Those investors who arrived recently to crypto investing are feeling anxious, especially if they bought in during 2021 when Bitcoin and Ethereum were reaching dizzy all time highs. Since then the market has dropped by around 50%. Market commentators worried that new retail investors might be lost forever because of this. Eben Burr, president of Toews Asset Management told Reuters, “If the market decline continues, it will become too painful and retail investors will bail.” However, that doesn’t appear to be the case, especially with the youngest retail investors.

According to Callie Cox, investment analyst at eToro in the USA, the current correction hasn’t deterred the younger investors: “We surveyed 1,000 investors across age groups in March, and 58% of investors ages 18–34 thought Bitcoin would present the best buying opportunity in crypto over the next three months.”

This is surprising, given that Glassnode reported that in May 40% of Bitcoin holders were underwater on their investments at a time when BTC was $33,800. So, are younger investors still as optimistic as they were in March? Bobby Zagotta, CEO of Bitstamp USA, said, “Retail traders between 35-45 years old decreased their crypto balances amid market volatility in the last few weeks. By contrast, our younger users seem to be more bullish and have chosen not to sell.” 

Younger people are more optimistic

Is this because younger people are generally more optimistic? A 2021 research study on crypto investors’ beliefs, found that “younger individuals with lower income are more optimistic about the future value of cryptocurrencies, as are late investors.” Cristina Guglielmetti, financial adviser and president of Future Perfect Planning discussed first-time retail investors with Cointelegraph, saying: “The clients I have who own cryptocurrency haven’t really sold their holdings from last year to this year. They’re looking at it more as an educational experience and not assigning an expected return per se. They’re expecting it to be speculative and very volatile.”

Another question on some minds is whether the market can attract new investors. Bobby Zagotta said, “Headlines might have you believe that there’s more volatility than there really is and that investors are fleeing when prices fluctuate. But, that’s not really happening.” Etoro’s Cox added that 42%  percent of investors surveyed by eToro in March said they don’t buy crypto because they simply don’t know enough about it: “But, the appetite for decentralization and digital transformation is still there, especially among younger investors.” She believes the reason for this is “younger investors naturally have higher risk appetites, and they’ve seemed willing to stomach these swings because of their longer-term optimism about the technology.” Ultimately, Cox says, “We haven’t seen investors abandon the crypto space en masse, but we have seen them become more selective of what crypto they buy.”

As the crypto markets experience a sharp sell-off, it is pleasing to note that not everyone is suffering from extreme pessimism. In an opinion piece for Coindesk, Michael J. Casey, a respected commentator on the market, argues that this is nothing like the events of 2018, despite the slump.

Certainly, 2021 was a boom year that “generated overblown prices” for tokens, whether fungible or non-fungible. However, Casey points out something very important: “In many ways the building and problem solving that followed the 2018 meltdown has served us well. It meant the speculation behind the most recent boom was built on a more established foundation than in 2017.” And while crypto is not yet anywhere near being mainstream, it’s an awful lot closer to that goal than it was in 2017-18. There is a feeling that it is here to stay, and “that’s why this crypto winter feels less brutal” Casey says.

He suggests there are six reasons to say, “this time is different,” which may also give cause for cautious optimism.

1. Layer 2 scaling is a reality

From the Lightning Network to DeFi apps, cryptographic advances have over the past three years gone from concept to deployment. This means we’re closer than ever to seeing the scalability that will bring mainstream adoption.

• The success of permissionless projects

Recent crypto success stories are concentrated among permissionless projects open to any participants. DeFi, non-fungible tokens (NFTs) and decentralized autonomous organizations (DAOs) are where money is being made. As Casey says, “Users are finding value in blockchain technology’s most disruptive, paradigm-changing promises rather than in incremental adjustments to existing business models.”

• Institutions and corporates are in

Thousands of mainstream firms are experimenting with NFTs and social tokens, especially those in entertainment, fashion, media and gaming. Plus, the engagement in crypto among hedge funds, family offices and even pension funds has surged last year, and even if they have sold off some of their crypto holdings recently, “those investments now stand as a base of established infrastructure for handling future transactions.” In other words, institutions etc are not leaving crypto.

• Regulations equal normalisation

Whilst regulations may hamper innovation, they are also a framework for normalizing the industry and for making the general public feel more comfortable with it.

• Don’t blame crypto

In 2017, ICOs fuelled investor mania. This year it is quite different. Indeed, it is the extra fiat money available that prompted the 2021 boom. That surfeit of dollars, euros and yen flowed into risk assets: stocks, commodities, real estate, fine art and, significantly, cryptocurrencies. As Casey says, “Now we’re all paying the price for that as an inevitable inflation problem is prompting the U.S. Federal Reserve to remove the punch bowl.”

• Let it settle

The market will eventually settle. Anyone who has been in crypto for a few years knows this will happen. Casey says, “I think the excessive part of the crypto price rally – the part that took Bitcoin from $30,000 to $65,000 but not that which drove it from $10,000 to $30,000 – was perhaps due to external factors. Once we get to the other side, we will be able to see if future price advances are driven by legitimate crypto-only factors rather than “the risk-on/risk-off whims of a global financial system addicted to central bank largesse.”