The overall market capitalization of the cryptocurrency market surged past $1.55 trillion on December 5, driven by incredible weekly gains of 14.5% for Bitcoin (BTC) and 11% for Ethereum (ETH). Notably, this milestone, which marked its highest level in 19 months, pushed Bitcoin past Meta’s market capitalization of $814 billion to become the world’s ninth-largest tradable asset.
Despite recent strong momentum, analysts have observed that retail demand remains relatively stagnant. Some attribute this to the ramifications of an inflationary environment and lower interest rates on credit as interest rates remain above 5.25%. Analyst Rajat Soni’s post may have dramatized the situation, but essentially the fundamental facts remain true.
Individual investors don’t care. #Bitcoin.
I am more worried about whether I will be able to pay rent or eat food.
They’ll likely start getting interested around the next high (around 2025, IMO) and will likely have FOMO before then.
— Rajat Soni, CFA (@rajatsonifnance) December 2, 2023
Numerous U.S. economic indicators, including wages, salaries and household net worth, hit record highs. But analyst Ed Yardeni suggested a “Santa Claus rally” may have already occurred earlier this year, with the S&P 500 up 8.9% in November.
The rise reflected reduced inflationary pressures and robust employment data. But investors remain cautious, with about $6 trillion worth of “dry powder” sitting in money market funds.
Have retail traders missed the recent rally in Bitcoin and Ethereum?
Since there are no reliable metrics to track retail engagement in cryptocurrencies, conclusions require a comprehensive data set that goes beyond relying solely on Google Trends and cryptocurrency-related app download rankings. It is important to match indicators across a variety of sources to determine if retail traders have missed a rally.
The Tether (USDT) premium in China serves as a valuable gauge of retail demand in the cryptocurrency market. This premium quantifies the difference between P2P USDT transactions relative to the Yuan and the value of the US Dollar. Excessive buying activity typically puts upward pressure on premiums, while bear markets often see USDT flowing into the market, resulting in discounts of 3% or more.
On December 5, the USDT premium against the Yuan reached 1%, a slight improvement compared to the previous week. However, it still remains in the neutral range and has not crossed the 2% threshold for over half a year. Whether retail flows are towards Bitcoin or altcoins, China-based investors will primarily need to convert cash into digital assets.
If you pay attention to Google Trends, searches for ‘buy bitcoin’ and ‘buy cryptocurrency’ show a stable pattern over the past three weeks. There is no definitive answer to what is sparking the interest of new retail traders, but these questions generally revolve around how and where to buy cryptocurrencies.
In particular, the current 90-day index is at about 50%, showing no signs of recent improvement. This data may seem counterintuitive considering that Bitcoin has surged 53% over the past 50 days, while the S&P 500 has risen 4.5% over the same period. Importantly, over a longer period of time, current search levels remain 90% below 2021’s all-time high.
Related: Why Is Bitcoin Price Up Today?
Finally, it is important to take a closer look at the derivatives markets, especially perpetual futures, a favorite of retail traders. Also known as an inverse swap, this contract features an implied interest rate that occurs every 8 hours. A positive funding ratio means that buyers (buyers) demand more leverage, while a negative ratio means that sellers (sellers) seek additional leverage.
Weekly funding rates for most coins fluctuate between 0.2% and 0.4% per week, meaning there is a slightly higher demand for leverage on long positions. However, during bullish periods, this indicator can easily exceed 4.3%, which is currently not the case for any of the top seven coins in terms of futures open interest.
Currently, the influx of retail players in this cycle remains elusive. This is especially true in terms of new entrants, who are showing excessive optimism. While some analysts point to the trend in the Coinbase app, it is important to consider that Binance is currently under investigation by regulators and founder Changzeng Zhao is facing potential legal issues. As a result, existing retail traders may have migrated to Coinbase from overseas exchanges rather than ushering in a new wave of cryptocurrency enthusiasts.
This article is written for general information purposes and should not be considered legal or investment advice. The views, thoughts and opinions expressed herein are those of the author alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.