Retail and Institutional Investors"

In the face of the recent global market turmoil, the cryptocurrency market has not been spared. The price of Bitcoin has fallen in sync with global stocks and commodities. As of April 18th, its price has shrunk by about 33% from its peak of $10,500 in February.

However, both retail and institutional investors seem undeterred. Multiple sets of data from software downloads and website traffic to on-chain metrics and investment inflows indicate that investors are buying the dip.

Retail Investors Continue to Buy Bitcoin

If you were around on the evening of March 12 when Bitcoin plummeted nearly 50%, you might remember the headlines. Analysts were predicting further price drops, with some even suggesting that BTC might actually go to zero.

But Bitcoin investors didn't flinch. According to a post-drop report by Coinbase, on March 12 and 13, when the sell-off was most severe, their retail clients bought 69% more Bitcoin than they sold, higher than the 60% average buy ratio over the past 12 months. The same report indicated that the company's cash and crypto deposits grew fivefold on the same day.

Other data indicators show a similar trend. Coinbase's latest data obtained through their app shows that as of April 17, 78% of active retail clients had increased their net Bitcoin positions in the past 24 hours.

A similar trend was observed on CMC Markets and IG.com, two trading platforms offering derivatives to retail investors. Trader Nic Patel found that most traders on both platforms (around 80%) were going long on Bitcoin contracts rather than short.

It's not just existing crypto investors taking advantage of buying opportunities. New investors are also entering the market.

A spokesperson for the Bitcoin exchange Kraken stated in a late-March interview with Decrypt that their registrations had increased by 83%, with "intermediate verification volumes increasing by 300%," allowing users to deposit fiat instantly. OKEx, Bitfinex, Paxful, and Luno also confirmed to the publication that they had seen significant growth in registrations and trading volumes.

According to The Block, cryptocurrency apps on Apple's App Store, including Coinbase and Binance, saw "increased attention" following the March 12 plunge.

An analysis conducted by LongHash using the app assessment tracking site AppFollow also confirmed this. They found that in the top 100 "Finance" apps on the Google Play Store, Coinbase rose from 38th place on March 12 to 26th place by April 18. A similar trend was reflected in the ranking of the Blockchain Wallet app, the flagship app of the cryptocurrency startup Blockchain.com.

Global internet engagement data provided by Amazon's Alexa also indicates that since the recent crash, the rankings of top exchanges like Binance, Bittrex, Bitfinex, and Coinbase have climbed hundreds of places.

For those still skeptical, blockchain data, which is difficult to manipulate, provides further insights.

Coin Metrics, a blockchain data provider, reported in their "State of the Network" on April 7 that "in the past 90 days, the number of addresses holding between 1/1 B and 1/100 M of the total Bitcoin supply has increased by about 6%."

These addresses in the subset hold assets worth less than $100, typically belonging to retail buyers just getting started with Bitcoin. As Coin Metrics explains, "The amounts of BTC newcomers are buying are relatively small, hence the emphasis on these addresses in the report."

Data from Glassnode also supports this conclusion. The analytics company's report on April 15 confirmed that "new user activity on the Bitcoin network has begun to accelerate," with the weekly moving average of new entities using the network increasing from 6,000 daily in mid-March to 17,000 daily in mid-April.

In summary, new investors are entering the market, and they are rapidly buying Bitcoin.

Wall Street Showing Similar Trends

This trend isn't limited to retail investors. As the crypto market experiences volatility once again, Wall Street is also increasing its participation in the Bitcoin market.

Grayscale Investments, a cryptocurrency fund management company and supplier, released its Q1 investment report on April 16. The report stated that in the first quarter of 2020, their products received $503.7 million in investments—more than double the amount in Q4 2019. 99% of the funds flowed into the company's Bitcoin Trust and Ethereum Trust funds, traded over-the-counter as GBTC and ETHE.

Eric Ervin, CEO of Reality Shares, highlighted the high demand for Grayscale products, noting that by April 7, their Ethereum Trust fund had a 540% premium relative to ETH.

While qualified retail traders can access these investment tools, Grayscale claims that 88% of the $503.7 million inflow comes from institutional investors. Hedge funds, including those not primarily focused on cryptocurrencies or blockchain, "are dominating Grayscale's institutional business," the company stated.

Bitwise Asset Management, a company offering similar institutional products to Grayscale, echoed this sentiment. Though not providing detailed income reports, Matt Hougan, Head of Research at the company, wrote in a company letter citing:

"In this environment, adding a small allocation to cryptocurrencies in a diversified portfolio seems increasingly prudent. We hear this from clients, and we see it in our inflows."

Mainstream Wall Street firms have also noticed investors flocking to cryptocurrencies. In a conversation with The Block's Frank Chaparro, Fidelity Digital Assets—a branch of Fidelity Investments, a multi-trillion-dollar asset management company—spokesperson stated:

"From a trading perspective, we continue to onboard new clients every month and are seeing significant growth in our pipeline. In recent weeks, we've seen increased momentum in our business development efforts."

Chaparro specifically mentioned pension funds, family offices, and macro hedge funds as a subset of institutional investors the company is servicing during the crisis.

The financial services giant, managing trillions of dollars in assets, announced at the end of 2018 that it planned to build a Wall Street-grade Bitcoin trading and custody service, causing a stir at the time. Following beta testing, the platform is reportedly set to launch to Fidelity's global institutional clients.

The Bitcoin futures market on CME, a market servicing institutional clients with contracts worth 5 BTC (around $35,000), has also seen sustained quarterly growth. Hunter Horsley of Bitwise shared CME data showing that the average daily open interest in Bitcoin futures markets hit a new high of 4,902 contracts in Q1 2020, equivalent to nearly 25,000 BTC. For reference, this figure for Q4 2019 was 3,339 contracts.

What's Behind the Surge in Retail Investment Interest?

The stark contrast between a collapsing market and a growing number of investors raises questions. What is tempting investors to enter the cryptocurrency market during what the International Monetary Fund estimates to be the worst economic downturn since the Great Depression?

Data suggests that retail and institutional investors are drawn to Bitcoin for different reasons.

For retail investors, a key catalyst seems to be the upcoming Bitcoin halving. This halving will reduce the number of Bitcoins produced in each block from 12.5 to 6.25, halving the Bitcoin inflation rate by 50%. According to BitcoinBlockHalf.com, we are now just 20 days away from the Bitcoin halving.

LongHash reported on April 9 that Google Trends data showed a more than fourfold increase in public interest for the keyword "Bitcoin halving" from early December to mid-March.

Since our report, interest in the Bitcoin halving has only intensified. The latest Google data shows that global searches for "Bitcoin halving" last month surpassed any previous month. The search engine predicts that in April, searches for "Bitcoin halving" will double compared to the previous month, hitting an all-time high.

According to Google data, since the beginning of the year, the keywords "buy Bitcoin" and "Bitcoin halving" have consistently shown synchronized growth and contraction trends. While the correlation is not absolute, it's clear that the two influence each other.

What's Driving Institutional Interest?

The interest from institutions in Bitcoin seems to be driven by different factors. Institutions planning to invest in Bitcoin may see its ability to hedge against currency inflation and the overall erosion of trust in fiat currencies as risks worth taking.

In the aforementioned article about Fidelity Investments, the asset management company's spokesperson stated that their cryptocurrency-focused financial services branch is seeing increasing interest, influenced by the narrative of Bitcoin as digital gold:

"We're seeing more momentum across the business, with discussions around Bitcoin as a store of value and the narrative of digital gold resonating more with investors."

This statement is supported by many, with Bloomberg Intelligence's latest "Crypto Outlook" focusing on Bitcoin's journey to achieve "digital gold" status. Bloomberg Commodities cited overall volatility decline, the convergence of gold and Bitcoin trajectories, and fiat depreciation as reasons to be bullish on cryptocurrencies.

As reported by LongHash on March 22, due to the recent correlation of Bitcoin with almost all assets, the above narrative is being carefully examined. During the period we analyzed (January 1 to March 17), US Treasuries were actually the only true "safe haven" asset.

In a series of interviews released on Real Vision, interviewees including Factor's Peter Brandt, cryptocurrency hedge fund manager Dan Pantera, and Real Vision CEO and former Goldman Sachs executive Raoul Pal mentioned central bank actions, or rather overzealous actions, as reasons they see Bitcoin's potential.

Of course, we can't predict how buyers would react if the crypto market were to collapse again. However, so far, the interest shown by both retail and institutional investors in Bitcoin demonstrates the resilience and vitality of this emerging industry.

This article is from our partner LONGHASH

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