The WallStreetBets and GameStop frenzy is already starting to fade. In its wake, financial markets should be reminded that the longest running retail investment craze of recent months has centered on bitcoin. Much has been written about how institutional investors propelled bitcoin BTCUSD, -1.12% to spectacular highs , with the cryptoasset gaining as much as 400% from early 2020 to its peak in early January 2021.
Payment giant PayPal PYPL, + 7.36% now offers bitcoin services. BlackRock BLK, + 1.16%, the epitome of institutional money, is set to offer clients exposure to crypto futures through new funds. But retail investors are a crucial part of the bitcoin trend. It is retail investors who are the target of tabloid headlines suggesting that bitcoin will hit a million dollars. They are the same investors that regulators have warned “should be prepared to lose all their money” from crypto investments. And according to a bitcoin-focused UK fintech with tens of thousands of users, women and older investors are largely kept out of the crypto frenzy, leaving young men significantly over-represented. Mode MODE, + 10.87%, which provided data about its user base to MarketWatch, allows users to buy and trade bitcoins, as well as keep the crypto asset in an interest-generating account. The vast majority of people who use your application are men, representing 79% of users compared to only 21% women. Compared to the most recent data from the UK Office for National Statistics, or ONS, this makes the gender gap between Mode’s bitcoin holders even wider than with other investments. In fiscal year 2017-2018, 2.3 million people had an Individual Savings Account, or ISA, with shares and participations. ISAs are the popular tax-free accounts available to UK residents. Of these, more than 1 million, or 44%, were in the hands of women. Also read: This fund bets millions on Kentucky whiskey and turns it into crypto assets. Here’s why ONS data is very consistent with investment demographics in the general population, according to Lisa Kramer, a finance professor at the University of Toronto and an expert on investor behavior. Mode’s demographics are not. Kramer said that when he looks at the differences between the ISA numbers and the Mode user base, he wonders “if some of what we are seeing is not driven by overconfidence from investors.” This is related to gender, Kramer said, pointing to a landmark 2001 piece of behavioral finance research titled, quite aptly, “Boys Will Be Boys: Gender, Overconfidence and Common Stock Investment,” written by professors at the University of California. Brad M. Barber and Terrance Odean. Barber and Odean found that men trade stocks 45% more often than women, which is a symptom of overconfidence because overconfident investors over-trade. In 2001, these findings were manifested in lower investment returns for men due to brokerage fees. In 2021, it may extend to men who engage in dangerously speculative demonstrations. Also: Bitcoin and its ‘fun business‘ should be regulated globally, says the director of the European Central Bank: “If we see in that research study that men are, on average, more likely to be overconfident, that overconfidence it could be helping drive heavier representation of men in these much more speculative markets, “Kramer said. “It really takes a little hope and a prayer to believe that these assets will be reliable long-term investors.” Mode’s user base also reveals a sharp age divide among bitcoin investors. People aged 30 and under represent 64% of the app‘s users, and 86% of Mode’s customers are under 41 years of age. This makes young people over-represented in bitcoin trading. According to data from the ONS, 563,000 people aged 44 and younger owned shares and participated in ISA, representing only 24% of all investors. Kramer said that younger investors may be more attracted to a technology-based investment like bitcoin than their older counterparts. It may also be the case that younger investors are more likely to use an app to trade. However, Kramer believes that the root of the age division is behavior. “This new generation of investors may not have experienced the financial crisis of 2007 and 2008. They have also not experienced the internet boom of the late 1990s and the subsequent crash of 2000,” Kramer said. “While older generations of investors have been bitten before and are a little less inclined to jump into the latest market frenzy, a little more cautious overall, and more inclined to understand the merits of a diversified investment portfolio and avoid trying. to market time, “he added. More on blockchain: Crypto tech vs. COVID-19: How hospitals are using blockchain in the vaccine launch In addition to demographics, the data mode provided to MarketWatch also offers insight into how investors reacted to the volatile bitcoin trading in January this year. In the volatile period between January 4-13, bitcoin rose to a peak of $ 41,940 on January 8, according to CoinDesk, before collapsing to around 25%. But even as the price continued to decline, more retail investors were buying than selling. There was only one day during that 10-day period that more people sold bitcoins than they bought: January 11, when the price was lowest. This supports Mode’s belief that most of its users use it for the long term. The company says that around 80% of the bitcoin in the app is in the “Bitcoin Jar,” a crypto savings vehicle that the app offers to users, promising to generate a 5% annual return. But Kramer has a caveat about the merits of trusting bitcoin. “What we see is a lot of volatility, a lot of what appears to be confidence-driven price swings,” he said. “So it would be foolhardy for someone to invest 100% of their portfolio in cryptocurrencies and hope that this will provide them with a reliable reserve in the future.”