MARKET NEWS

(Bloomberg) -- For years, retail investors were crypto’s most reliable fuel — the dip-buyers, the memecoin speculators, the momentum traders that powered every rally. Now they’re moving on, stalling the demand engine that digital assets have depended on for a decade.

Speculative demand that once concentrated in crypto is being sucked into stocks, according to a new report from market-maker Wintermute that draws on JPMorgan Chase & Co. data. Since late 2024, retail has been steadily shifting toward equities, a trend that accelerated sharply after the October crypto crash, according to the report. It marks a break from the previous investing cycle when stocks and digital assets broadly moved in tandem as twin bets on risk appetite.

The shift strikes at something fundamental about crypto’s market structure. Unlike equities, which are supported by corporate earnings, dividends, and institutionally mandated buying, crypto has long depended on retail’s animal spirits as the primary demand driver. If that demand is being dispersed across a growing menu of high-octane equity trades, it challenges the assumption that digital assets can sustain a recovery without a new catalyst to lure mom-and-pop investors back.

“In prior cycles, excess retail risk appetite tended to concentrate in crypto,” said Evgeny Gaevoy, chief executive officer of Wintermute. Crypto has now been reduced to “one of many risky-asset classes with similar volatility profile that retail can use to invest and speculate on,” he added.

The October crash was the accelerant. More than $19 billion in positions were wiped out — $7 billion of them in less than an hour — liquidating over 1.6 million traders, according to Coinglass data. Since then, there’s been “a near-complete pivot into equities that is still ongoing,” per Wintermute. Bitcoin has roughly halved — from around $126,000 — as equity indexes have powered ahead. Over the weekend, it’s traded around $66,000 amid news of US and Israeli strikes on Iran.

The crypto industry has been casting around for explanations — gold, prediction markets, memecoins burning out — for why retail vanished. The gravitational pull may extend beyond equities alone, said Cosmo Jiang, a portfolio manager at Pantera Capital.

“You can see this in monthly ETF data into some of the most recent hyped-up assets, including gold, silver, quantum and other thematic ETFs surging, while at the same time outflows have been seen in BTC and ETH,” he said. “I believe that speaks to a direct correlation there — that a meaningful amount of speculative retail attention and momentum rotated into those other thematic trades.”

Over the past three months, nearly $3 billion has been yanked from spot-Bitcoin ETFs, according to data compiled by Bloomberg, though recent sessions have found inflows. Equity funds, which have much longer track records and occupy a vastly larger universe than crypto-flavored products, have continued to rake in cash. Thematic products have attracted cash, too — gold-themed ETFs, for instance, have taken in more than $20 billion over the same period.

There’s a deeper structural explanation too: crypto’s volatility — the very thing that made it irresistible to retail — is compressing. Bitcoin’s realized volatility ratio to the Nasdaq has been grinding lower, at times dropping below 2x in the first half of 2025, according to Wintermute. For everyday traders chasing outsized moves, the gap between crypto and equities is narrowing.

“What we’re saying is that heightened retail activity in equities is pulling air out of crypto,” Wintermute said in a post about the report on social network X.

Wintermute also pointed to a subtler shift: retail investors increasingly feel they have an analytical edge in equities, partly driven by AI tools that make earnings analysis and stock screening more accessible. That sense of edge doesn’t translate to crypto, which lacks consensus valuation frameworks and constantly expands its investable universe, making it harder for individual investors to feel they’re making informed bets.

And that means crypto has to offer more to win retail back.

“It implies that going forward, fundamentals will matter even more,” Jiang said. “The only sustainable path forward for the industry has always been building products and launching tokens with real fundamentals – that need is just becoming even more obvious today.”

--With assistance from Isabelle Lee.