Small investors have started to return to cryptocurrencies, even if they are yet to jump in headfirst like they did during the last bull market three years ago.
At the largest US cryptocurrency exchange, Coinbase Global Inc., net consumer transaction revenue increased 60% in the fourth quarter from the same period a year ago, and 80% from the third quarter , according to a letter to shareholders published Thursday. At Robinhood Markets Inc., which reported Tuesday and focuses on retail users, notional cryptocurrency volumes in December were up 242% from a year earlier, the company said.
These are just the latest signs that mom-and-pop traders, who lost billions of dollars after the cryptocurrency price crashed in 2022, may be starting to make a comeback, thanks to the exuberance surrounding the January launch of exchange-traded funds. US stock market that invest directly. in Bitcoin. Bitcoin's price more than doubled last year amid the uproar, and the lure of even bigger profits is making some consumers forget how volatile cryptocurrencies can be.
"There are signs that the retail public is starting to return to the market, but still not as much as the last bull market," said Kyle Doane, a trader at Arca. โEven cryptocurrency stocks like COIN and miners show more volatility than many tokens.โ
Retail traders are essential for cryptocurrencies. They accounted for the majority of Coinbase's revenue during the last bull run and are also a key revenue driver for most other crypto exchanges.
In a sign that retail investors are not yet fully interested, Internet searches for the word "Bitcoin" - a metric that Wall Street analysts use to track retail interest in the market - spiked in the first half of January, when the ETFs debuted, but then crashed back to bear market levels, according to Google Trends.
Downloads of major cryptocurrency trading apps, widely used by retail traders, are also well below bull market levels. Binance, the world's largest crypto exchange, recorded app downloads of 10 million in the fourth quarter, up from 9 million in the third, and 8.1 million in the last three months of 2022, according to the market intelligence firm Sensor Tower. It had 25.8 million downloads during a peak in the second quarter of 2021.
Coinbase app downloads increased 13% sequentially, but still declined year over year, according to Sensor Tower. Its 1.7 million app downloads in the fourth quarter are a fraction of the peak of 10.8 million downloads the company recorded in the second quarter of 2021, according to Sensor Tower.
And if you look at Coinbase's consumer trading volume, "we're only at 16% of the last peak retail volume," said Owen Lau, an analyst at Oppenheimer & Co. "With the money coming back from bankrupt entities, there's a lot room to potentially run.โ Some consumers have seen their money trapped in a series of failed startups, including crypto exchange FTX, as they inched through the bankruptcies.
Many investors are also expecting another rally thanks to the Bitcoin halving, a software update expected in April, when rewards for computers supporting the network will be cut in half. Bitcoin is trading at the highest levels in more than two years, around $50,000.
"We've definitely seen some good drivers," Coinbase CFO Alesia Haas said in an interview with Bloomberg on Thursday. In the past, halving had resulted in โincreased retail participation and growth.โ
If prices continue to rise (and Bitcoin is up more than 20% so far this year), mom-and-pop investors will find it hard to resist this appeal, market watchers say.
โAs crypto market capitalization and trading volumes increase, retail trading also increases,โ Alyssa Choo, Bitwise crypto stock analyst, wrote on X. "Everyone wants to be part of the bull market."
