Retail investors grow weary of cryptocurrency as institutional interest grows

As the so-called “crypto winter” extends into the fall, retail investors may be starting to lose their patience with digital assets.

Only 21% of Americans feel comfortable investing in cryptocurrencies, according to a recent survey from Bankrate.com. That’s down from 35% in a similar study conducted in 2021.

The change comes as the cryptocurrency market as a whole continues to struggle. The largest assets, bitcoin and Ethereum, have fallen about 70% from their highs, Bankrate reported. Rising borrowing costs resulting from the Fed’s increases in interest rates have sapped some of the liquidity that much of the crypto sector relies on.

The numbers are starker when examined by age demographics. Millennials’ comfort with cryptocurrency investing fell the most, from 49% in 2021 to just 29% in 2022, while Gen Xers went from 37% to 21%. Baby boomers are more skeptical of digital assets than ever, with comfort falling from 21% to 11%.

“Cryptocurrency is a high-risk game where you could lose most or all of your money, regardless of what age you are,” James Royal, an analyst with Bankrate.com, said in a statement. “Given the massive declines in cryptos in 2022, it’s little wonder that millennials — indeed, all major age groups — have become less comfortable with it.”

Generation Z investors weren’t surveyed in 2021, but in 2022 they remain the most confident about cryptocurrencies, with 34% reporting that they feel comfortable with investing in the asset class.

Bankrate’s survey reinforces data compiled by Nicholas Colas of DataTrek Research showing general interest in cryptocurrency has started to wane. Google searches for bitcoin trended lower as the asset fell below $20,000 this year.

It also matches what some financial advisers are noticing among their clients.

“Anecdotally, boomers who were least interest [in cryptocurrency] are even less interested,” Chris Chen, a wealth strategist with fee-only financial planning firm Insight Financial Strategists, said in an email to InvestmentNews. “Gen X and millennials are confused, or they don’t know what to think.”

Blake Jones, founder of Pomegranate Financial, said some clients are trying to hold on to digital assets or even invest more, but the ones who are feeling less enthusiastic are those who were impacted by companies like Celsius going bankrupt.

“Those crypto investors are frustrated and leaving with a sour taste in their mouth,” Jones said in an email. “Crypto investors with lower income or higher liquidity needs are also less enthusiastic because they’ve had to sell their crypto to get funds for emergencies or other short-term purchases.”

However, this hasn’t done much to hamper financial institutions’ plans to incorporate digital assets into their businesses. For example, Northern Trust last week announced new leadership within its digital assets and financial markets group, appointing Michael Buzza as global head of network management and market strategy to accelerate the development of the firm’s traditional and digital asset capabilities. Northern Trust was unable to immediately respond to a request for comment.

Binocs, a crypto tax reporting app, closed a $4 million fundraising round last Thursday. Two days earlier, Nasdaq established a new digital assets business, and Venn, a portfolio analytics fintech, partnered with Coin Metrics to provide financial advisers with data on digital asset returns.

Separate research from Nickel Digital Asset Management, a London-based digital assets hedge fund manager, found that despite trepidation among retail investors, institutional investors and wealth managers are becoming more optimistic about the crypto market. A study of 200 professional investors across seven countries found that two out of three believe the crypto winter is either over or has less than six months to run.

While the investors surveyed expect some continued volatility, one-fifth think cryptocurrency valuations will start to rise over the next six months.

But that doesn’t mean everyone is starting to recommend cryptocurrencies to clients.

“I know some very smart people who feel passionately about the long term future of digital assets, whether we’re talking about crypto currencies or NFTs, but as an adviser whose clients are primarily Gen-X women without current exposure to them, this isn’t a topic that comes up much,” Alina Fisch, founder of Contessa Capital Advisors, said in an email. “I would probably not incorporate cryptocurrencies into a plan unless a client was proactively asking for it and/or until I feel more comfortable with the level of real-world usage, compared to the more speculative nature of the market now.”

[More: SEC’s Gensler continues push to crack down on crypto rule-breakers]

Related Topics: Nasdaq, Northern Trust