The future of retail investment in cryptocurrencies looks promising

Retail investors have played a key role in the rise of cryptocurrencies. Despite numerous downfalls and risks, retailers continue to hold onto cryptocurrencies. But sometimes at great cost and loss.

“Retail Investors” refers to individual investors who buy and sell cryptocurrencies as part of their investment portfolios. In traditional finance (TradFi), individual investors are called “Main Street”. In comparison, professional and institutional investors are known as “Wall Street”.

In cryptocurrencies, individual investors have played a key role in driving demand and have often been lured by the seduction of “moonshot” phrases from the decentralized freedom of access to cryptocurrencies by anyone with an internet connection.

This has led to increased adoption and acceptance, helping to establish crypto as a viable alternative asset class to fiat currencies. Taking into account, the retail supply of Bitcoin increased by 17 percent, to about 3.57 million in December 2022. Last year, the market witnessed many crashes like FTX. Still, retailers were not discouraged. This is what research company Glassnode says, shared by an analyst.

Bitcoin supply held by retailers (as of December 2022) Source: Twitter
Bitcoin supply held by retailers (as of December 2022) Source: Twitter

At the same time, the percentage of women investing in cryptocurrencies increased from 24% in the first quarter of 2022 to 34% in the fourth quarter of 2022. These cases show retailers’ faith in the cryptocurrency sector.

In addition, retail investors have played a significant role in the development of the cryptocurrency ecosystem. Many retail investors are also developers, entrepreneurs and enthusiasts, actively involved in building new applications and services based on blockchain. Their contributions have helped expand cryptocurrency use cases and created new opportunities for investment and innovation.

Retailers have been suffering for years

However, it should be noted that the involvement of retail investors has also drawn criticism. Particularly increased volatility and risk for the cryptocurrency market. The more people involved in cryptocurrency trading, the greater price fluctuations and increased vulnerability to fraud.

This cohort has faced challenges and losses in the past due to the failure of various financial institutions and markets. A notable example is the 2008 global financial crisis, which devastated several large financial institutions and caused significant losses to many retail investors. Many investors lost their life savings and pension funds as the stock market plummeted and the value of many securities and financial products plummeted.

Other examples of economic collapses that have affected retail investors include the bankruptcy of Enron in 2001 and the collapse of Lehman Brothers in 2008. These events have exposed the risks and potential pitfalls of investing in financial markets. Primarily those who need a deeper understanding of the complex financial products and strategies involved. Despite the challenges, retail investors continue to play a vital role in the evolution of cryptocurrencies and the wider blockchain ecosystem.

Gracy Chen, managing director of Bitget, spoke exclusively to BeInCrypto at the Dubai Blockchain Life 2023 event. Here, she highlighted retail investor involvement in cryptocurrencies and shared several narratives to secure the cohort.

Current trends for retail investors

Chen asserted that the retail investment trend has advanced from where it was eight years ago. “Product-level updates are essential in shaping today’s trends among retail investors. First, the emergence of stablecoins has added an anchor to fiat currencies that is also the cornerstone of various derivative products. The advent of perpetual contracts further enhanced the stability and liquidity of cryptocurrency prices,” she said.

Further added:

“For traders, perpetual contracts are an easy way to take a leveraged position in a given market with no expiry date. In addition, investors can take advantage of the perpetual funding rate to earn interest while minimizing the risk associated with the underlying asset. Lowering the investment threshold and simplifying the products allows more investors to participate in cryptocurrency trading, which the market could not provide eight years ago.”

In addition, cryptocurrency exchanges play a role in protecting and educating retailers. Bitget is no different. Platforms like Bitget Academy offer blockchain, cryptocurrency, and trading education through in-depth guides, practical tips, and market updates. Similarly, BeInCrypto also offers educational resources.

BeInCrypto Academy Source: BeInCrypto
BeInCrypto Academy Source: BeInCrypto

Protection of customer funds and cryptocurrencies

While space and occupants have matured relatively, break-ins and collapses lead to losses amounting to millions. Therefore, cryptocurrency exchanges must have a system to protect user funds. This can manifest itself in various initiatives. For example, Bitget launched a $5 million construction fund to help interested partners, increased Bitget’s protection fund to $300 million with transparent wallet addresses, and guaranteed no withdrawals for three years.

“The next thing we worked on was our Proof-of-Reserves. We have developed an in-house verification tool “Merklevalidator” with free access to open source codes on GitHub. Users can not only view the reserve status as a whole in the company but also verify the proof of reserves in their account with this tool. Proving that our exchange reserve to user assets is at least a 1:1 ratio.”

More generally, cryptocurrency exchanges should have several security measures in place to protect users’ funds and cryptocurrencies.

Standard security measures

  1. Two-factor authentication (2FA): Two-factor authentication adds an extra layer of security to user accounts by requiring users to enter a second factor, such as a unique code sent to their phone or generated by a specialized app, in addition to their login authentication.
  2. SSL encryption: SSL (Secure Sockets Layer) is a protocol used to encrypt communication between the user’s device and the exchange’s servers. This prevents unauthorized access to your information and reduces the risk of data breaches.
  3. Cold Storage: Most cryptocurrency exchanges store the majority of user funds in offline wallets that are not connected to the internet. This makes it difficult for hackers to access users’ funds remotely.
  4. Multi-signature wallets: Multi-signature wallets require multiple signatures from different people to initiate a transaction. This adds an extra layer of security and makes it harder for hackers to access user funds.
  5. Regular Audits and Penetration Testing: Cryptocurrency exchanges typically hire third-party security companies to conduct regular audits and penetration testing of their systems. This helps identify vulnerabilities and ensure the effectiveness of the exchange’s security measures.
  6. Insurance: Some exchanges may offer their users insurance to protect against losses due to theft or burglary.
  7. Regulatory Compliance: Many cryptocurrency exchanges are subject to regulatory oversight, requiring them to implement specific security measures to protect user funds and data.

What does the future look like?

Retailers have an important role to play in the crypto domain. Retail investors must carefully consider the risks and potential benefits of each investment opportunity and seek professional advice if necessary. Diversification and a long-term investment strategy can also help mitigate some of the risks associated with investing in the financial markets.

Global cryptocurrency holders account for approximately 4.20% of the population, with a total of over 400 million cryptocurrency users. The overall size of the market is still relatively small. On the contrary, the infrastructure of the cryptocurrency market continues to improve, with a growing number of centralized and decentralized platforms providing users with a wide range of options to invest, trade and use cryptocurrencies. The use of Dapps (decentralized applications), including DeFi, NFT, gaming and community, is becoming more and more diverse, with more and more industries getting involved with web3.

Future Expectations for Cryptocurrencies Source: Bitstamp
Future Expectations for Cryptocurrencies Source: Bitstamp

The underlying performance of existing networks is also improving, and more and more retail investors will be willing to participate in the cryptocurrency market. “We expect retail investors to grow exponentially in the Web3 space over the next 5-10 years,” concluded Chen.


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