(Bloomberg) -- While cryptocurrency exchange Coinbase Global Inc.’s direct listing was undeniably a watershed moment for Bitcoin, this weekend delivered a harsh refresher on one of the market’s basic tenets: Retail traders are running the show.
A false report from an anonymous Twitter account that the U.S. Treasury was cracking down on crypto money laundering was enough to help send Bitcoin plunging by as much as 15% on Sunday, days after clocking in at a record of $64,870. While low weekend liquidity likely exacerbated the nose dive, the world’s largest cryptocurrency dropped another 3.5% on Monday.
That an erroneous tweet can torpedo prices is a reminder that even for all the talk of Wall Street’s growing embrace of crypto, individual investors have a lot of heft to throw around. That dynamic is especially prevalent on weekends, when traditional trading desks go dark while Bitcoin and other cryptocurrencies continue to change hands. Even as Coinbase’s direct listing marks an important milestone for crypto, for institutions and traders venturing into crypto, learning to live with that volatility is a key first step.
“It’s more an introduction to all the people who had gotten into Bitcoin or crypto over the last week because of Coinbase that crypto markets can be very volatile,” Philip Gradwell, chief economist at crypto data tracker Chainalysis, said by phone. “This is in some sense, nothing new if you’ve been in the industry for a few years.”
Even by crypto standards, sentiment was looking stretched at the end of last week. Bitcoin soared in the lead up to Coinbase’s much-anticipated listing, bringing year-to-date gains to over 118% at one point. That enthusiasm spilled into so-called altcoins such as Dogecoin, which has soared more than 13,000% over the past year.
The moves can be jarring. Roughly $9.3 billion in so-called long Bitcoin future positions were liquidated on Saturday, followed by another $700 million on Sunday, according to data from Bybt.com.
Such a pullback in Bitcoin was “inevitable” given the degree of froth, Galaxy Digital founder Michael Novogratz tweeted over the weekend, adding that “we will be fine in the medium term” as institutions enter the space.
To Mike McGlone, a Bloomberg Intelligence commodity strategist, the recent run-up in Dogecoin is exemplary of retail’s involvement in crypto markets. His plumber told him recently that he’d bought the joke coin. To McGlone, it’s a result of the “perfect storm” of pandemic lock-ups, lots of cash in the system, and investors’ ability to speculate around the clock.
“Markets will never change -- this one is just 24/7 and the easiest to access in history,” he said. It’s “a prime example of just plain gambling for fun -- unless participants lose too much money, notably because they took too much risk at the casino.”
Shifting the power dynamic in favor of the institutions will be the “Holy Grail” for Coinbase, BI analyst Julie Chariell said last week, given that corporations are less likely to dump their holdings as quickly as retail traders. Though individual investors made up just 36% of the exchange’s volume during the quarter ending Dec. 31, more than 90% of Coinbase’s revenue came from retail trades.
Whether the cryptocurrency exchange is successful remains to be seen. But even should Bitcoin carve out a place in portfolios and on corporate balance sheets beyond the likes of MicroStrategy Inc. and Tesla Inc., the weekend will likely still belong to the individual investor.
“The retail investor still dominates the crypto market,” Steven McClurg, CIO at Valkyrie Investments, said in a phone interview. “When you see action like that over the weekend, that’s just when all the institutional traders are asleep or not working.”
©2021 Bloomberg L.P.
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