Bitcoin prices have risen almost 70% in the fourth quarter of 2023 and the crypto market is recovering, marking the return of small retail investors. However, retail investors, who lost billions of dollars in the 2022 market crash, are entering more slowly and cautiously this time, compared to the 2021 bull market, according to a Bloomberg researcher. report.
Venture capital funding in crypto and blockchain startups also registered a 2.5% increase in the fourth quarter of 2023, after six quarters of continuous decline, according to a Pitchbook report.
Retail traders want to be part of the bull market
According to the Bloomberg report, cryptocurrency exchange Coinbase has seen its net revenue from customer transactions increase 60% in the fourth quarter of 2023 compared to a year ago. Compared to Q3 2023, net sales increased by 80%.
This is because retail trading volume on Coinbase increased 164% in the fourth quarter of 2023 compared to the previous quarter. Growth in retail trading volume exceeded that of institutional trading volume, which grew 92% in the fourth quarter.
Retail trading on Coinbase also made up a larger share of total trading volume: 19% in the fourth quarter compared to 14% in the third quarter. However, it is still well below the 28-40% range recorded during the previous bull market.
Robinhood Markets reported a similar trend, with notional crypto volumes rising 242% in December compared to a year ago.
Retail investors are returning to the market as Bitcoin prices cross the $50,000 mark for the first time in two years and Bitcoin’s upcoming halving. Historically, Bitcoin halving, when mining rewards are cut in half, leads to “increased retail engagement and growth,” Coinbase CFO Alesia Haas told Bloomberg.
Alyssa Choo, crypto stock specialist at BitInvest, noted in a after on X:
“As crypto market capitalization and trading volumes rise, so does retail sales. Everyone wants to be part of the bull market.”
Google searches for the term “Bitcoin,” which Wall Street analysts say indicates retail interest, increased in January when Bitcoin exchange-traded funds (ETFs) launched in the US. However, Google Trends shows that searches have fallen back to market levels, indicating that retail investors are not diving headfirst into the market.
Kyle Doane, a trader at Arca, an institutional asset management firm, told Bloomberg:
“There are signs that the retail crowd is starting to come back into the market, but nowhere near the magnitude of the last bull market.”
Things are starting to go well for crypto startups
Crypto and blockchain startups raised $1.9 billion from 326 deals in the fourth quarter of 2023, marking the first growth in crypto finance in a year and a half. Despite only being a “small percentage,” the Pitchbook report says this could mean it will be easier for startups to raise money in the coming quarters.
Negative news around major crypto exchanges such as Binance and FTX and the bear market caused venture capital in crypto to dry up significantly over the past year and a half. A series of bankruptcies, including FTX, and Binance’s historic $4.3 billion settlement shook the market.
However, centralized exchanges still offer the lowest barrier to entry and a better user experience. That’s why investors are still “optimistic” about it, the Pitchbook report said.
Although the amount invested in the startups increased, deal volume fell by 2.4% last quarter.
Crosschain bridging protocol Wormhole signed the largest deal in the fourth quarter, raising $225 million early from Coinbase Ventures, Jump Trading and ParaFi Capital.