Retail Fervor is Returning to Crypto, But It’s Nothing Compared to the Stock Market

As bitcoin extends its historic rally that saw the largest digital currency gain more than 300% in 2020, social media metrics suggest that retail investor interest may be at an all-time high. 

Google searches for “bitcoin,” once a common indicator of retail sentiment, are about half as common today as they were three years ago, according to Google Trends data. However, search data may not be as reliable as it once was.

“2017 was a year where Bitcoin became a large enough asset and received enough media coverage to become a household name, causing a big spike in search activity,” said Lyn Alden, founder of Lyn Alden Investment Strategy. “Since then, most people have heard of it, even if they don’t understand it and haven’t looked into it deeply.” 

Today, those looking to gauge retail sentiment look toward a different source: tweets. There were over 11.1 million tweets about bitcoin in 2020, compared to 9.7 million in 2019, according to data from a recent eToro report. 

Crypto-Twitter is certainly not a new phenomenon, but firms have only recently begun to consider the data. 

New-Zealand based research group Brave New Coin (BNC) launched the “Twitter Sentiment” metric earlier this month. The algorithm analyzes tweets containing words related to bitcoin. Sentiment, as measured by social media, is a “significant factor” in the price and momentum of digital assets, BNC said in the launch announcement. 

Source: eToro Report

The Enthusiasm Has Spread Beyond Retail

The retail sentiment appears to be backed by institutional investors, who recently have shown greater interest in gaining exposure to digital assets. 

According to a recent survey of fund managers from Bank of America worth a combined $561 billion, Bitcoin has replaced going long U.S. tech stocks as the most crowded trade in finance.

The survey reported that Bitcoin has surpassed big tech in capital inflows, meaning “long Bitcoin” is now more popular than “long tech,” marking the first time long tech has been knocked from the top position since October 2020. The poll does not necessarily mean that fund managers are holding more Bitcoin, but it is indicative of Wall Street’s increasing enthusiasm about digital assets. 

“If Bitcoin does continue to have a strong 2021 performance, it could very well end up on that survey as the most crowded trade for multiple months in a row, because that’s how momentum works,” said Alden. 

Bitcoin has, somewhat surprisingly, remained relatively stable in recent days despite widespread volatility in the stock market.  The subreddit WallStreetBets has caused stocks like GameStop and AMC to sky-rocket, causing an immense amount of pain for some short sellers.

The chicanery has highlighted systemic problems with financial markets.  Robinhood caused outrage earlier this week by banning the buying of GameStop and AMC, leading some to speculate that Citadel, with whom the firm has close commercial ties, pressured them. 

“It’s clear that the general public is beginning to think about the benefits of decentralized alternatives in tech and finance and I think retail investors are starting to allocate accordingly,” said Tyler Whirty, founder of HODLpac and investor at the Takoma Group.

“There is now a direct line between what happened with Gamestop’s stock and crypto networks: you can’t shut down a decentralized exchange to benefit the rich. Retail money is being empowered by information and collaboration on the internet and, as a result, is moving from passive to active investing, I imagine a lot of it will end up in crypto.”