Image Source: Pexels
IntroductionAfter a buoyant Q1, crypto prices seem to have eased off with the price of BTC/USD down about 8% from its March highs.While a lot of those gains can be attributed to the Spot Bitcoin ETF approvals and anticipation of the Bitcoin Halving Event, that rally brought back to the market another class of players that had begun to disappear, Retail traders.While they may not be the biggest holders of crypto assets, their participation in the industry brings vibrancy and the hype that tends to inspire more innovation, expanding the use cases of cryptocurrencies.Being the biggest cryptocurrency by market capitalization, Bitcoin is still the most popular cryptocurrency among traders including the non-crypto native trading platforms.
Retail Investors and the Next Crypto Bull RunThe Bitcoin price BTC/USD is up more than 120% since October last year amid a bull run that is close to completing its third quarter.The anticipation of the approval of Spot Bitcoin ETFs sparked the bull run last October with the actual approval coupled with accelerating the anticipation of the halving event accelerating the rally through March.Things have been a little static recently as some investors continue to take some profits off their holdings. However, that does not signal the end of the bull run as the post-halving impact is yet to take full effect.Historically, while the immediate impact on the Bitcoin price is barely significant, its effects on the supply-and-demand dynamics of the cryptocurrency are expected to reflect gradually in the long term. As the supply of new coins decreases, Bitcoin’s scarcity increases, which leads to price appreciation over time.This time around, there will be other factors playing a part, which could lead to an extended rally before the next correction.
The House Passes the (FIT21)Last week, the US House of Representatives passed the Financial Innovation and Technology Act of the 21st Century bill. This came just hours after the White House had stated it wouldn’t veto the bill, increasing the chances of it being introduced into law.One of the biggest obstacles to the crypto industry progressing in the U.S. has been a lack of a clear regulatory framework.This bill provides a clear framework for when a crypto asset should and should not be treated as a security, thus establishing the foundation for a stable crypto market. A stable crypto market inspires more mainstream investors to take part, levering already SEC-approved channels like the Spot Bitcoin and Spot Ethereum ETFs, which boosts liquidity in the market.
Crypto liquidity and stable returnsIn his paper titled “Social Media Influence and the Power of Public Perception” Mohammed Al Guindy, Assistant Professor of Finance Sprott School of Business, Carleton University after examining the 23 largest coins through 25 million tweets found evidence that there is a causal relationship between investor attention and future price volatility.Institutional investors seem to have a constructive impact on liquidity in the crypto market regardless of market conditions, writes Melisa Ozdamar, Ahmet Sensoy and others in their paper, “Retail vs Institutional Investor Attention in the Cryptocurrency Market,” published in October 2022.The paper, which examines the impact of investor attention on the cryptocurrency market also established that “retail investor attention exacerbates idiosyncratic volatility in unstable market conditions whereas it has a constructive effect on liquidity in low global economic policy uncertainty.”The US seems to be on course toward making the latter a reality in the world’s largest economy.
Retail entourageSince the turn of the year, the crypto industry has experienced a significant surge in activity partly driven by retail investors according to data by online trading platform, Capital.com. The company said it experienced a 248% surge in Bitcoin trading volume in the first quarter of 2024 compared to trading activity in the previous quarter, with significant inflows in March, coinciding with Bitcoin’s rally that saw it set a new all-time high.“The number of traders taking positions on BTC/USD was 54% higher than the previous quarter while the number of BTC/USD trades executed on the platform increased by 220% over the same period,” the company wrote in a press release.The surge in trading activity and the number of new traders during the Bitcoin rally quantifies arguments made in the two research works I have referenced here on the relationship between investor attention and cryptocurrency prices.Therefore, if the (FIT21) bill is passed into law, we can expect Bitcoin and other major cryptocurrencies to maintain a stable trajectory of gains boosted by increased retail investor activity and the gradual impact of Bitcoin halving as the reduction of new Bitcoins being released to the market continues to make the pioneer cryptocurrency more scarce.Stephen Wundke, global business development director at quantitative digital asset investment firm Algoz believes a digital asset portfolio without Bitcoin is “simply not a balanced one.”“BTC is the bell weather for the industry and in most cases where BTC goes the other top 20 coins by market cap follow,” he said.Therefore, Capital.com’s data may only be about Bitcoin, but statistics show that other major cryptocurrencies tend to follow the same trend as the world’s biggest crypto asset by market capitalization.Given Al Guindy’s, Ozdamar’s and Sensoy’s findings about social media, investor attention, and cryptocurrencies, more investor activity in more cryptocurrencies will result in more liquidity in the market and more stable gains.
Technical AnalysisThe Bitcoin price can be used to demonstrate how the perception of stable crypto markets boosts prices.In anticipation of the Spot Bitcoin ETFs between October and January, when the SEC announced the approvals, Bitcoin experienced a steady rally with no major price volatility. Although there was a significant pullback shortly after the approvals, the BTC-USD picked up again to reach the current all-time high of about $73,780.
Trading ViewHowever, as demonstrated in the chart above, high volatility entered the market between March 15 and May 11, as some retail investors swooped in to take profits after BTC set new record highs.Things appear to have changed slightly over the last couple of weeks with Bitcoin seemingly beginning a new stable ascend.This could be due to the anticipation of U.S. crypto legislation that will usher in a new framework for categorizing whether or not a crypto asset is a security.The recent approval of Spot Ethereum ETFs could also increase market stability as it creates an avenue for more mainstream investors to gain access to crypto assets without deviating from their traditional way of investing.If previous price behavior is to be repeated, investors can expect an even steeper ascend, beyond $76,000, as indicated in the chart.However, should the volatility experienced from mid-March through May 11 persist, then the $65,000 and $60,000 price levels will be key support zones.
RisksOne of the main risk factors that continue to persist is SEC chair Gary Gensler’s war on crypto as he continues to remain hesitant to fully embrace the digital asset class without proper checks and balances. Given this scenario, retail investors, who have raised their activity in the market this year, could have a negative impact on the BTC price as pointed out by Ozdamar, Sensoy, and others.High volatility may scare away long-term investors, which could have a negative impact on the price.With his current term running through June 2026, it could continue to be a choppy experience for crypto investors amid the volatility created by uncertain market conditions.There is also the risk that when the fallen crypto exchange Mt Gox distributes the 137,892 Bitcoin worth $9.2 billion to victims of the 2014 collapse, this could further dilute the market if holders decide to cash out.And with the forces of supply and demand in full effect, Bitcoin could then experience a significant decline in price in the second half of 2024.
ConclusionBitcoin seems to be about to embark on a steady rally after two months of high volatility saw a significant number of traders cash out after the BTC-USD hit new all-time highs.There are multiple catalysts for a smoother rally, with the anticipation of U.S. crypto legislation key, while the increasing number of retail investors will continue to drum up campaigns for bull cases across social media platforms.There is also the fact that the BTC halving is yet to impact the price in a significant way. So as the the halving effects take place gradually, Bitcoin will become more scarce, thus potentially boosting its price.However, it would be unwise to brush away the potential risks emanating from the upcoming Mt Gox distribution and the battle with the SEC chair.More By This Author:Has The Yen Found A Position Of Strength To Push Back Against The Dollar?
NFTs And Collectibles Tokens Bounce Back Amid The Crypto Collapse
Is The Market Entering Another Commodity Supercycle?
