Analysis

It’s Not Over Yet: The Case for Retail Investors in Crypto

What role do retail investors play in today's crypto market? How can companies attract retail investors?

Retail investors are credited with much of the rise of the cryptocurrency markets that took place throughout 2017. But with rising legal concerns (among other things), cryptocurrency investment opportunities these days have largely veered toward high-volume and institutional investors.

This is most evidential in the ICO sphere. When ICOs first became popular during the cryptocurrency boom of late 2017, they were most often open to anyone that wanted to participate. Now, ICOs are increasingly conducted as limited private sales that are only open to accredited investors and some individuals with close connections to the company.  Perhaps the most famous example of this is the massive Telegram ICO that took place earlier this year.

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These ICOs often don’t have any public sale component at all–if retail investors are interested in purchasing a particular coin, well, they’ll just have to wait until it’s listed on a public exchange.

A growing number of exchanges are offering trading options that are specifically geared toward institutional investors. While the growth in the amount of cryptocurrency-based hedge funds has subsided, they are still an object-of-interest for investment firms and trading managers seeking to expand their offerings. Additionally, increased AML and KYC requirements may have locked certain lower-income investors from developing countries out of some trading platforms completely.

All Hope is Not Lost

The bottom line is this: throughout 2018, the cryptocurrency investing world has turned more and more toward institutional investors, and further and further away from retail investors.

Additionally, the epic downturn that cryptocurrency markets have faced over the last year has caused some retail investors who may have been more interested in investing when the markets were “hotter” to turn away from crypto. Some retail investors who may have been willing to overcome the technical obstacles necessary to invest in cryptocurrency are no longer interested in putting forth the effort.

In the face of this loss of interest from many retail investors, a number of cryptocurrency companies are stepping up their game to attract as many retail investors as possible. Ironically, despite the bear market, cryptocurrency has never been as accessible to retail investors as it is now. There are more educational resources and user-friendly platforms now than there ever have been.

How Important Are Retail Investors?

But how important are retail investors to the crypto markets, anyway? Is it worth it to put effort into building platforms and other resources designed specifically for them?

Despite the fact that markets are low and retail investors have lost some interest, their role in the cryptocurrency markets must not be underestimated.

“Retail investors have been the force behind cryptocurrency’s rise and fall,” said Ken Kavanaugh, co-founder and head of business development at Moon Assist. “A subset of those retail investors, called whales, have been especially instrumental in providing market liquidity as well as triggering run-ups and flash crashes, unfortunately.”

Ken Kavanaugh, Moon Assist.

Paul Puey, CEO of Edge, echoed Kavanaugh’s sentiments in an email to Finance Magnates, explaining that “retail crypto investors play a huge role in comparison to institutional investors of other assets.”

Still, retail investors’ powers are somewhat limited. “Retail investors, on their own, cannot increase the size of the market; and retail traders’ influence will lessen as institutional trading firms commit to trading in what Morgan Stanley earlier this month called the ‘new institutional investment class’. However, as is the case throughout history regarding financial product innovation, institutional investors will drive the mass adoption of the new asset class which then lures ‘main street’ retail investors on a larger scale.”

Now that markets are down and competition for retail investors is higher than ever, who exactly should these platforms be targeting in terms of new customers?

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“People that do not have access to investment opportunities in general are very likely to join the crypto investment demographic,” said Puey.

Paul Puey, Edge.

“People that could not have a bank account or access to an Etrade-type service. This demographic has been locked out of any form of investment, so crypto presents a rare opportunity for them.” Indeed, users in chronically underbanked regions of the world have been identified as groups with serious potential for cryptocurrency adoption.

“Also, people that would not qualify as ‘accredited investors’ are a large target demographic,” Puey explained. “Non-accredited investors have only been able to participate in post-IPO stocks for investment which limits their exposure to higher risk, higher returns. Crypto offers them the chance to add a high risk, high reward asset to their portfolio.”

Kavanaugh added that millennials are an important target group for crypto companies as well. “The predominant demographic group to actively trade has been millennials and their interest should continue as it fits with their overall financial pattern,” he said.

“But as institutional investors drive the adoption of cryptocurrencies, ‘main street’ retail investors will follow. And by ‘main street,’ I’m referring to the same set of traders who already invest online in equities. Think Schwab, E*TRADE, TD Waterhouse customers,” he added.

Chris Kline, Co-Founder & COO of Bitcoin IRA, told Finance Magnates that a study conducted by his company found that some baby boomers are even interested in crypto. “While we found that Millennials are the most bullish about cryptocurrency, a full 48% of Baby Boomers believe that alternative assets had the greatest potential for aggressive growth. In addition, a quarter of Boomers believed that cryptocurrency will eventually be as widely accepted as cash is today.”

Chris Kline, Bitcoin IRA.

“So while Millennials are more open to investing and should be a target, companies are foolish to ignore their older customers,” Kline concluded.

(Successfully) Attracting Retail Investors

What exactly are retail customers looking for when it comes to cryptocurrency trading services? And which companies are doing the best job of offering them?

“Coinbase was one of the first to offer a ‘fiat onramp’ and, by offering a limited menu, it made the buying process simpler by reducing the number of decisions,” Kavanaugh explained. However, he believes that changes in the crypto markets have made a lack of options more of a hindrance than a help. “Now, it takes more than a few tokens and basic buy & sell orders to do well,” he said.

At his own company, Moon Assist, “we’re attracting retail investors through education, such as adding well-known crypto trader personalities, so they know what advanced tools are necessary to compete and by giving them the flexibility to trade where they want (Coinbase, Binance, Bittrex, and more) with one single sign-on and a consistent user experience.”

Moon Assist’s educational offerings are in line with a growing number of educational resources offered by a number of crypto trading platform, including Coinbase, which announced that it would be launching “educational asset pages” in the future.

What else do traders want? It really seems to come down to ease-of-access: platforms that are available anywhere, that aren’t difficult to use, that offer lots of options and customer support.

Seems pretty simple, right? And simple it may be–but surprisingly, most crypto trading platforms are really just arriving at this point. Had there been more easy-access crypto trading platforms during the crypto boom of 2017, crypto may not have just gone to the moon–it might have reached all the way to Mars. Now that the markets are down, we can hope that the growing number of accessible platforms will contribute to a stable, profitable future for all investors.

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