Bitcoin Is Rebounding. Here’s One Reason.

Having suffered a brutal year so far, Bitcoin prices have been rebounding over the past month with mum and dad investors pouring money into cryptocurrencies.

Bitcoin prices gained almost 20% in July, to almost $34,000 from below $28,000. Even so, the largest cryptocurrency has tumbled by two-thirds from November 2021’s all-time high.

Fueling Bitcoin’s recent rally is the token’s correlation to stocks—especially tech stocks—which have surged amid an easing of investor worries over interest rate hikes from the Federal Reserve. The tech stock-laden Nasdaq surged 12% to notch its best July performance on record and the biggest one-month gain since April 2020.

Yet correlations aside, there have to be investors pouring money into digital assets in order for Bitcoin prices to go up. And it has been retail traders—particularly smaller ones based in the U.S.—that drove strong demand for Bitcoin in July, and continue to push prices higher in August, according to a number of market indicators.

“Retail are buying Bitcoin at the fastest rate in history,” Marcus Sotiriou, an analyst at digital asset broker GlobalBlock, wrote in a late July note.

One sign that U.S. investors are particularly crypto-hungry is the Coinbase Premium Gap, which measures the difference between Bitcoin prices quoted on Coinbase Global (ticker: COIN) and those on Binance, the world’s largest crypto exchange. Since Coinbase is mostly popular in the U.S., the gap—tracked by data firm CryptoQuant—can be read as an indicator of how crypto demand among American investors stacks up relative to those in the rest of the world.

As recently as July 12, there was a $35 per Bitcoin discount on Coinbase compared to Binance, but as the month wore on the discount turned into a premium for the first time in months. By July 31, investors on U.S.-based Coinbase were paying a $20 per Bitcoin premium to scoop up the token, the highest premium since the crypto was changing hands around $57,000.

Other evidence supports the notion that it is primarily smaller traders who have swung in to buy Bitcoin while it has been trading at its lowest point since 2020. The total supply of Bitcoin in the largest 1% of accounts decreased to 17.32 million from 17.34 million across the month of July, according to crypto market intelligence firm Messari. By contrast, the supply of Bitcoin in accounts with more than $14,000 increased from 18.2 million to 18.4 million in July.

“The 90-day change in Bitcoin addresses with less than 1 coin (typically retail) is at record highs. The last time it was close to this high was in 2018 when Bitcoin peaked at around US$20,000,” noted Sotiriou from GlobalBlock. “The fact that a similar rate of accumulation is happening now after a 70% drop demonstrates conviction from retail holders in Bitcoin’s long-term value.”

The same trend is mirrored in the crypto derivatives market, which accounts for two-thirds of exchange-traded digital asset volumes, according to CryptoCompare. In the U.S., Bitcoin futures are particularly popular among institutional investors, because these products are traded on the CME and regulated by the Commodity Futures Trading Commission.

The CME offers two types of Bitcoin futures: A standard contract which is valued at 5 Bitcoin, or more than $165,000 at current prices; and a micro contract valued at 10% of 1 Bitcoin, or about $3,300. The former contract is more popular with institutional investors, while the latter is geared more towards a retail crowd.

The open interest of standard CME Bitcoin futures—which refers to the total number of outstanding contracts—rose from just 13,466 at the beginning of July to 13,480, while the open interest among micro Bitcoin futures jumped from 15,998 to 24,960.

Four in five Australians say they have changed their investment and savings goals over the past 12 months, with 44 percent doing so primarily to make ends meet during the cost–of–living crisis. A further 25 percent say they’ve switched strategies to protect their wealth against inflation, according to a new survey by financial advisory firm, Findex.

The Superannuation and Retirement Insights report shows Australians have also changed their goals to grow their wealth (31 percent), to create a regular income stream (29 percent) and to reduce taxes (17 percent). Transferring wealth to their children or other family members has motivated 10 percent of Australians to alter their investment plans, which is likely reflective of the increasing role played by the Bank of Mum and Dad in young people’s first home purchases.

The report found that traditional investment avenues, such as property and superannuation, remain the most popular choices, with more than eight out of 10 survey respondents ranking these asset classes highly. But there is also an increasing inclination towards investments that offer the potential for quicker returns, additional perceived safety, and better liquidity or accessibility to funds.

Eighty percent of survey respondents also nominated bank savings as among their top five investment choices right now, followed by shares (66 percent) and cash (51 percent).

“This shift reflects a broader strategy to mitigate current financial uncertainties, balancing the pursuit of long-term wealth accumulation with the need for immediate financial security,” the report says.

While superannuation is considered a cornerstone investment for retirement and long-term wealth accumulation, 85 percent of Australians are exploring investments outside superannuation. The most common investments outside super are bank savings (64 percent), property (38 percent), cash (35 percent) and shares (34 percent).

However, when the data is broken down by generation, stark differences are revealed in how each age cohort chooses to invest their spare income and why.

Most popular investments outsider super and the motivations to invest by generation

Baby Boomers (born 1965-1964)

Outside superannuation, Baby Boomers prefer to invest in bank savings (60 percent), property (50 percent) and shares (46 percent).

By far, their primary motivation for investing is planning for retirement (80 percent). They also want to build wealth (51 percent) and support their children or other family members (25 percent). Other motivations include preserving wealth to beat inflation (22 percent) and paying off a mortgage or other debt (20 percent). They are the least likely generation to be saving for an investment property.

Gen Xers (born 1965–1980)

Gex Xers prefer to invest in bank savings (57 percent), property (43 percent) and shares (36 percent).

They are motivated to invest for retirement (66 percent), to build wealth (50 percent), to save for emergencies (36 percent), and to pay off a mortgage or other debt (30 percent). Interestingly, Gen X is the generation most concerned with supporting their children or family members (33 percent). This may be because Gen Xers have grown up during Australia’s long-standing property boom that began in the late 1990s and continues today.

Millennials (born 1981-1996)

Millennials have the strongest interest in bank savings as an investment avenue (70 percent), followed by property at 41 percent. They also like cash (35 percent) and shares (33 percent). Millennials have the highest uptake of exchange-traded funds (ETFs) at 21 percent. ETFs are a relatively new type of asset class, with the first ones trading on the ASX in 2001. ETFs are a basket of shares that can be purchased in a single transaction for instant diversification. Millennials are also the generation most interested in cryptocurrencies, with 22 percent invested.

Their biggest motivations for investing are to build wealth (55 percent), save for emergencies (50 percent) and plan for retirement (49 percent). They also want to support their kids (32 percent) and pay off their mortgage (32 percent). Millennials are the generation most likely to be saving for an investment property (28 percent) rather than a first home (17 percent).

Gen Zs (born 1997-2009)

Gen Zs spread their money across more asset classes than their elders. They like investing in bank savings (66 percent), cash (42 percent), shares (22 percent), ETFs (17 percent), property (14 percent) and cryptocurrencies (13 percent).

While Gen Zs are the youngest age cohort within the survey, they also have long-term goals just like their elders. The biggest motivation to invest among Gen Zs is to build wealth (52 percent). More Gen Zs are saving for a first home than any other generation, with 42 percent pursuing this goal. They are also the generation most concerned with preserving wealth to beat inflation (29 percent). Gen Zs also want short-term security, with 46 percent saving for emergencies. They’re also the generation most likely to be saving for other major purchases like a car or holiday (41 percent) and investing just for enjoyment (26 percent).