FTX collapse still weighs on retail investors, but institutions are more positive, Bernstein says

Retail investors still aren’t returning after the FTX collapse, Bernstein says.
However, there are bright spots as the one-year anniversary of the exchange's crash and the trial of its former CEO draw near.
Institutional clients also see “hopes for some renewed bullish market action” depending on the outcome of spot Bitcoin ETF applications.

Happy Tuesday!

Interactions during Token 2049 in Singapore last week led Bernstein analysts to some interesting takeaways.

For instance, retail investors still haven’t processed the FTX collapse and aren’t coming back to bet on digital assets. However, there may still be room for some bullishness, analysts said.

Let’s dig in!

Retail and institutions

The spectre of the FTX collapse still haunts the crypto industry.

Investor sentiment unsurprisingly remains low as we approach the one-year anniversary of the implosion of the exchange and the inbound trial of its former CEO, Sam Bankman-Fried, which is slated for October.

Markets have recovered somewhat, with Bitcoin up 60% year to date, but liquidity remains low as trading volumes have failed to convalesce.

“The FTX damage is real and up close,” Bernstein analysts led by Gautam Chhugani said in a note on Monday.

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Retail crypto investors have capitulated in their personal portfolio’s, according to Bernstein, and the “willingness to deploy capital is at the lowest.”

This is difficult to reverse and would “definitely need more healing for the sentiment to recover.”

Venture capital and private market sentiment mirrors this, especially as artificial intelligence has taken a “mindshare,” Bernstein said.

Despite the doom and gloom, insights shared by Bernstein suggest things may be looking up.

There are “hopes for some renewed bullish market action” towards the end of the year, analysts said.

Most optimism is reliant on positive outcomes for spot Bitcoin exchange-traded fund applications in the US in early 2024 and the Bitcoin halving, the note said.

Several big financial hitters, like BlackRock and Fidelity, have applied with the US Securities and Exchange Commission to launch spot Bitcoin ETFs.

The halving happens once every four years and results in Bitcoin miner rewards being cut in half. The reward for securing the network will fall from 6.25 Bitcoin to 3.125 Bitcoin.

The picture is different when it comes to large funds and other institutional clients as crypto risk reward is improving for them, Bernstein said.

Risk rewards refer to the prospective rewards investors can earn on every dollar risked on investments.

Many investors have said that “less hype and more positive institutional and enterprise adoption makes for a compelling risk reward for leading digital assets.”

The recent spat of crypto courtroom wins over the SEC — namely Ripple and Grayscale — have been noticed, analysts said.

Client inbounds, firms reaching out to Bernstein for its services, are up.

Investor meetings cover a range of topics including, Bitcoin ETFs, stablecoin launches, institutional crypto trends, real asset tokenisation and impact on banks, asset managers and so on, the firm concluded.

Crypto market movers

Bitcoin slipped 0.9% over the past 24 hours but it continues to trade above $27,000.
Ethereum fell 1.5%, it also remains elevated as it trades above $1,600, up 2.1% over the past week.
Altcoins continue to benefit most from the current price movements. XRP, the digital asset underlining many of Ripple’s solutions, gained 1% and Solana’s SOL added another 0.7% in the past day — its up 9.5% over the past week.
Toncoin has soared over 45% in the last week, it added another 3.3% since Monday. Telegram, the instant messaging app, integrated Toncoin last week. The token was propelled into the top 10 cryptocurrencies by market capitalisation on CoinGecko following its recent rally. Its market cap has soared to over $8 billion today from just about $2 billion in July. Its daily trading volume remains quite low compared to other tokens, clocking in at about $56 million in the past day. Compared to Solana, which is now ranked 11th by market cap, registered $330 million. Lower liquidity tokens can have exacerbated price moves.

What we’re reading

Adam Morgan McCarthy is DL News’ London-based Markets Correspondent. Got a tip? Reach out at adam@dlnews.com.