Buy stocks, sell crypto! US retail investors "differential treatment" when bottom fishing, Bitcoin falls below "production cost" for the first time since July 2020.

Buy stocks, sell crypto! US retail investors "differential treatment" when bottom fishing, Bitcoin falls below "production cost" for the first time since July 2020.

Retail investors in the United States showed starkly different investment strategies in November, buying the stock market aggressively while selling off cryptocurrency ETFs.

According to Wind Chasing Trading Desk, J.P. Morgan’s latest research shows that retail investors have sold about $4 billion worth of spot Bitcoin and Ethereum ETFs since November, surpassing the single-month sell-off record set in February this year. As panic spread rapidly, Bitcoin’s price fell below its "production cost" of about $94,000 for the first time since July 2020.

However, the situation in the stock market is just the opposite. Retail investors are actively “buying the dip”. As of November 18, the month-to-date (MTD) net inflows to global stock ETFs reached $96 billion. If this pace continues, total net inflows for November could reach $160 billion, comparable to the previous two months.

J.P. Morgan believes that this “differentiated approach” indicates that retail investors do not regard the cryptocurrency crash as a signal for a broader shift in risk assets.

Meanwhile, as the “proxy stock” for Bitcoin, MicroStrategy, the world’s largest “Bitcoin treasury” company, faces significant risk of exclusion from major indices such as MSCI. If this occurs, it could trigger up to $8.8 billion in passive fund outflows, putting serious pressure on its valuation. Investors should closely monitor MSCI’s decision on January 15 next year.

Retail Investors’ Cryptocurrency ETF Sell-off Sets New Record

The November adjustment in the cryptocurrency market was mainly driven by non-crypto-native investors, especially retail investors who typically invest through spot Bitcoin and Ethereum ETFs. J.P. Morgan data shows that in November, retail investors sold about $4 billion of spot Bitcoin and Ethereum ETFs, exceeding the sell-off in February this year.

By contrast, crypto-native investors stabilized their deleveraging operations in November after large-scale deleveraging through perpetual futures in October. Ratios of open interest in Bitcoin and Ethereum perpetual futures to market capitalization show that the driver of this round of adjustment has shifted from native investors to traditional investors.

Bitcoin’s price fell below J.P. Morgan’s estimated $94,000 production cost, for the first time since July 2020. This production cost, calculated using Hayes (2018) method, reflects the failure of mining costs to support the price.

Stock Market Fund Inflows Remain Robust, High-Leverage Retail Investors Continue to Withdraw

In stark contrast to cryptocurrencies, retail enthusiasm for buying stock ETFs remains strong. Since November, stock ETF inflows have reached $96 billion, with $7 billion flowing into leveraged stock ETFs. If the current pace continues, stock ETF inflows for November will reach about $160 billion, matching the strong performance in September and October.

This differentiated behavior indicates that retail investors regard stocks and cryptocurrencies as distinct asset classes. While retail investors have continuously bought stocks throughout the year, they sold cryptocurrency ETFs in three months: February, March, and November, demonstrating clearly selective allocation strategies.

Although overall retail funds continue to flow into the stock market, the more speculative and highly leveraged retail investor segment has contracted significantly in November, as evidenced by declines in options trading and single stock investing activity.

Data shows that net purchases of single stock call options by small investors (holding less than 10 contracts) have dropped sharply from recent highs in recent weeks. At the same time, portfolios containing retail-favorite stocks have underperformed the S&P 500 index, indicating that this most speculative capital is simultaneously exiting both stocks and the crypto market.

Imminent: MicroStrategy Faces Index Exclusion Risk

As a listed company holding a large amount of Bitcoin, MicroStrategy’s stock has recently performed even worse than Bitcoin itself, and its valuation premium versus the Bitcoin it holds has significantly narrowed. The report notes that the recent stock price decline largely reflects market concerns over its possible removal from major stock indices.

Currently, MicroStrategy is included in several key indices, including Nasdaq 100, MSCI USA, and MSCI Global. Out of its $59 billion market cap, an estimated $9 billion comes from passive funds (ETFs and mutual funds) tracking these indices.

MSCI is considering removing it and other companies holding digital assets as inventory reserves from its stock indices, with a final decision to be announced on January 15 next year. This is a critical risk point.

  • Potential for Huge Fund Outflows: If MicroStrategy is excluded only from the MSCI index, it could trigger $2.8 billion in passive fund selling. If other index providers (such as Nasdaq, Russell) follow suit, total outflows could reach $8.8 billion.
  • Double Blow to Valuation and Liquidity: Exclusion will not only bring direct selling pressure, but will also damage its market liquidity, and may increase the difficulty and cost for the company to raise capital through equity or debt in the future.

Currently, the ratio of MicroStrategy’s total market cap (stock, bonds, preferred shares combined) to the value of its held Bitcoin has dropped to the lowest level since the pandemic. If the January 15 decision is unfavorable, this ratio will face further downside pressure towards “1”, meaning its valuation premium as an operating company may be completely wiped out.

 

               

 

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