Momentum trading, driven by private investors, appears to have been given a new lease of life since the start of the global stagnation due to the ongoing coronavirus pandemic. Where celebrity challenges dominated viral trends on social media, issues related to personal finance and investment seem to be just as popular today.
This growing interest in everyday people’s financial markets has also spread to the crypto space as digital currencies saw a sharp price recovery from the slumps that marked the Black Thursday crash of March 12, 2020.
While the interest is palpable, some gatekeepers are wondering whether the new generation of retail investors has the knowledge to invest in risky assets. But has managing personal finances and investing become a new fashion trend?
COVID-19: Challenge and opportunity
Trading apps like Robinhood and Coinbase have recently become the most downloaded apps on Apple’s App Store, ahead of popular social media services like TikTok and Instagram. Given the impact of social media on popular culture over the past decade, investment apps that see the most downloads may indicate a pivotal point in interests, especially among the younger audience.
According to a study published by US investment giant Charles Schwab, 15% of current retail investors in America started investing in 2020. The US real estate industry is estimated to have added 10 million new customers by 2020, with the retail trading app Robinhood accounting for more than 60 % of the total grade.
The retail investment boom in 2020 can be attributed to two factors: market volatility and coronavirus blocking. With the global economy nearing a standstill, governments sought to boost growth and recovery through significant cash injections in the form of stimulus packages.
Millennials and Gen Z make up the majority of the new investor class created in 2020, according to the Charles Schwab survey. Indeed, millennials accounted for more than half of the number of participants who said they entered the wealth market during the onset of COVID-19. pandemic. Jonathan Craig, senior executive vice president and head of investor services at Charles Schwab, told Cointelegraph:
“We have seen tremendous growth and engagement among individual investors over the past year as a result of lower trading costs, new products and services aimed at greater convenience and accessibility, and the investment opportunities offered by market volatility.”
They may fear inflation and a monetary cut, but more private investors seem keen to secure appropriate hedges against economic uncertainty. Speaking with Cointelegraph, Jay Hao, CEO of crypto exchange giant OKEx, identified the COVID-19 pandemic as a major trigger for the current surge in retail investment, adding:
“The pandemic likely accelerated cryptocurrency adoption as the Federal Reserve pumped massive money into the market last year to save the US economy. […] As more platforms have provided direct access to private investors to invest in stocks, we see a democratization of the investment space and more power in the hands of the people. “
The coronavirus continues to have a significant impact on personal finances, ranging from salary cuts to time off work or even outright job cuts. So it is perhaps not surprising to see more people being incentivized to build emergency income beyond the traditional 9-to-5 structure.
Throwing crypto into the mix
As previously mentioned, Robinhood accounted for more than 60% of the new investors added by US brokerages in 2020. This figure puts the retail trading platform in a suitable position to determine new investment trends from the past year.
According to a blog post on the company’s website earlier in April, the trading platform stated that its clients were at the forefront of the demographic change in the financial markets. In the aforementioned Charles Schwab survey, the investment giant called this new investor class ‘Generation Investor’ or Gen I.
Gen I has a median age of 35, putting Millennials and Gen Z back at the center of this demographic shift in investment. Numerous surveys have also shown that this particular age bracket is most interested in cryptocurrencies, as Hao put it:
“Cryptocurrency is probably one of the first financial instruments to have caught the attention of millennials, who have the opportunity to further vitalize the market. From popular TikTok accounts to memetic crypto marketing, these communities and their sophistication in producing action create a new scene of user behavior for altcoins. “
Earlier in April, crypto exchange OKEx published a joint study with blockchain analytics service Catallact, demonstrating the impact of retail interests on the crypto market. According to the report, retail activity in the Bitcoin (BTC) market surpassed that of institutional players in the first quarter of 2021.
That’s the growth in retail cryptocurrency trading activity that Robinhood has reported that 9.5 million customers traded crypto on its platform in Q1 2021 alone. This figure represents a six-fold increase in the number of customers registered by the company in the fourth quarter of 2020.
Other investment and payment services have also begun onboarding crypto clients to take advantage of the current retail hype. Venmo and PayPal have broken from previously anti-crypto stances to adopt kinder digital currencies amid the potential for massive revenue streams.
Outside the US, a resurgence in cryptocurrency retail has had a significant impact on South Korea’s financial markets. Companies invested in cryptocurrency exchanges are experiencing massive price gains. K Bank, the main banker of Upbit – one of South Korea’s largest crypto exchanges – has seen a sharp turn in fortunes. The bank has recovered from the $ 89 million in losses recorded in 2019, within a year of potentially going public.
What about financial literacy?
In February, Thailand’s finance minister, Arkhom Termpittayapaisith, complained about the increase in speculative crypto investments among retailers in the country. At the time, the government official warned that the trend could have serious consequences for the country’s capital market.
Thailand’s finance minister is not alone in embracing such sentiments as similar comments have emerged from government officials and financial regulators around the world. In January 2021, the United Kingdom’s Financial Conduct Authority warned that cryptocurrency investors could lose all their money due to the high level of risk in the market.
Volatility and other well-worn anti-crypto rhetoric aside, publishers of these cryptocurrency crash threats often point to private investors’ supposed ignorance of the intricacies of the investment market. Indeed, the Thai Securities and Exchange Commission faced significant backlash from the Thai crypto community when it attempted to introduce investor qualification requirements for cryptocurrency investments in February.
Hong Kong is also another jurisdiction that wants to limit retail involvement in crypto trading amid reports of a blanket ban. Like the Thai proposal, Hong Kong regulators want to introduce a minimum income threshold for cryptocurrency investments that could disqualify up to 93% of the city’s population.
There may be no better scale to explore financial literacy arguments than the GameStop saga from earlier this year. A horde of private investors used the power of social media engagement to counter shorting of GME stock.
Aside from regulatory paternalism where stock market gatekeepers unfairly favor hedge funds on the losing side, the retailers on r / Wallstreetbets have likely run down the naked shorters. It could be argued that the GameStop drama proved that financial literacy is not the problem for retailers, but rather the undemocratized nature of the old financial system.
The Charles Schwab survey offers a glimpse of the extent to which new investors are going in the field of financial education and advice. In its published report on the poll, the investment firm revealed that about 94% of investors would like to have access to more information and tools to conduct their own research.
Andrew D’Anna, senior vice president in the company’s retail client experience division, said of the investment mindset of new investors: strategies for successfully building long-term wealth. “
According to D’Anna, the company’s survey provides proof that Gen I investors aren’t just about taking short-term risks for massive profits. Instead, the emerging generational shift in the financial markets led by millennials and Gen Z are eager to receive guidance and training to make informed decisions.