Cryptocurrencies have roared back to life after more than two years of implosion and uncertainties. The flagship cryptocurrency Bitcoin rallying to above the $50,000 a coin level is a testament that fear has dissipated and that investors are increasingly taking risks in the industry. Consumer activities in Coinbase, one of the world’s largest cryptocurrency exchanges, were depicted by a 60% increase in revenues in the fourth quarter from a year ago and 80% compared to the third quarter.
Crypto Roars Back
RobinHood, which has been the epicenter of cryptocurrency transactions in recent years, has seen its trading volumes explode by more than 200% from a year ago. The increased volumes come as small investors continue to rush into the sector in pursuit of bargains after years of sell-offs and deep pullbacks.
Soaring trading volumes and revenues in the biggest exchanges is an indication that mom-and-pop traders who lost billions of dollars at the height of the 2022 collapse are ready to move on. The regulatory framework becoming increasingly clear with the launch of a US exchange-traded fund that allows for direct investing in Bitcoin continues to bolster sentiments about the overall sector.
The price of Bitcoin has more than doubled over the past 12 months on growing expectations that regulators in the US are ready to go slow on stringent regulations. The approval of a Bitcoin exchange-traded fund is another factor that is bolstering sentiments in the sector, as the instrument is expected to attract more institutional investors into the nascent industry.
In addition, investors are optimistic about another market rally ahead of the much-awaited Bitcoin halving event. The software upgrade event, which results in the reduction by half the amount of reward that miners get, is often followed by a significant price increase. In the past, the event was followed by increased retail engagement.
Wave of Uncertainty
Retail traders account for the biggest share of activities in the industry, awaiting an influx of institutional investors. They continue to account for the lion’s share of trading volumes and revenues in Coinbase and other exchanges. Growing expectations that the US Federal Reserve will start cutting interest later in the year is also forcing investors to tweak their investment portfolios.
Nevertheless, a cloud of caution remains in the air with retail investors not jumping with both feet into investing in the sector. Web searches for the word Bitcoin commonly used to track sentiments spiked in the first half of January.
However it has collapsed back to bear market levels affirming investors are still being convinced about the long term outlook. There is always fear that the sector could come under pressure, especially on the dollar strengthening across the board on the Fed sticking with higher interest rates for long.
Additionally, downloads of top crypto exchange apps commonly used by retail traders are not yet back to levels registered at the height of the crypto bull run. Binance, which is one of the largest crypto exchanges, registered 10 million app downloads in the fourth quarter; a 1 million increase from the third quarter downloads.
