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 Inc (TSLA.O) 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 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 (COIN.O) 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 (GME.N), 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”as shorthand for their willingness to hold an asset through thick and thin.
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. read more 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,…