Cryptocurrency trading shrinking relative to other assets

What are the traders doing amidst coronavirus – which asset classes are in and which are out?

The stock market bubble has burst and inflation is running rampant.

Swarms of locusts blacken the skies demanding bailouts, cats and dogs are quarantining together and the seas have turned to blood following coronavirus-induced EPA cuts.

What's a trader to do?

Something like this maybe:

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What you're looking at is a breakdown of the different asset classes eToro users have taken positions in since the start of the year.

It's as good a place as any to find a solid cross-section of what traders are doing, since it's a CFD platform with a wide range of asset types and a fairly large userbase.

Observations

The first thing we can see is that the total volume of open positions on the platform has gone wild, especially in the three weeks from 8 to 29 March.

Across the board, the number of positions across every asset type dwarfs what it used to be.

But the market composition has changed a lot.

Indices became the most popular asset class on eToro, moving to account for more than a third of all open positions. It's a trend they've never seen before, it says.

eToro's indices include the ASX200, the Dow, the US dollar DXY index and several others.

A large part of their sudden popularity may be due to people racing to take up short positions in them. From the week of 23 February, short positions started outnumbering the longs across many eToro indices.

But overall, the market wasn't solely full of pessimists.

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While there are definitely more short sellers than before, the general drive still appears to be towards buying while it's cheap, rather than hoping for further drops.

The second most-popular asset class on eToro was stocks, which accounted for almost a full third of the trading activity.

Commodities kept their proportional share of about 16%. Counter-intuitively though, cryptocurrency's share of eToro's market dropped substantially.

It went from being a leading asset class to only 7% of the total.

While it may seem counter-intuitive, given how much is made of Bitcoin and other cryptocurrencies supposedly being recession-proof, there are actually a lot of pretty reasonable explanations.

Firstly, because cryptocurrency is much tougher to logically call than a market crash. No one really knows what's driving its prices or what it will do, but there are plenty of concrete things to influence other assets right now.

Secondly, because it's volatility which was once so attractive to traders is suddenly much less of a standout. When everything's swinging double digits, you don't need to go to cryptocurrency for volatility.

While traders were very happy to short indices, long positions remained the norm on individual stocks, even in some of the most affected industries such as travel, where eToro traders are still net long.

A large part of that could be traders betting on a bailout and anticipating the markets to rise in response.

And another could be people holding their positions through the storm and counting on a recovery, figuring that they've missed the boat and not wanting to miss a potential rebound.

It perhaps doesn't help that the whole world has had the "time in the market not timing the market" and "the stock markets will always go up" mantras ingrained over the years.

As one investor explained, while clarifying that they were not dispensing financial advice:

"Fear is the mind-killer. Fear is the little-death that brings total obliteration. The market will always rebound, so I will permit volatility to pass over me and through me. And when it has gone past I will turn the inner eye to see its path. It's time in the market, not timing the market. Only I will remain."

That stoic investor who followed best practices lost a lot of money. The skittish tinfoil-hatted investor, meanwhile, made bank just by tagging in the eToro premade "panic mode" portfolio.

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Disclosure: The author holds BNB, BTC at the time of writing.

Picture: Shutterstock