Crypto hasn't been spared the recent crash in global markets. From its February peak of $10,500, the price of Bitcoin is down around 33% as of April 18, falling in tandem with global equities and commodities.
And yet, Bitcoin’s retail and institutional investors don’t appear to be fazed. Multiple sets of data — from app downloads and website traffic to on-chain metrics and investment inflows — show that investors are buying the dip.
Retail Investors Keep Buying Bitcoin
If you were around on the evening of March 12, the day Bitcoin fell nearly 50%, you likely remember the headlines. As analysts proposed ever lower price predictions, there were suggestions that BTC could literally go down to zero.
But Bitcoin investors didn't flinch. Coinbase reported in a post-mortem of the crash that on March 12 and 13, the worst of the sell-off, its retail customers bought 69% more Bitcoin than they sold, up from the 12-month average buy-ratio of around 60%. The same report said that the company saw its cash and crypto deposits quintuple on the same days.
Other metrics have painted a similar trend. More recent data from Coinbase, available through its app, indicates that as of April 17, 78% of its active retail customer base has increased their net position in BTC over the past 24 hours.
There is a similar trend with CMC Markets and IG.com — two trading platforms that offer derivatives to retail investors. Trader Nik Patel found that the two brokers report that a majority of its traders, approximately 80% of them, are longing Bitcoin contracts, not short-selling them.
It’s not only existing crypto investors that are taking advantage of the dip. New investors are also entering the market.
Speaking to Decrypt at the end of March, a spokesperson for Bitcoin exchange Kraken said that the company has recorded an 83% rise in sign-ups, and a "further 300% increase in intermediate verifications," allowing accounts to deposit fiat instantly. OKEx, Bitfinex, Paxful, and Luno also confirmed to the outlet that they've seen a notable increase in sign-ups and volume.
The Block reported that cryptocurrency apps on Apple's App Store, which includes trading apps like Coinbase and Binance, saw "increased interest" in the wake of the March 12 crash.
LongHash analysis, using application rankings tracker AppFollow, corroborated this. We found that Coinbase rose from number 38 on March 12 to number 26 as of April 18 on the Google Play Store's top 100 "finance" applications. A similar trend can be observed in the rankings of Blockchain Wallet, the flagship application of crypto upstart Blockchain.com.
Global internet engagement data from Amazon's Alexa indicates that since last month's crash, the rankings of Binance.com, Bittrex.com, Bitfinex.com, Coinbase.com, and many other top exchanges have increased by hundreds of positions.
Still not convinced? Take a look at on-chain data, which is difficult to falsify.
Blockchain data provider Coin Metrics reported in its April 7 edition of "State of the Network" that "the number of addresses holding between one billionth (1/1B) and one hundred millionth (1/100M) of the total BTC supply has increased by about 6% over the last 90 days."
This subset of addresses, which don't hold much more than $100 of the asset, is most often affiliated with retail buyers who have just begun to dabble in Bitcoin. As Coin Metrics explained: "new users start acquiring relatively small amounts of BTC," i.e. the addresses they highlighted in their report.
This conclusion is supported by data from Glassnode. An April 15 report from the analytics company confirmed that "new user activity on the Bitcoin network has accelerated," with the rolling 7-day moving average of new entities using the network rising from 6,000 per day in the middle of March to over 17,000 in mid-April.
In short, new investors are entering the market, and they're buying Bitcoin at a rapid clip.
There's a Similar Trend on Wall Street
Grayscale Investments, a crypto fund manager and provider, released its Q1 investment report on April 16. The company reported that over the quarter its products saw investments of $503.7 million — over double what was invested in Q4 of 2019. 99% of the capital went toward the firm's Bitcoin Trust and Ethereum Trust, which trade over-the-counter as GBTC and ETHE, respectively.
Grayscale has seen so much demand that as of April 7, its Ethereum Trust was trading at a 540% premium to the ETH underlying the shares, noted Reality Shares CEO Eric Ervin.
Although accredited retail traders can access these vehicles, Grayscale asserted that 88% of the $503.7 million invested was from institutional players. Hedge funds, including hedge fund operators not investing primarily in the cryptocurrency or blockchain space, "dominated" the institutional side of Grayscale's business.
Bitwise Asset Management, a firm that offers similar institutional-centric products to Grayscale, echoed this sentiment. While it did not release an extensive report on its inflows, the company’s head of research Matt Hougan wrote in a company letter:
"In such an environment, a small allocation to crypto in a diversified portfolio seems increasingly prudent. We are hearing this from clients, and seeing it in our inflows.”
Mainstream Wall Street firms, too, are seeing investors rush towards cryptocurrency. Speaking to The Block's Frank Chaparro, a spokesperson for Fidelity Digital Assets — the cryptocurrency branch of multi-trillion-dollar asset manager Fidelity Investments — said:
"From a trading perspective, we continue to onboard new clients every month and are seeing significant pipeline growth. And in recent weeks, we've seen more momentum across our business."
Fidelity Digital Assets specifically cited pensions, family offices, and macro hedge funds as the subset of institutional players it is now servicing amid the crisis.
The financial services giant, which has trillions of dollars under management, made waves in late 2018 when it revealed that it would be creating a Wall Street-grade solution for Bitcoin trading and custody services. After a beta test, the platform has purportedly been rolled out to Fidelity's institutional clients around the world.
The CME's Bitcoin futures market — a market primarily servicing institutional players due to the five BTC (~$35,000) contract size — has also seen consistent growth quarter-over-quarter. CME data shared by Bitwise's Hunter Horsley indicates that the average daily open interest for the Bitcoin futures market in Q1 2020 was at an all-time high of 4,902 contracts, the equivalent of nearly 25,000 coins. For some perspective, in Q4 2019, the same metric was at 3,339 contracts.
What's Behind the Spike In Retail Interest?
The stark juxtaposition between a crashing market and an increasing number of investors raises some questions. For one, what's enticing investors to enter the crypto market as the global economy enters a period of contraction, which the International Monetary Fund estimates will be the worst since the Great Depression?
The data suggest that retail and institutional investors are gravitating toward Bitcoin for different reasons.
For retail investors, a key catalyst appears to be the impending block reward reduction, or "halving," for Bitcoin. The halving will see the number of coins issued per block, every ten minutes, fall from 12.5 to 6.25, resulting in a 50% decrease in the inflation rate of Bitcoin. It is now 20 days away, BitcoinBlockHalf.com estimates suggest.
LongHash indicated on April 9 that per Google Trends, the public's interest in the search term "Bitcoin halving" increased by over four-fold from the start of December to a local peak in the middle of March.
Since our report, interest in the halving has increased even more, with the latest Google data indicating that last month, global Google users searched "Bitcoin halving" more than any month before. The search engine also projects that in April, "Bitcoin halving" will be searched two times more than last month, which was already a new all-time high.
According to Google data, the search terms "buy Bitcoin" and "Bitcoin halving" have trended in tandem since the year began, growing and shrinking in step. The correlation isn't perfect, but it is clear they're affecting each other.
How About Institutional Interest?
Institutional interest in Bitcoin appears to be driven by different factors. It is possible that Institutions are looking to invest in Bitcoin due to its ability to act as a hedge against the printing of money and the overall dissolution of trust in fiat currency.
In the aforementioned article regarding Fidelity Investments, the spokesperson for the money manager said that its crypto-focused financial services arm is seeing an increase in interest due to narratives regarding Bitcoin's perceived status as digital gold:
"We've seen more momentum across our business, for example, discussions around the store of value [narrative] and digital gold are resonating more with investors."
The narrative has gained so much steam that Bloomberg Intelligence's latest edition of "Crypto Outlook" was largely predicated on Bitcoin's journey towards achieving the status of "digital gold," with Bloomberg's commodities desk citing overall declining volatility, a convergence between gold's trajectory and that of Bitcoin, and the debasement of fiat money to be bullish on the cryptocurrency.
As LongHash addressed on March 22, though, the narrative has been under the microscope as of late due to Bitcoin's correlation with almost all assets, with U.S. Treasury Bonds actually being the only assets that actually performed as a "safe haven" over the time period we analyzed (January 1 to March 17).
In a number of interviews published to Real Vision, the guests — from Peter Brandt of Factor, crypto hedge fund manager Dan Pantera, or Real Vision CEO and former Goldman Sachs executive Raoul Pal — cited central bank action, or overreaction, as reasons for their optimism about Bitcoin.
We don’t know, of course, how will buyers react if crypto markets crash again. But for now, retail and institutional investors’ interest in Bitcoin signals the resilience of this nascent industry.