Why small investors are returning to cryptocurrency?

Why small investors are returning to cryptocurrency?

Small investors are showing renewed interest in cryptocurrency following the recent launch of US exchange-traded funds (ETFs) that allow them to invest directly in Bitcoin. This is evident from the increased trading activity on cryptocurrency exchanges such as Coinbase and Robinhood. However, it's worth noting that the current level of retail participation is still much lower than the previous bull market.

According to data from Google Trends, while there was a surge in search queries related to Bitcoin during the launch of the ETFs, it quickly subsided and returned to pre-launch levels. Similarly, downloads of popular cryptocurrency exchange apps such as Binance and Coinbase have not yet reached their previous highs.

Despite these indicators, industry experts believe that retail investors will continue to return to the cryptocurrency market as prices rise. The upcoming Bitcoin halving event, where the reward for validating transactions on the network will be reduced, has historically led to increased retail engagement and growth. As the market capitalization and trading volumes of cryptocurrencies increase, smaller investors are likely to join in, driven by the fear of missing out on potential gains.

What is Bitcoin halving?

Bitcoin halving is a significant event that takes place every four years, where the reward for mining bitcoins is reduced by half. This event has a crucial impact on the supply and issuance mechanism of bitcoins, making it an essential aspect of the cryptocurrency's design.

The Last Halving

The last halving occurred on May 11, 2020, after which the network participants validating transactions were awarded 6.25 bitcoins for each block mined successfully. Before this, the block reward was 12.5 bitcoins.

Upcoming Halving

The next halving is scheduled for mid-2024, where the block reward will decrease to 3.125 bitcoins. This reduction in reward will continue until the final halving, which is expected to occur in the year 2140.

Final Halving

The final halving will mark the end of the mining process, where the total supply of bitcoins will reach its maximum limit of 21 million. Around 19 million bitcoins have been mined, leaving only two million left to be mined.

Edward Snowden, former NSA (National Security Agency) contractor, has put his weight behind the token’s likely surge. He wrote on the X platform: “Bitcoin is the most significant monetary advance since the creation of coinage."

“One of the most important features of Bitcoin is its limited supply and issuance mechanism," Forbes quoted Bruce Fenton, CEO of Chainstone Labs, as saying.

What does the industry believe?

"The retail audience is starting to come back into the market, but not yet to the same extent as the last bull market," said Kyle Doane, a trader at Arca. "As the crypto market cap and trading volumes increase, retail trading will also increase."

Coinbase's chief financial officer, Alesia Haas, echoed this sentiment, stating that the halving has previously resulted in greater retail engagement and growth. With the price of Bitcoin currently trading at its highest level in over two years, there is optimism among investors that the trend will continue.

Sumit Gupta, Co-founder of CoinDCX, says, “With the halving event just 58 days away, there will be a supply shock while the demand continues to grow. This delicate balance between supply reduction and increasing demand creates an environment ripe for momentum, signaling the dawn of the next bull run. Anticipation mounts as we foresee Bitcoin scaling unprecedented peaks post-halving, marking yet another chapter in its remarkable journey within this calendar year."

“The upcoming halving is another major milestone for investors, driving optimism and buying action in the market. It’s important to note that liquidity is improving for the overall crypto market, and Bitcoin’s $1 trillion market cap is a testament to the resilience," says Rajagopal Menon, VP of WazirX.

However, it's important to note that the cryptocurrency market remains highly volatile, and investors should exercise caution before diving in. While the prospect of significant returns is enticing, it's essential to remember that the market can turn rapidly, leading to substantial losses for those who fail to do their due diligence.