Crypto assets lead a new generation of retail investors

Since the global stagnation caused by the coronavirus pandemic, momentum trading driven by retail investors seems to have a new life. Celebrity challenges have dominated the viral trend on social media, and issues related to personal finances and investments seem to be popular recently.

As crypto assets rebounded sharply from the downturn that occurred during the crash of “Black Thursday” on March 12, 2020, the interest of office workers in the financial market has also spread to the field of crypto assets.

Although interest is conceivable, some gatekeepers question whether the new generation of retail investors have enough knowledge to invest in high-risk assets. But has personal financial management and investment become a new fashion trend?

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Trading apps like Robinhood and Coinbase have recently become the most downloaded apps in the Apple App Store, surpassing popular social media services such as TikTok and Instagram. Given the influence of social media on popular culture in the past decade, investment apps have seen the largest number of downloads, which may indicate that people’s interests are shifting, especially among young people.

According to a survey published by American investment giant Charles Schwab (Charles Schwab), 15% of current retail investors in the United States will start investing in 2020. In fact, the US brokerage industry is estimated to add 10 million new customers in 2020, and the retail trading application Robinhood accounts for more than 60% of the total.

The retail investment boom in 2020 can be attributed to two factors: market volatility and the coronavirus. As the global economy is almost stagnant, governments of various countries are trying to stimulate economic growth and recovery by injecting large amounts of cash in the form of stimulus plans.

According to Charles Schwab’s survey, Millennials and Generation Z constitute the majority of the novice investor class generated in 2020. In fact, millennials accounted for more than half of the participants, and they said they entered the asset market during the COVID-19 pandemic. Jonathan Craig, senior executive vice president and head of investor services at Charles Schwab, told Cointelegraph:

“In the past year, due to lower transaction costs, easier access to new products and services, and investment opportunities brought about by market volatility, we have seen tremendous growth and participation of individual investors”

Perhaps it is the fear of inflation and currency devaluation, and more retail investors seem to be keen to ensure proper hedging against economic uncertainty. In a conversation with Cointelegraph, Jay Hao, CEO of crypto asset exchange giant OKEx, believes that the COVID-19 pandemic is an important trigger for the current surge in retail investment, adding:

“Because of the Fed’s large-scale injection of funds into the market to rescue the U.S. economy last year, this pandemic may accelerate the adoption of crypto assets. As more platforms have granted retail investors the right to invest directly in stocks, we see room for investment. Democratization and more power in the hands of the people.”

The coronavirus continues to have a significant impact on personal finances, from salary cuts to vacations, and even direct loss of jobs. Therefore, it may not be surprising to see more people start to motivate themselves to build emergency income sources outside of the traditional nine-to-five structure.

Put crypto assets into the mix

As mentioned earlier, Robinhood accounted for more than 60% of new investors in U.S. brokerage firms in 2020. This number puts the retail trading platform in a suitable position to determine the novice investment trend during the last year.

According to a blog post on the company’s website in early April, the trading platform claimed that its customers are leading the way in demographic changes in financial markets. In the above-mentioned Charles Schwab survey, the investment giant referred to this new class of investors as “a generation of investors”, or the first generation.

The median age of the first generation is 35 years old, which once again puts Millennials and Generation Z at the core of this investment demographic shift. Many surveys also regard this specific age group as the age group most interested in crypto assets, as Hao said:

“Crypto assets may be one of the first financial instruments that attracted the attention of millennials. They have the ability to further stimulate the vitality of the market. From popular TikTok accounts to memorable crypto asset marketing, these communities and the complexity of their actions It brings new user behavior scenarios to alternative currencies.”

Earlier in April, the crypto asset exchange OKEx and the blockchain analysis service Catallact published a joint research report showing the impact of retail interest in the crypto asset market. According to the report, in the first quarter of 2021, retail activity in the Bitcoin (BTC) market exceeded that of institutional players.

With such growth in retail crypto asset trading activity, Robinhood reports that in the first quarter of 2021 alone, 9.5 million customers have traded crypto assets on its platform. This number represents six times the number of customers the company recorded in the fourth quarter of 2020.

Other investment and payment services have also begun to join crypto-asset customers to take advantage of the current retail trading boom. Venmo and PayPal have broken their previous anti-cryptographic assets and adopted a more friendly approach to digital assets among potentially huge sources of income.

Outside the United States, the recovery of retail crypto asset trading has greatly affected South Korea’s financial markets. Companies investing in crypto asset exchanges are experiencing massive stock price growth. K Bank is the main banker of Upbit, one of South Korea’s largest crypto asset exchanges, and its fortunes have undergone a sharp reversal. The bank has recovered from a loss of US$89 million recorded in 2019 and may pursue a public listing within a year.

What about financial knowledge?

In February of this year, Thailand’s Finance Minister Arkhom Termpittayapaisith expressed regret for the speculative investment in crypto assets that emerged from retail investors in the country. At the time, the government official warned that this trend could have a terrible impact on the country’s capital markets.

The Minister of Finance in Thailand is not the only one who supports this view, because similar statements have appeared from government officials and financial regulators around the world. In January 2021, the Financial Conduct Authority of the United Kingdom warned that investors in crypto assets could lose all their money due to the high level of risk in the market.

In addition to volatility and other anti-crypto-asset rhetoric, these issuers pointed out that crypto-asset collapses often occur, assuming that retail investors are ignorant of the complexities of the investment market. In fact, when the Securities and Exchange Commission of Thailand tried to introduce investor qualification requirements for crypto-asset investment in February, it was met with a strong counterattack from the Thai crypto-asset community.

Hong Kong is also another jurisdiction that seeks to restrict the retail industry’s participation in crypto-asset transactions because of reports that Hong Kong will implement a comprehensive ban. Like Thailand’s proposal, Hong Kong regulators hope to set a minimum income threshold for crypto asset investment, which could disqualify 93% of the city’s population.

Perhaps there is no more suitable scale for studying financial literacy than the GameStop legend earlier this year. A group of retail investors used the power of social media participation to counter short-selling GME stocks.

Without regulators and seeing stock market gatekeepers unfairly favoring losers’ hedge funds, retail investors on Wallstreetbets might have dragged short sellers to the ground. It can be said that the GameStop incident proved that financial knowledge is not a matter of retail investors, but the undemocratic nature of the traditional financial system.

Charles Schwab’s survey allows us to see the level of financial education and consulting for novice investors. The investment company revealed in its public opinion survey report that about 94% of investors are eager to obtain more information and tools to conduct their own research.

When talking about the investment mentality of novice investors, Andrew Dana, senior vice president of the company’s retail customer experience department, said. “Now that they have set foot in investment, the first generation is eager to continuously learn and develop their strategies to successfully build long-term wealth.”

According to D’Anna, the company’s survey provided evidence that not all first-generation investors took short-term risks for huge gains. On the contrary, the emerging intergenerational changes in financial markets led by millennials and Gen Z are keen to obtain guidance and education to make informed decisions.