Cryptocurrencies

Small traders are returning to cryptocurrencies

Small traders are returning to cryptocurrencies

Retail investors are returning to the cryptocurrency market, helping to drive prices higher even as traders face uncertainty over proposed tax regulations in Washington.

Cryptocurrencies such as bitcoin, ether, dogecoin and other altcoins have rebounded in recent weeks from their mid-year declines, returning to levels not seen in months. On Friday, bitcoin traded at $47,544, its highest close since May 15, giving it a 64% gain for the year. The rival currency ether was up 344% on the year, while dogecoin, the cryptocurrency joke beloved by retail investors, traded at 28 cents, up more than 5,500% on the year. ‘year.

Behind the recent moves, the data shows there is renewed interest from individual investors, who returned after cryptocurrencies received a boost in late July. At the time, Tesla Inc. chief executive Elon Musk said during a keynote at “The B Word” conference co-hosted by the Crypto Council for Innovation that he and his rocket company, SpaceX , held bitcoin. A job posting on Amazon.com Inc. the same week for a digital currency and blockchain expert created additional buzz.

At this time, spot trading volume of cryptocurrencies including bitcoin and ether surged on major exchanges including Binance, Kraken, Coinbase Global Inc.

and Gemini Trust Co., according to data compiled by Coin Metrics, a cryptocurrency data provider. While some of this volume may include institutional purchases – Coinbase, for example, has generally seen strong volume growth from institutional clients – “in all likelihood, the bulk of spot trading volume is selling on the spot. detail,” said Nate Maddrey, principal research analyst at Parts Metrics.

Beyond trading volume, other signs of activity abound from retail or non-professional investors. Many so-called altcoins, or alternatives to bitcoin, have seen their prices soar recently, a sign that retail investors are active in their search for digital assets with small market caps and the potential for big gains. Cardano, for example, has jumped around 63% over the past month, according to Friday afternoon figures from CoinDesk, while Litecoin has risen around 38% over the same period.

Meanwhile, the number of cryptocurrency addresses holding between 100 and 10,000 dogecoins has started to rise again after dropping slightly earlier this year, according to figures from Coin Metrics.

Professional investors tend not to trade in the altcoin space, according to cryptocurrency analysts.

Retail investors’ recent interest in cryptocurrencies has coincided with a relatively quiet period in the broader stock market, with many of their favorite meme stocks also languishing in recent weeks. GameStop Corp.

AMC Entertainment Holdings Inc.

and BlackBerry Ltd. are each down nearly 10% or more over the past month, offering fast-moving individual investors little opportunity for big, sudden gains.

The cryptocurrency market, on the other hand, provided some breathing room amid the volatility.

“There’s always this retail feel to the market and the moves,” said Craig Erlam, senior market analyst at Oanda. “The [big] falls, it does not seem institutional.

New data released Friday afternoon by the Commodity Futures Trading Commission shows that “leveraged funds,” a category that includes hedge funds, continue to be bearish on bitcoin, based on a report on bitcoin futures contracts listed on CME Group Inc.

Futures contracts are a type of derivative that allows investors to bet on the rise or fall of an asset such as bitcoin. Long positions profit if bitcoin goes up, while short positions profit if the price goes down. (Granted, short positions can also be part of a hedging strategy and don’t necessarily mean that a trader is betting entirely that bitcoin will fall.)

Binance is the largest cryptocurrency exchange in the world.


Photo:

Tiffany Hagler-Geard/Bloomberg News

Friday’s CFTC report showed leveraged funds with 5,113 short positions in bitcoin futures, more than double the 1,995 long positions they held.

Data for asset managers and institutional investors showed that the group, on the other hand, held more long positions than short. All data is as of Tuesday.

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The divergence in sentiment between different investor groups comes as cryptocurrencies still face major headwinds, including urgently a cryptocurrency provision in the infrastructure bill that aims to strengthen the tax enforcement of crypto transactions.

The provision, which is expected to bring in $28 billion over a decade, would require digital asset brokers to report trading gains to the Internal Revenue Service. The cryptocurrency industry objected to the provision, saying it was drafted too broadly and could stifle innovation.

China’s recent cryptocurrency warning sent the market plummeting. The WSJ’s Aaron Back discusses why recent upheavals in the value of bitcoin, dogecoin, ether, and other cryptocurrencies may indicate barriers to mainstream acceptance. Photo: Dado Ruvic/Reuters

Bitcoin, Dogecoin, Tether: the cryptocurrency markets

Write to Caitlin McCabe at [email protected]

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