Part 1 of 3: Sophisticated investors to drive crypto’s revival

What sets apart the crypto bull run of 2021 from the early stages of this current revival? The key difference lies in the type of investors driving this resurgence.

Historically, retail investors have spearheaded crypto’s market movements, reflecting the grassroots appeal of this asset class. However, our latest analysis reveals a notable shift: sophisticated investors are now leading the charge.

According to the latest BTC Markets Investor Study Report 2024 (Report) launched last week, non-retail investors' initial deposits grew by an impressive 189%, while retail investors experienced a decline of 15%. Additionally, Self-Managed Super Funds (SMSFs) and trusts also saw increases, with deposit growth rates of 50% and 12%, respectively.

The Report, now in its third edition, covers data from our exchange spanning FY21 to FY24, drawing on comprehensive insights from trading behaviour and portfolio values of our 362,000 clients.

Utility over speculation

A key motivator for this shift is the evolving utility and appeal of crypto investments, rather than mere speculation. In FY24, BTC Markets witnessed a substantial increase in trading activity, with average trade volume up by 60% and trade value rising by 40%, However, average daily orders grew by a modest 15%, suggesting that while investors are making fewer trades, they are opting for larger, more strategic investments. This trend indicates a move towards substantial, strategic investments over frequent, speculative ones.

Moreover, the uptick in activity among traditional investors highlights growing confidence in the asset class, with a noticeable shift towards 'buy and hold' strategies. These investors, known for their thorough due diligence, are increasingly viewing cryptocurrencies as aligned with their long-term investment goals.

Bitcoin remains a favourite

Further analysis reveals that the top three cryptocurrencies favoured by non-retail investors have remained stable, with Bitcoin (BTC) retaining its top position for the past four years. Ethereum (ETH) and XRP have seen slight shifts in their rankings but remain popular. This stability underscores the continued confidence in these well-established digital assets.

Several factors have fuelled this preference and recovery. The approval of spot Bitcoin and Ethereum ETFs by US regulators signifies growing institutional involvement, a development absent in previous bull runs. Additionally, persistent global inflation has led market participants to view Bitcoin as a hedge against rising prices.

Lastly, the fourth Bitcoin halving event in April 2024, while symbolic, took place in a more mature market with a clearer regulatory framework. Historically, Bitcoin trading and prices see significant increases in the 60 days leading up to a halving, a trend that repeated in March this year. The deflationary mechanism of halving events typically exerts long-term upward pressure on Bitcoin’s price. However, analysts suggest that this year’s record highs were more closely tied to ETF approvals than to the halving itself.

Call to action for wealth industry

It is crucial to note that this new wave of financially sophisticated crypto investors often relies on mainstream wealth managers for advice. However, many advisers face challenges under current Australian regulations. Most advice licensees prohibit their advisers from providing crypto advice due to fiduciary requirements and compliance policies, as their professional indemnity policies do not cover cryptocurrencies.

As a result, advisers and wealth managers may risk losing control of their clients’ portfolios to global wealth banks like Morgan Stanley, JP Morgan, and Goldman Sachs, which have embraced crypto investing in various capacities. When crypto becomes a regulated financial instrument, investors and their advisers will gain more confidence to operate in this sector, opening the floodgates for professional financial advice for the broader market.

This brings us back to our original and longstanding soapbox issue: Regulation. We must establish regulations that foster innovation, while protecting consumers.

We need legislative action at the national level. And we need it soon.

In the meantime, educating professionals within the wealth industry on the nuances of crypto investing will be crucial.

ENDS

Part 2 of our BTC Markets Investor Study Report Series will delve into additional demographic trends. Stay tuned for more insights.