Retail investors have played an essential role in the rise of cryptocurrencies. Despite numerous collapses and risks, retailers continue to hold crypto. But sometimes, at a high cost and loss.
‘Retail investors’ refers to individual investors who buy and sell cryptocurrencies for their investment portfolios. In traditional finance (TradFi), retail investors are called ‘Main Street’. Comparatively, professional and institutional investors are known as ‘Wall Street’.
In cryptocurrency retail investors have been instrumental in driving demand and often lured by the seduction of ‘moonshot’ returns from crypto’s decentralized freedom of access by anyone with an internet connection.
This has led to increased adoption and acceptance helping establish crypto as a viable alternative asset class to traditional currencies. Considering, Bitcoin retail supply surged 17 percent, approximately 3.57 million in Dec. 2022. Last year, the market witnessed multiple collapses, such as FTX. Nevertheless, retailers were undeterred. This is according to on-chain research firm Glassnode shared by an analyst.
At the same time, the proportion of female crypto investors increased from 24% in the first quarter of 2022 to 34% in the fourth quarter of 2022. These instances showcase retailers’ faith in the cryptocurrency sector.
In addition, retail investors have played a significant role in developing the crypto ecosystem. Many retail investors are also developers, entrepreneurs, and enthusiasts, actively involved in building new blockchain-based applications and services. Their contributions have helped to expand the use cases for cryptocurrencies and created new opportunities for investment and innovation.
Retailers Have Suffered Over the Years
However, it’s important to note the involvement of retail investors has also brought censure. Notably increased volatility and risk to the cryptocurrency market. As more people have become involved in trading cryptocurrencies, there have been more significant price fluctuations and increased vulnerability to fraud.
The said cohort faced challenges and losses in the past due to the collapses of various financial institutions and markets. One notable example is the global financial crisis of 2008, which destroyed several large financial institutions and caused significant losses for many retail investors. Many investors lost their life savings and retirement funds as the stock market plummeted, and the value of many securities and financial products declined sharply.
Other examples of economic collapses that have affected retail investors include the bankruptcy of Enron in 2001 and the failure of Lehman Brothers in 2008. These events demonstrated the risks and potential pitfalls of investing in the financial markets. Most notably, those needing 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 broader blockchain ecosystem.
Gracy Chen, the Managing Director of Bitget, spoke exclusively with BeInCrypto at the Dubai Blockchain Life 2023 event. Here she highlighted retail investors’ involvement in crypto and shared a few narratives to safeguard the cohort.
Ongoing Trends for Retail Traders
Chen asserted that the retail investment trend had progressed from where it was eight years ago. ‘Product-level updates are essential in shaping today’s retail investor trends. First, the emergence of stablecoins has added an anchor to fiat currencies, which is also the cornerstone of various derivative products. The emergence of perpetual contracts has further increased the stability and liquidity of crypto prices,’ she stated.
Further added:
“For traders, perpetual contracts are an easy way to take a leveraged position in a given market with no expiration date. In addition, investors can take advantage of the perpetual funding rate to earn interest while minimizing the risk of the underlying asset. The lowering of the investment threshold and the simplification of products enable more investors to participate in trading crypto, which the market could not provide eight years ago.”
Additionally, crypto exchanges are playing a part in safeguarding and educating retailers. Bitget is no different. Platforms such as Bitget Academy, offer blockchain, crypto, and trading education through in-depth guides, practical tips, and market updates. Similarly, BeInCrypto offers an educational resource too.
Protecting Customers’ Funds and Cryptos
While the space and holders have relatively matured, hacks and collapses lead to losses amounting to millions. Therefore, crypto exchanges must have a system to protect users’ funds. This can come in different initiatives. For instance, Bitget launched a $5 million builders’ fund to assist affected partners, increased Bitget Protection Fund to $300 million with transparent wallet addresses, and guaranteed no withdrawal for three years.
“The next thing we worked on was our Proof-of-Reserves. We have developed an internal verification tool, “Merklevalidator,” with free access to open-source codes on GitHub. Not only showing reserve status as a whole in the company, users can also verify their account’s proof of reserves with the tool. Proving our exchange reserve to users’ assets is at least on a 1:1 ratio.”
On a more general front, Crypto exchanges should have several security measures in place to protect users’ funds and cryptocurrencies.
Standard Security Measures
- 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 credentials.
- SSL Encryption: SSL (Secure Sockets Layer) is a protocol to encrypt the communication between the user’s device and the exchange’s servers. This prevents unauthorized access to the user’s information and reduces the risk of data breaches.
- Cold Storage: Most crypto exchanges store the majority of user funds in offline wallets, which are not connected to the internet. This makes it difficult for hackers to access users’ funds remotely.
- Multisignature Wallets: Multisignature wallets require multiple signatures from different individuals to initiate a transaction. This adds an extra layer of security and makes it more difficult for hackers to access users’ funds.
- Regular Audits and Penetration Testing: Crypto exchanges typically hire third-party security firms to conduct their systems’ regular audits and penetration testing. This helps identify vulnerabilities and ensure the exchange’s security measures are effective.
- Insurance: Some exchanges may offer insurance to their users to protect against losses due to theft or hacking.
- Regulatory Compliance: Many crypto exchanges are subject to regulatory oversight, which requires them to implement specific security measures to protect their users’ funds and data.
What Does the Future Look Like?
Retailers have an important role to play in the crypto domain. It is essential for retail investors to carefully consider the risks and potential rewards of any investment opportunity and to seek professional advice if needed. Diversification and a long-term investment strategy can also help mitigate some risks associated with investing in the financial markets.
Global cryptocurrency holders account for about 4.20% of the population, with over 400 million cryptocurrency users in total. The overall market size is still relatively small. On the contrary, the cryptocurrency market infrastructure has been continuously improving, with increasing centralized and decentralized platforms providing users with a wide range of investment, trading, and cryptocurrency usage options. Usage of Dapps (Decentralized apps), including DeFi, NFTs, gaming, and social are becoming increasingly diverse with more industries getting involved in web3.
The underlying performances of existing chains are also enhancing, and more and more retail investors will be inclined to participate in the cryptocurrency market. “In the next 5-10 years, we expect exponential growth in the number of retail investors in the Web3 space,” Chen concluded.
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