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These can be anxious times for holders of cryptocurrencies, especially those who entered the market in late 2021 when prices were cresting. Bitcoin (BTC<\/a>), Ether (ETH<\/a>) and especially altcoins now appear to be undergoing a major reset, down 50% or more from November highs.<\/p>\n Some worry that a whole generation of crypto adopters could be lost if things crumble further. \u201cIf the market decline continues, it will become too painful and retail investors will bail,\u201d Eben Burr, president of Toews Asset Management, told<\/a> Reuters earlier this month. \u201cEveryone has a breaking point.\u201d<\/p>\n But, all the gloom and doom could be overdone.<\/p>\n It\u2019s \u201cunnerving,\u201d acknowledged Callie Cox, United States investment analyst at eToro, but it\u2019s only par for the course for a market that scarcely existed a decade ago. Bitcoin, arguably the most \u201cinstitutionalized\u201d digital coin, \u201chas actually gone through 16 drops of 50% or more over the past 10 years,\u201d she told Cointelegraph. <\/p>\n The current correction hasn\u2019t deterred younger investors, according to Cox. \u201cWe surveyed 1,000 investors across age groups in March, and 58% of investors ages 18\u201334 thought Bitcoin would present the best buying opportunity in crypto over the next three months.\u201d<\/p>\n Still, more recently, in early May, Glassnode reported<\/a> that 40% of Bitcoin holders were underwater on their investments at a time when BTC was $33,800; it was $29,000 this past weekend on May 28. Are younger investors still as optimistic as they were in March?<\/p>\n \u201cRetail traders between 35-45 years old decreased their crypto balances amid market volatility in the last few weeks,\u201d Bobby Zagotta, CEO of Bitstamp USA and chief commercial officer at Bitstamp Global, told Cointelegraph. By contrast, \u201cOur younger users seem to be more bullish and have chosen not to sell.\u201d He added:<\/p>\n \u201cGiven the macroeconomic headwinds, every asset class is risk-off right now. That said, crypto and Bitcoin, in particular, are showing pretty amazing resilience.\u201d<\/p><\/blockquote>\n Not everyone is so sanguine, however. During the last bull run, retail investors were increasingly drawn to the most speculative investments, perhaps hoping to duplicate the spectacular gains of crypto\u2019s earliest adopters, Lennix Lai, financial markets director at crypto exchange OKX, told Cointelegraph. Ether and Bitcoin are down some 50% from their late 2021 peaks, but many altcoins have plummeted even further. Meanwhile, the mid-May collapse of Terra (LUNA<\/a>) and TerraUSD (UST) has shaken the whole crypto sector, said Lai, adding:<\/p>\n \u201cThe devastating impact of the LUNA crash will certainly have soured crypto\u2019s perception among less sophisticated investors \u2014 the damage done to retail sentiment will take time to recover from.\u201d<\/p><\/blockquote>\n Still, Lai doesn\u2019t believe that retail investor trust in cryptocurrencies has vanished. Rather a lesson has been learned. \u201cBearish markets teach everyone that the nature of crypto \u2014 in addition to other asset classes \u2014 is volatile.\u201d<\/p>\n Recent: How Terra\u2019s collapse will impact future stablecoin regulations<\/a><\/em><\/strong><\/p>\n In a 2021 paper, two researchers explored<\/a> the impact of investors\u2019 beliefs on cryptocurrency demand and prices. Focusing primarily on the 2017\u20132018 bull market, they found that \u201cyounger individuals with lower income are more optimistic about the future value of cryptocurrencies, as are late investors.\u201d In particular, \u201c\u2018fear of missing out,\u2019 and contagious social dynamics may have contributed to a rampant increase in cryptocurrency prices.\u201d\u00a0<\/p>\n Could the same dynamic be at play in the late 2021 price run-up? \u201cI would speculate that not much has changed in terms of how educated\/sophisticated the average crypto investor is,\u201d Giovanni Compiani, one of the paper\u2019s co-authors and assistant professor at the University of Chicago Booth School of Business, told Cointelegraph, \u201cgiven that, to my knowledge, there haven\u2019t been any major education campaigns or any policy changes that would make it harder for unsophisticated investors to trade.\u201d<\/p>\n If this is the case, then one might expect these late-comers or younger-aged crypto enthusiasts to be bailing out around now, but that isn\u2019t necessarily happening. When asked about first-time retail investors, Cristina Guglielmetti, financial adviser and president of Future Perfect Planning, told Cointelegraph:<\/p>\n \u201cThe clients I have who own cryptocurrency haven\u2019t really sold their holdings from last year to this year. They\u2019re looking at it more as an educational experience and not assigning an expected return per se. They\u2019re expecting it to be speculative and very volatile.\u201d<\/p><\/blockquote>\n Even if latecomers aren\u2019t fleeing en masse, won\u2019t it still be difficult to attract new retail customers given the scorching some have suffered?\u00a0<\/p>\n \u201cWe\u2019ve seen crypto bear markets before,\u201d said Zagotta, \u201cjust as we\u2019ve seen rallies. We are a part of a new financial ecosystem developing minute by minute and led by some of the smartest minds of our time, so my bet is always going to be on innovation versus stagnation.\u201d Moreover, he told Cointelegraph:<\/p>\n \u201cHeadlines might have you believe that there\u2019s more volatility than there really is and that investors are fleeing when prices fluctuate. But, that\u2019s not really happening.\u201d<\/p><\/blockquote>\n \u201cCrypto\u2019s issue isn\u2019t necessarily price, it\u2019s education,\u201d said Cox. Forty-two percent of investors surveyed by eToro in March said they don\u2019t buy crypto because they simply don\u2019t know enough about it: \u201cBut, the appetite for decentralization and digital transformation is still there, especially among younger investors.\u201d<\/p>\n Cox does not accept the assumption held by some that younger investors are flighty and quick to run at the first resistance. On the contrary, \u201cyounger investors naturally have higher risk appetites, and they\u2019ve seemed willing to stomach these swings because of their longer-term optimism about the technology.\u201d<\/p>\n \u201cAlthough some investors will be lost for good, each market cycle sees newcomers becoming believers in the technology,\u201d added Lai. \u201cInvestors who abandoned crypto in 2018 and returned in 2021 are more likely to stick around, as they now realize that the industry doesn\u2019t die during market downturns and that investments made during the lows have historically been most lucrative.\u201d<\/p>\n Meanwhile, \u201cthe open interest at OKX keeps increasing even when the market is bearish, indicating that users are not leaving the market,\u201d said Lai. \u201cWe do expect investors to lower their leverage and maintain their positions, however.\u201d<\/p>\n Maybe we\u2019re worrying too much about individual investors. Last week, JPMorgan Chase, the banking giant, was reported<\/a> to be experimenting with blockchain technology for collateral settlements. If large institutional players like these are bullish on the technology, maybe it doesn\u2019t even matter what retail investors do?\u00a0<\/p>\n \u201cBoth retail and institutions are critical for the continued adoption of digital assets,\u201d said Zagotta. \u201cInstitutional interest certainly establishes maturity and confidence towards all other investor classes.\u201d <\/p>\n \u201cWhat really matters for the industry is that good products are delivering real value to users,\u201d added Lai. Institutional is only part of the ecosystem, though a crucial part. \u201cThe presence of institutional players in the sector fosters fair pricing of crypto assets and better liquidity.\u201d <\/p>\n What advice, if any, would Lai offer new crypto investors? \u201cDYOR,\u201d or do your own research. \u201cCrypto is still an emerging asset class with a relatively short history compared to the traditional finance market. Some of the tokenomics, despite being very promising, are still experimental.\u201d <\/p>\nHas LUNA\u2019s collapse shaken newcomers?<\/h2>\n
Are the young inherently optimistic?<\/h2>\n
Will new customers be hard to find?<\/h2>\n
Are retail customers even needed?<\/h2>\n