As Bitcoin Sinks, 40% of FOMO Buyers Find Themselves Underwater

As the price of bitcoin cratered this month, the number of investors who rushed into the crypto market last year who are now underwater is skyrocketing.

According to a new report from blockchain market intelligence firm Glassnode, more than 40% of all bitcoin buyers were underwater as of May 9. A frightening 15.5% of them went beneath the surface in just the past 30 days, 10% of them entering the “pain threshold” in just the last week.

And that was before bitcoin dropped briefly below $30,000 on Tuesday (May 10), pushed by the broader financial markets that cryptocurrencies are increasingly tracking.

Awareness of bitcoin and other cryptocurrencies exploded into the mainstream last year, leading to an influx of new buyers who helped push the price of the first cryptocurrency to record highs above $60,000, more than triple its 2017 peak, in April. It then collapsed to its current level in May, but by July began climbing again, nearing $70,000 in November.

That rise, fall and rise again actually pushed the invest-in-bitcoin narrative, convincing those who’d hesitated during the spring bull market, or jumped in at the top and gotten burned, that everything would be all right. If bitcoin jumped right back, the reasoning went, all you had to do was hold on through volatility.

So the fear of missing out (FOMO) crowd had a second chance to dive in before the late November crash.

Paying the Price

The falling price of bitcoin and other cryptocurrencies will likely have a negative effect on crypto purchases, which have been growing alongside crypto ownership over the past 12 months. The number of Americans who have bought crypto in the previous 12 months grew to 23%, or nearly 60 million, PYMNTS reported in April.

See also: PYMNTS Data Show Jump in Crypto Ownership, Willingness to Spend It

That was up from 16%, or $41.5 million the year before, according to PYMNTS’ U.S. Crypto Consumer study. With that came a growing willingness, and even desire, to spend it — nearly one-third of that number used crypto to make a payment, the study found.

Read more: The U.S. Crypto Consumer: Cryptocurrency Use In Online and In-Store Purchases

And there are more ways to spend it, ranging from a growing number of Visa- and Mastercard-branded debit card, to PayPal’s 32-million-member Merchant Network to companies that have built crypto payment capability into their own systems.

That said, crypto payments processor BitPay CEO Stephen Pair told PYMNTS’ Karen Webster in February that crypto owners were price sensitive even then.

“When the price is down, they tend to not spend it,” he said. “When the price is higher than they do spend it.”

Also read: Bitcoin’s Future as a Payments Tool Is Bright, Says BitPay CEO

At the same time, he noted that crypto owners who want to spend their bitcoin and other digital currencies have been using the growing crypto lending market as a way around that dynamic, saying “instead of actually selling your bitcoin, you could just use it as collateral for a loan if you think the price is going back up.”

Jumping Out

Glassnode’s numbers, meanwhile, show signs that more bitcoin owners are desperate to get out — as indicated by the higher-than-average transaction fees they’re willing to pay.

This signals “a high degree of urgency” in getting out as quickly as possible it said. In other words, investors are desperate to cut their losses, either to “de-risk” their portfolios, simply get out, or to re-collateralize futures contracts to avoid having positions liquidated — something that happened to the holders of $1 billion worth of crypto futures contracts on May 9, CoinDesk reported this morning.

Another way to look at bitcoin trading trends is by who is still buying as the price falls — which is a good approximation for bitcoin investors who believe that the market has bottomed out and are buying the dip.

While there are fewer buyers across the board, Glassnode said there are indications that it was the wealthiest buyers who were shying away from new purchases, whereas smaller investors whose digital wallets hold less than one bitcoin.

From that angle, Glassnode said, there were indications that it was the wealthiest buyers who were shying away from new purchases.

“Smaller investors are the strongest accumulators, however their accumulation is notably weaker than it was in February and March,” Glassnode said.