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Analysis: Retail investors learn to love the crypto rollercoaster

Stock MarketsMay 21, 2021 09:25PM ET
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2/2 © Reuters. FILE PHOTO: Representations of the virtual currency Bitcoin and Ethereum stand on a motherboard in this picture illustration taken May 20, 2021. REUTERS/Dado Ruvic/Illustration/File Photo/File Photo 2/2

By John McCrank

NEW YORK (Reuters) - When Brjánn Bettencourt rolled out of bed on Wednesday morning to find the assets in his cryptocurrency portfolio slammed in their biggest selloff in years, he knew exactly what to do: buy more. "Investing in crypto is not for the faint of heart," said Bettencourt, a 32-year-old photographer in Toronto who has owned bitcoin and ether over the last year-and-a-half to complement his stock portfolio. "I'm looking at this as a serious long-term investment."

This week, cryptocurrencies were buffeted by factors ranging from critical tweets by Tesla (NASDAQ:TSLA) Inc CEO Elon Musk to governmental controls in China. The price of bitcoin, the world’s biggest cryptocurrency, tumbled as much as 30% before retracing some losses. It is down some 40% from its highs of the year.

Leveraged positions in bitcoin and ether futures fell sharply last week, said Vanda (NASDAQ:VNDA) Research, which tracks retail trades. This indicates that some retail traders probably have folded their tents."(The) crypto bubble has started to unravel and data from different exchanges suggest that retail investors are capitulating," Vanda researchers said.

But other retail investors have been happy to ride the turbulence out or trade around it. "In crypto talk, when stuff like this happens, people say it shakes out all of the weak hands and the people ... who maybe bought because they saw it on the news," said Ethan Lou, author of "Once a Bitcoin Miner: Scandal and Turmoil in the Cryptocurrency Wild West," due this autumn. As retail investors piled into cryptocurrencies, bitcoin surged around 345% in the last year, ether soared 1,219% and dogecoin skyrocketed 15,480%, according to Coinbase data. Crypto-exchange Coinbase said its more than 56 million users accounted for $335 billion in trading volume in the first quarter: $120 billion retail and $215 billion institutional. That compares to $30 billion in total a year earlier, of which $12 billion was retail, the company said.

Retail interest this year also scooped up shares of "meme stocks" such as GameStop (NYSE:GME), pushing prices through the roof and punishing hedge funds that had sold the shares short. Some retail investors have embraced the wild price swings in hopes of catching some of the next big rally. Users on Reddit's popular WallStreetBets forum have popularized the term “diamond hands” https://www.reuters.com/article/us-retail-trading-slang-factbox/factbox-stonks-in-washington-deciphering-reddits-wallstreetbets-lingo-idUSKBN2AI0JFas shorthand for their willingness to hold an asset through thick and thin.INCREASED SCRUTINY

Increased mainstream adoption has drawn the attention of regulators. The U.S. Treasury Department on Thursday called for new rules that would require large cryptocurrency transfers to be reported to the Internal Revenue Service. The Federal Reserve said cryptocurrencies pose risks to financial stability. On Friday, China said it will crack down on bitcoin mining and trading activities. Cryptocurrencies have been notoriously volatile throughout their history. Bitcoin plunged 94% in 2011, and dropped 82% between late 2017 and the end of 2018, causing many investors to back away. Lily Francus, however, has tried to take advantage of the big swings. The 25-year-old, who lives in San Diego and works as a quantitative researcher at a crypto hedge fund, first traded cryptocurrencies in 2017, but got out before the price crashed. Then last month she put about 1% of her net worth into various cryptocurrencies, joining a rally she saw as partly fueled by social media hype.

She liquidated her ether and cut her bitcoin position when Musk hosted Saturday Night Live on May 8. She later bought 40% of her ether position back at a lower price.

The Tesla CEO has flip-flopped on whether the electric carmaker would accept bitcoin as a payment, and has often moved the price of dogecoin with his tweets.

"When you see ... people diving into the markets for fear of missing out, that's usually a good time to get out," Francus said.Doug Liantonio, 31, of Deerfield Beach, Florida, said he owns dogecoin and ethereum classic. With dogecoin prices down 50% from their highs, he is waiting for another rally before selling. "I don't think I will wait for Elon's PR stunt for his rocket, that would be too late," he said. Musk recently announced that his company SpaceX will launch a rocket to the moon next year, funded with Dogecoin.

For Bettencourt, the photographer, the ups and downs of crypto are part of its appeal.

Investing in cryptocurrencies “feels like that scary rollercoaster,” he said. “You're riding it up and riding it down and feeling every twist and turn, which to me is exciting and fun.”

Analysis: Retail investors learn to love the crypto rollercoaster
 

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Comments (6)
Kevin Avila
Kevin Avila May 22, 2021 2:01AM ET
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Inflation will cremate crypto... first fed rate hike and its done...
Sylverster Onyenuforo
Sylverster Onyenuforo May 22, 2021 2:01AM ET
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Hold your peace man,crypto will overcome all the obstacle thrown on its way to eternal greatest!
Free Will
Free Will May 22, 2021 1:17AM ET
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Governments are trying to smash private blockchains by a wave of the anti-Crypto statements, whilst they develop their own. Mask is their pawn. What a shame! But they definitely will lose this battle. No chance they break free will to the Finance decentralization. FREEDOM!!!
Mase Gumbo
Mase Gumbo May 22, 2021 1:17AM ET
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ye like its serving some noble purpose..eats lot of electricity ..nobody sensible would take it as it lacks many parameters of currency and it enriched bunch of gamblers who mostly have no investing experience...just widening wealth gaps....classic pyramid scheme
Josh Modern
JoshModern May 21, 2021 11:38PM ET
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I make good money flipping crypto... it's easier to chart than stocks because fewer variables influence movement
Murali Brahmandam
Murali Brahmandam May 21, 2021 11:11PM ET
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Sell crypto to buy stocks and sell stocks to buy crypto spiral will take both down in lock step tango
Murali Brahmandam
Murali Brahmandam May 21, 2021 11:09PM ET
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These crypto traders will either have to commit sui-cide or sell stocks for crypto margin calls
Dhia Betar
Dhia Betar May 21, 2021 10:12PM ET
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There is a sucker born every minute in the markets !
frank alvarez
frank alvarez May 21, 2021 10:12PM ET
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good thing too bc then there would be no money to make
 
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