Bitcoin plunges as retail investors desperately rush to buy, survey shows $40 billion is about to flow in

Bitcoin suffered its biggest one-day drop in more than two weeks on Monday (March 15), falling below $55,000 from a high of $60,000. The price of Bitcoin, which was driven by retail traders last weekend, was weak, and analysts said the rally was notable for the lack of participation from institutional investors. Currently, the price of Bitcoin remains above $56,000.

(Source: Coindesk)

“The sell-off occurred at the beginning of the Asian capital markets trading hours,” said John Willock, CEO of digital asset exchange Blocktane. “So traders there are likely repositioning after the rally for the start of the week.”

"This weekend, everyone in the bitcoin world was pushing higher on this stimulus news," said Jeff Dorman, chief investment officer at Arca, an investment management firm focused on digital assets. "And then we came in last night, futures were flat, the 10-year was flat, and then all of a sudden we started unwinding positions because there wasn't as much bullishness as some bitcoin traders thought." Dorman also pointed out how leverage in crypto markets can lead to selling pressure during a broader decline. "There has always been an incredible amount of leverage in the financial system," he said. "In any boom, you see investors increase leverage by taking on debt, and over the weekend, all of the risk indicators we saw started to look frothy. Generally speaking, when that starts to happen, it's only a matter of time before there's the slightest pause in liquidating those leveraged positions."

The recent rally lacks support from institutional investors. According to tracking by CryptoQuant, a South Korean blockchain data analysis company, an indicator called Coinbase premium measures the spread between Coinbase's Bitcoin/USD pair and Binance's Bitcoin/USDT pair. Over the weekend, the index turned negative, suggesting weak institutional demand. This dynamic is in stark contrast to the clear participation of institutional investors during Bitcoin's rally last month. Du Jun, co-founder of cryptocurrency exchange Huobi, said that after Bitcoin broke through the key psychological level of $30,000 in January and $50,000 in February, the Coinbase premium saw a sharp jump, showing strong follow-up demand from institutions.

(Source: CryptoQuant)

According to data from eight major spot cryptocurrency exchanges tracked by CoinDesk, trading volume has been light during the rally over the past few days, a stark contrast to the surge in trading volume that accompanied last month’s price swings.

(Source: CryptoCompare)

“Saturday’s all-time high of $60,000, coupled with the recent shutdown of traditional markets, means retail investors are expected to chase Bitcoin,” Singapore-based quantitative fund QCP Capital wrote in its weekly market update on March 15.

Data compiled by JPMorgan also shows that retail investors are indeed competing with Wall Street buyers . Using data from Square and Paypal as a reference, retail investors have purchased more than 187,000 bitcoins so far this quarter, compared with about 205,000 last quarter, strategists including Nikolaos Panigirtzoglou wrote in a report last Friday. Meanwhile, according to data from Bitcoin futures, fund flows and company announcements, financial institutions have purchased about 173,000 bitcoins during this period, compared with nearly 307,000 bitcoins in the last quarter of 2020.

(Source: JPMorgan Chase)

"For many retail cryptocurrency traders, Bitcoin has been the primary trade of the pandemic. The volatility of meme stock trading has been painful for many, but Bitcoin has maintained a surprisingly bullish trend, leaving most people as winners," said Ed Moya, senior market analyst at Oanda. "Retail traders have regained their energy in the latest NFT craze and stimulus checks have hit their bank accounts." Brian Vendig, president of MJP Wealth Advisors, said these amazing gains can become self-fulfilling when those on the sidelines want to get involved. "When institutions start to enter the space more, it shows market leadership and helps prove the validity of something, and then individual investors want to get involved," Vendig said. "When you see something starting to take off, you get an urge to want to get involved, and the balance leans towards greed or fear of missing out, and I believe that's a component of it as well."

And with the passage of the U.S. stimulus package, there is even more money about to flow into Bitcoin and the stock market . A new survey from Mizuho Securities on Monday estimated that 10% of the $380 billion in direct stimulus funds, or nearly $40 billion, could be used to buy Bitcoin and stocks. Dan Dolev, managing director of Mizuho Securities, and his team surveyed about 235 individuals with household incomes below $150,000. About 200 of these households said they expect to receive a third round of direct stimulus funds in the coming days. Nearly two-fifths of check recipients want to invest part of their checks. The survey shows that those who receive the stimulus package prefer Bitcoin to stocks. The survey predicts that Bitcoin will account for 60% of the total incremental investment spending. "We estimate that this will increase Bitcoin's current market value of $1.1 trillion by 2-3%," he said.

(Source: Mizuho Securities)

Chris Weston, head of research at Pepperstone Group Ltd., wrote in a report that cryptocurrencies have seen "some good inflows as traders check ahead of the U.S. stimulus package," and said Bitcoin needs to stay above its previous high of just over $58,000 to support confidence in a "new bull market." Jeffrey Halley, senior market analyst for Asia Pacific at Oanda, and Matt Maley of Miller Tabak + Co both believe that Bitcoin has further potential to rise based on some recent chart patterns. Maley said Bitcoin could rise to $75,000 "very soon." Mike McGlone, Bloomberg Intelligence strategist, said $100,000 could be the next threshold. (FX168 Financial News Agency)