Is the boom over?
Bitcoin is becoming a crypto playground for professional gamblers
By Jannik Tillar and John Stanley Hunter
March 24, 2024, 5:24 p.m
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Bitcoin has already experienced some highs and lows. This year there was a particularly steep upward trend. Data analysis shows what’s different this time – and why that could be a warning sign.
At times, the latest Bitcoin surge seemed adventurous: between the beginning of the year and last week alone, the cryptocurrency rose by 66 percent – only to then lose 14 percent of its high. Bitcoin remains volatile, although historically interesting. No asset class that was declared dead has been resurrected as often as Bitcoin.
The reason for the recent hype stands out. These previous highs, especially in 2021, were primarily driven by private investors hoping to make a quick buck. Simple crypto exchanges such as Coinbase, FTX or Binance experienced immense growth within a very short period of time.
This year, however, it is the old financial world that is becoming the stirrup holder for Bitcoin – via a spot ETF that the US Securities and Exchange Commission (SEC) approved in January. In this spot ETF, the price development is shown directly and deposited with physical Bitcoins. In Europe, such an option has been available for a long time through so-called ETPs. An ETF on Bitcoin is not possible in Europe because – to put it bluntly – an ETF must consist of more than one product.
Institutional investors drive Bitcoin price
But that shows that the price development comes primarily from the USA. Since approval in January, more than eight billion dollars have flowed into the new ETFs, which are sold by Blackrock and Grayscale, among others. Between March 4th alone, when Bitcoin rose by $5,000 in one day, to March 13th, when Bitcoin reached the $73,000 mark for the first time, $3.8 billion flowed into the new ETFs, or $422 million dollars daily. This is shown by data from the crypto exchange Bitmex. Since then, however, inflows have fallen to an average of $59 million daily, a decline of 86 percent.
Analysts speak of profit-taking, but the data also suggests disappointed expectations. It is clear that the recent hype was driven primarily by institutional investors, for whom crypto became investable through the new ETFs. “We have entered a phase in which institutional investors see a lower reputational risk in crypto,” says Ha Duong, manager of BIT Capital’s crypto fund.
Crypto exchanges must stay outside
What is striking is that private investors’ interest in Bitcoin and other cryptocurrencies is still low. Data from the analysis tool Appfigures, which is available to Finance Forward and Capital, shows that the download numbers of the well-known crypto apps Bitpanda and Bison have hardly changed.
The world’s best-known exchange Coinbase grew by just 1.1 percent between January and March. Appfigures most recently had around 543,000 downloads in March – while at the peak in April 2021 there were 3.91 million downloads.
The chronically optimistic crypto scene saw this as an opportunity for a long time. True to the motto: once the private investors come back, the price will really explode. In addition, there would be the Bitcoin halving on April 21st, which will mean that miners will only be paid half the amount of Bitcoin – and which will reduce supply in the future. All of this would (theoretically) drive the price further up. No one was laughed at anymore for price targets of $160,000.
Memecoin rally as a warning sign
The recent euphoria has now worn off somewhat. Probably also because private investors are not coming back as quickly as hoped. Portfolio manager Ha Doung also has an explanation for this: “You shouldn’t forget that many private investors were probably in the red until recently. That’s the typical loss aversion. Only when you see green numbers in your portfolio again do you start talking “About that. And there’s still a long way to go before the typical retail investor makes a significant profit and becomes active again.”
Bitpanda boss Eric Demuth is also observing the general trend. Acquiring new customers in particular is currently complicated, although this has recently picked up again. “Our data shows that our existing customers in particular have implemented high volumes in the last few weeks and months,” explains Demuth to FinanceForward and “Capital”.
The Memecoin rally also suggests that the price explosions have ended for the time being. Normally, classic fiat money such as US dollars first flows into Bitcoin and from there into increasingly useless altcoins in order to speculate on quick profits. In the end there are so-called memecoins that have no fundamental use, but have high volatility. A rally is currently taking place there, which in the past has often been a harbinger of a price correction for Bitcoin.
The article first appeared at Capital.de