Bitcoin has recently eclipsed the $100,000 threshold, yet the number of retail investors engaging in the market has notably declined. This drop can be attributed to psychological factors such as “unit bias” and the rising popularity of spot Bitcoin exchange-traded funds (ETFs).
Market Reaction and Futures Activity
After the recent Federal Open Market Committee (FOMC) meeting, Bitcoin experienced a significant price increase, soaring to an impressive peak of $106,500 on January 30. This upward movement marked a breakout from a descending trendline, enhancing the prospects for continued gains.
Should Bitcoin manage to close above $105,000, it would achieve this milestone for only the third time since it first surpassed the six-figure mark on December 8, 2024.
In response to the FOMC meeting, the Bitcoin futures market quickly reacted, with data revealing that open interest surged by more than $1.2 billion within a mere 24 hours. This boost led to an 8% rise in open interest, culminating in a record high of $65 billion on January 30.
Simultaneously, the aggregated funding rate witnessed a notable uptick, indicating that most new positions taken in the market were bullish. This correlation between price movements and open interest suggests a strong alignment between sentiment and market behavior.
Retail Investor Decline and Unit Bias
Despite the optimistic outlook reflected in the futures market, retail investor interest has noticeably diminished at these elevated prices. According to analysis from Glassnode, spending from wallets holding less than 0.1 BTC has plummeted by 48% since November 2024.
During the peak retail activity in November 2024, spending averaged over $20.6 million per hour, a stark contrast to the current rate of just $10.7 million per hour as of January 30.
Quinten Francois, a cryptocurrency analyst, highlighted how Bitcoin’s rise above $100,000 coincides with the lowest retail engagement levels seen in three years.
A significant reason for the drop in retail investment compared to previous market cycles can be linked to the concept of “unit bias.” This psychological tendency suggests that investors prefer to own whole units of an asset, regardless of its current price. Thus, many individuals may perceive Bitcoin at $100,000 as too expensive to invest in.
Shift Towards ETFs
One anonymous Bitcoin proponent shed light on the mindset of new investors, explaining how this bias shapes their perceptions of value. In 2024, lower-priced cryptocurrencies like XRP attracted interest, leading to unrealistic predictions about their potential worth. Such inflated claims often draw in new investors looking for bargains, especially when compared to Bitcoin and Ether.
The dramatic price increase for Bitcoin in 2024 has mainly stemmed from institutional investments and the advent of spot Bitcoin ETFs. While retail interest has waned since November, data from CoinGlass indicates that the total market capitalization of Bitcoin ETFs has surged from $70 billion on November 5 to $125 billion by January 30—a remarkable growth of 78%.
This trend suggests that many new investors might prefer gaining exposure to Bitcoin through ETFs, which don’t necessitate self-custody, rather than trading on the spot market. Consequently, retail participation may still be occurring, but without the creation of new blockchain addresses, which typically signifies retail activity.
Further reinforcing this perspective, Glassnode reported a notable transfer of Bitcoin from exchanges to ETF custodian wallets, with reserves declining from 3.1 million to 2.7 million over the past seven months. This trend underscores a broader shift among retail investors toward managed investment vehicles, moving away from direct market involvement.
Source: Cointelegraph
