The Main Reason Why This Crypto Bull Run “Hits Different”
Seeking Alpha Analyst Since 2021
- Despite the intense volatility seen on the crypto market in recent weeks, overall sentiment towards Bitcoin and other cryptocurrencies remains bullish.
Despite the intense volatility seen on the crypto market in recent weeks, overall sentiment towards Bitcoin and other cryptocurrencies remains bullish. Most major cryptos have already smashed their all-time high prices since the bull run of 2017 but there is something distinctly different about the market surge this time around. Retail investors. Retail investors, with their growing concerns about the U.S. dollar, increased intelligence in blockchain technology and a little help from Elon Musk, have taken the crypto market by storm and it seems like they are just getting started.
The US dollar is at risk and it’s scaring retail investors away from fiat currency
It’s not a coincidence that the end of the long “Crypto Winter” of the past three years started right around February of 2020. From the 27 of February until the 16th of March 2020, the Dow Jones saw several record-setting days for the most negative point changes in market history. These few weeks, now infamously known as the “Coronavirus Crash of 2020” signified the beginning of a new era in many ways.
Following the crash, the U.S. government, and many governments around the world, initiated stimulus packages like the $1.9 trillion stimuli from the U.S. Congress with more soon to follow in 2021. While that may be beneficial for equities, it’s cause for concern for retail investors who are losing confidence in the long-term value of the dollar and worrying about hyperinflation scenarios.
Even with the low-interest rates seen all over the world, government loans still hurt productive sections of the economy and this increased, record-setting deficit spending will likely cause major inflation for the dollar. Perhaps, even threatening its status as the world’s reserve currency. These valid concerns certainly play a huge role in retail investors expressing increased interest in Bitcoin and other popular cryptocurrencies. However, it’s not just your friendly neighbors getting in on it, major corporations now want a piece of the pie as well.
Elon Musk and Wall Street inspire crypto retail investors
In 2020, we saw the early signs of major corporations put their money forward with an investment in the crypto industry. However, it didn’t have a large impact like we are seeing in 2021. Perhaps you could say companies like Grayscale and IBM just weren’t exciting enough. To get retail investors really “hyped” on cryptocurrency, a voice of a generation had to speak up. Enter Elon Musk.
Recently, Mr. Musk drove the market with news saying the world’s top electric car manufacturer, Tesla, filed with the Securities and Exchange Commission (SEC) to state it will become one of the first major corporations to put Bitcoin on its balance sheet and in the future, accept it as a payment method for its products. Further adding fuel to the flame, Musk pushed the market even higher with his polarizing tweets on popular social media platform Twitter. The tweets got significant media coverage all around the world and suddenly (by design or by accident) Elon Musk became the voice of cryptocurrency.
Less robust but still important were other large corporations like MicroStrategy, the Bank of New York Mellon, The Chicago Mercantile Exchange, CashApp, PayPal, and HFinance all coming forward with large announcements regarding their support or purchase of cryptocurrency. Coincidentally, these big market entries have had a trickle-down effect on some of the world’s premier cryptocurrency exchange, wallets, and lending platforms.
The European-based FinTech and crypto-lending platform YouHodler saw trading/conversion volumes, client activations and crypto-interest account balances increase dramatically over the past few months. The company states that these numbers are expected to grow exponentially in 2021.
“The last bull run in 2017 was based on nothing more than hype and a fascination with getting rich quick. However now, we have entered a much more stable phase of adoption which is built on retail investors looking to hedge their hard-earned money against the potential inflation of their fiat currency.” YouHodler CEO Ilya Volkov said in a statement.
“Retail investors are tired of earning 0% interest on their traditional savings accounts and when they see new opportunities coming from crypto-finance, naturally it’s an easy migration to make. These investors are looking for new ways to make their crypto work for them and save for the future. Cryptocurrency offers that opportunity and right now, it’s far more effective than mutual funds or anything found on the stock market.”
News of such platforms like YouHodler is spreading rapidly thanks to an increased interest in investing in popular social media outliers like Reddit and Twitter.
Retail investing is not fringe any more (thanks to social media)
It wasn’t long ago when social media took an aggressive stance towards cryptocurrency, treating it in the same vein as it treats gambling content. For that reason, online crypto communities were small and close-knit, far from the eyes of the mainstream. However, with Twitter founder Jack Dorsey recently loosening restrictions on crypto-related Twitter posts and Reddit subreddits like r/WallStreetBets exploding in popularity, there are now endless channels to access information about cryptocurrency and meet like-minded investors.
Some may say these channels opened the door for retail investors who before lacked the knowledge of basic investing principles. In many ways, that is a positive effect of the internet. Connecting and educating groups of people who before, never would have met. However, at the same time, it’s also introducing millions of people to something they may not have the skills or temperament for.
Investing, as many know, comes with some high risks and without expertise, it’s possible to incur life-changing losses in the crypto market. For that reason, we are seeing some countries take a hard stance towards retail investors, in some cases, even banning them from trading cryptocurrency. Hong Kong for example is currently drafting a proposal that will effectively ban all retail investors from buying and selling crypto in addition to requiring all digital asset trading platforms to provide specific licenses to operate in Hong Kong.
Meanwhile, in Sweden, the Financial Supervisory Authority in Stockholm essentially threatened companies that attempt to sell high-risk and complicated instruments to certain investors who may not understand what they are getting themselves into. While yes, it’s a sad fact of reality that a small percentage of retail investors are losing their life savings from investing without intelligence, in many ways it is a necessary aspect of market maturity.
Retail investors are speeding up mass adoption
As seen in the examples from Sweden and Hong Kong, retail investors are speeding up regulation through their uncontrollable desire for cryptocurrency. Whether governments know it or not, hastily creating new regulations for cryptocurrency investors is helping to speed up mass adoption. By creating the necessary legal framework, more legitimate crypto companies and investors can thrive safely. More retail investors and big corporations are likely to enter the market when they feel their investment is safe. Safe investments only happen in a regulated industry, and we are currently on the fast track to becoming that.
We’re still a long way from Bitcoin being a stable store of value like gold, and there will be plenty of 30%+ market corrections throughout this bull run. However, forward progress is being made daily and this industry is healthier than it’s ever been. Cryptocurrency is not a fad or a get-rich-quick scheme like many thought in 2017. It’s the future of finance and we’re witnessing its rise to power at this very moment.
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