Retail Investments in Crypto

With national banks printing and influxing piles of cash into economies with huge stimulus packages, people are beginning to doubt the monetary value of the US dollar which is currently the primary global reserve currency. Furthermore, increasing social and political tensions along with the economic downturn are creating conditions for possible hyperinflation of currencies.

This situation pushed many investors to trim their positions in cash and move to more stable stores of value such as gold or silver. However, a growing number of retail investors switched their attention to crypto assets which, despite only recently having been regarded as an instrument that is only attractive for speculators and professionals, are making their way to become widespread among non-professional investors. 

The increasing popularity of cryptocurrency

Even though there are a bunch of naysayers who denounced bitcoin and other cryptocurrencies for being a volatile store of value, major crypto assets are set to outperform many traditional market assets such as commodities. For example, bitcoin (BTC) has seen 72% growth in value and ethereum (ETH) has quadrupled since March while silver was up about 54% year-to-date. Belief in the crypto market is also backed up by family offices and large institutional investors that started to include digital assets to their portfolios as well as by retail investors who are now actively getting into crypto. Experienced traders are also dabbling their toes in crypto, using services like Binance or Changelly PRO to open short and long positions on digital assets.

At the time of writing this article, the number of crypto wallets created on Blockchain.com has crossed over 50 million, the majority of which belongs to individual users – the real number of blockchain wallet owners is much more significant.

Graph Number of blockchain wallet users worldwide
Number of blockchain wallet users worldwide

According to crypto exchange Coinbase’s survey, in 2019 nearly 58% of US citizens have heard of bitcoin (BTC) and other crypto assets, and almost 15% Americans were seriously considering investing in crypto. Since the interest in crypto markets has been steadily growing, it is likely that these numbers are even greater now.

Retail investors are primarily interested in four types of digital assets:

  • Free-floating coins, such as Bitcoin (BTC), Ethereum (ETH), Ripple (XRP) and Tezos
  • Tokens that are pegged to other currencies, as is the case with the USD-pegged USDT
  • Tokens of crypto projects that promise significant returns and are available on exchanges and trading platforms, like Binance, Changelly PRO, or Kraken

Entering the market

Right now users have two options in case they want to buy or sell crypto assets: use an intermediary party called a cryptocurrency exchange platform or a peer-to-peer (P2P) platform.

The main difference between these two types of entering the crypto market is that ‘Regular’ cryptocurrency exchanges are companies, which serve as intermediaries between their customers and make a profit by collecting fees, whereas P2P platforms are just software that connects buyers and sellers based on the types of orders they make. For example, when one individual wants to sell two BTC and another one is willing to buy the same amount of BTC the P2P exchange connects the buyer and the seller allowing them to execute the transaction.

Peer-to-peer platforms

P2P platforms allow all users to complete direct trades between each other, so these services offer much better decentralization compared to typical exchanges, which results in better security, resistance to transaction censorship and an ability for users to save money on transaction fees. On top of that, P2P services allow users to trade crypto not only for other cryptocurrencies or cash, but also for gift cards, goods and using bank transfers.

Right now P2P exchanges are rapidly evolving and building up trading volume. For instance, Paxful had just over $7 mln in trading volume in August 2017, whereas in August 2020 this figure skyrocketed to over $37 mln. Localbitcoins is showing impressive dynamics as well with more than $40 mln in August 2020.    

Graph Weekly LocalBitcoins Volumes in $
Weekly LocalBitcoins Volumes (in $). Source: coin.dance

Graph Paxful Volumes in $
Paxful Volumes (in $). Source: usefultulips.org 

However, there are certain discrepancies in trading volumes in different parts of the world. In developing regions like Latin America and Sub-Saharan Africa interest towards cryptocurrencies has recently skyrocketed, showing all-time high trading volumes on P2P platforms like Paxful and Localbitcoins. This can be attributed partly to low stability of local currencies which have experienced high or hyper inflation. Under such circumstances people look for a more reliable and solid store of value, and crypto assets seem to be a worthy alternative.

Graph Trading volumes on P2P platforms in Latin America
Trading volumes on P2P platforms in Latin America. Source: usefultulips.org

Graph Trading volumes on P2P platforms in Sub Saharan Africa
Trading volumes on P2P platforms in Sub Saharan Africa. Source: usefultulips.org

Graph Trading volumes on P2P platforms in Wester Europe
Trading volumes on P2P platforms in Wester Europe. Source: usefultulips.org

Despite positive dynamic liquidity on P2P exchanges is still at low levels while most of the volumes are attributed to fiat pairs with BTC and ETH. That does not suit every small investor as many are looking to diversify their portfolios to be exposed to less risk. Retail users who are hesitant to hold just BTC or ETH and want to opt for some other altcoins can obtain them on cryptocurrency exchanges.

As P2P platforms feature long trade times, most users prefer traditional crypto exchanges such as Coinbase, Binance, Changelly, Kraken, Bitfinex, Poloniex and many others. 

Exchanges

Exchanges usually are the easiest option for retail users as they offer fiat gateways that allow clients to instantly buy BTC, ETH, and other coins through an electronic fund transfer or with Visa or Mastercard credit and debit cards. In June, traders purchased more than $13 million worth of crypto through fiat gateways on a derivatives exchange Bybit. Though it seems to be a convenient way for users to acquire cryptocurrencies, fiat solutions on exchanges are mainly provided by third-party payment processors like Simplex or gateway providers like Banxa, Xanpool and others, so an additional commision is paid for every transaction made.  However, in comparison to P2P services, exchanges can offer users higher transaction speed, a significantly more varied choice of cryptocurrencies to purchase, and a much more intuitive interface, making them perfect for people just entering the market. This is especially true for platforms that are focused on fiat solutions, such as Changelly’s fiat-to-crypto marketplace, which aggregates a lot of different getaways to help users to find the best deal without having to wait or keep an eye on dozens of different platforms.

Next steps

Either way, every retail investor currently can easily access crypto markets by simply setting up a digital asset wallet, connecting it to an exchange and buying bitcoin (BTC) or any other asset. However, current market players should also consider how they will convince retail investors to stay. It is vital to create tools that are already available to traditional investors for potential crypto investors. Not to mention, the availability of these familiar tools may make retail investors feel at home in such a different and unfamiliar industry as crypto.

Many companies have already started establishing ecosystems that are meant to satisfy a retail investor’s every need. Those typically include wallets, exchanges, fiat-to-crypto marketplaces that we mentioned previously, and trading platforms. The latter is perhaps the most important one, as with cryptocurrency prices being so volatile crypto is excellent for short-term trading and the profits that come with it.

Crypto trading

Many exchanges have created such platforms, but Changelly, with its dedicated trading platform called Changelly PRO, has hit the nail on the head when it comes to attracting retail investors. It has all the tools necessary to satisfy seasoned traditional traders, but is also simple and intuitive enough that newbies can try out trading without fear. According to data collected by Changelly PRO, around 72% of new users trade very small amounts for the first few weeks of using the service and don’t use any of the more sophisticated tools, which can point towards them being beginners. 89% of those users continue using the platform, with the majority increasing their stakes. This shows great growth potential for the industry.

Conclusion

There are more ways to interest retail investors once they enter the crypto market – staking is one example. However, what’s important is to remember that to keep those investors’ interest, and attract it in the first place, the industry has to be ready for them. That includes creating more fiat-to-crypto opportunities as well as developing easier, streamlined ways of both trading and value investing. Crypto companies have to plan long-term if mass adoption is to become reality.