A record number of people plan to buy cryptocurrencies this year. What does this mean for the price of Bitcoin?
With price Bitcoin (BTC 0.82%) When new highs are reached and meme mania is back, it's perhaps not surprising that more people are planning to buy cryptocurrencies than ever before. According to The Motley Fool Ascent's 2024 Cryptocurrency Investor Trends Survey, 43% of respondents said they were either “likely” or “very likely” to invest in cryptocurrencies this year.
With all this new money flowing into cryptocurrencies, the natural assumption is that cryptocurrency prices will rise further and Bitcoin will continue to hit all-time highs. But is this really the case? There are two warning signs in the survey data that suggest the effect may not be as large as most people think.
Will new Bitcoin ETFs attract new investors?
While spot bitcoin exchange-traded funds (ETFs) have succeeded in almost every important measure, there is one area where they have not had a real impact — attracting new, first-time investors to cryptocurrencies. Within The Motley Fool Ascent's 2024 Cryptocurrency Investor Trends Survey, it is possible to segment the data according to people who have previously owned cryptocurrencies and people who have never owned them – and this is where the first warning sign appears.
Yes, people who already own cryptocurrencies are more likely to buy cryptocurrencies this year. But what about people who have never owned cryptocurrencies before? Only 3% said they were “very likely” to buy cryptocurrencies, and only 13% said they were “somewhat likely” to buy cryptocurrencies.
This means that more than 80% are still “unlikely” to buy cryptocurrencies this year. Unless Wall Street ramps up marketing for new spot Bitcoin ETFs, they may never attract these investors due to all the lingering questions and issues that still swirl around cryptocurrencies.
Cryptocurrency Demographic Breakdown
Furthermore, cryptocurrencies seem to be having a hard time expanding their demographic. Simply put, the people who tend to buy it are young people. There's a reason the “crypto bro” stereotype persists.
In contrast, older investors and women are likely to be more skeptical about purchasing cryptocurrencies. As The Motley Fool Ascent 2024 Cryptocurrency Investor Trends Survey notes, “Cryptocurrencies are not expanding beyond the young male demographic.” This data is supported by other surveys from the likes of Pew and Morning Consult.
Image source: Getty Images.
One way to interpret the survey data is that Bitcoin does a great job at “activating the base” but doesn’t do such a great job attracting older investors and women. In other words, the same people who are already investing in cryptocurrencies are more excited about investing in cryptocurrencies, but for everyone else, the new enthusiasm around Bitcoin has little impact on their investment decisions. If so, the upward momentum in cryptocurrency prices may not be as strong as expected.
Can institutional investors pick up the slack?
If you're anticipating a rise in cryptocurrency prices this year, all is not lost. This is because institutional investors – not retail investors – appear to be driving the recent momentum around cryptocurrencies. This is not because they are more passionate about cryptocurrencies than the average investor or that they know more about them than the average investor.
The bottom line is that they have more money to use, and even increasing their Bitcoin allocation from 0% to 1% can have a massive impact on the amount of money flowing into Bitcoin. In just the first three months, the new Bitcoin ETFs attracted more than $30 billion in assets under management.
Furthermore, we are still in the early stages of seeing what changes in institutional investor allocations could mean for the price of Bitcoin. According to some cryptocurrency experts, “3% is the new 1%.” Thus, the same investors who may only allocate 1% of their portfolio to Bitcoin could decide to increase this allocation to 3%.
There are some – like Cathie Wood of Ark Invest – who believe the optimal allocation mix to Bitcoin should be more than 5%. Therefore, over time, the flow of institutional money into Bitcoin should increase, causing the price to rise.
Implications for Bitcoin
While new survey data suggests that more investors may decide to add cryptocurrencies to their portfolios this year than ever before, we are still a long way from Bitcoin going viral. After all, it's hard to call Bitcoin “mainstream” when older generations are still skeptical about it and its main buyers are primarily young males.
Wall Street needs to do a better job of explaining Bitcoin to a broad demographic of investors who don't understand why they should invest in cryptocurrencies. Bitcoin may continue to rise this year, but to realize its full bullish potential, it needs to find a way to attract first-time cryptocurrency investors.
