Author: Wintermute Source: X, @wintermute_t Translation: Shan Ouba, Golden Finance

Retail investor behavior can drive crypto markets. With speculative sentiment, spontaneous dip hunting, and flexible capital rotation among various tokens, retail investors define every major cycle. The latest data shows that the relationship between retail investors and the encryption market is changing.

We have been pointing out for some time that the stock market is diverting retail attention at the expense of altcoin funds. The latest data from JPMorgan Chase’s strategy department, combined with our exclusive fund flow data, shows that stocks and crypto assets are becoming alternative risk assets.

Relationship reversal

By overlaying Wintermute’s exclusive crypto retail capital flow data with J.P. Morgan’s stock retail net inflow data, we can observe the behavioral relationship between retail investors in the stock and crypto markets from a new perspective.

Historically, the two move in the same direction: until late 2024, rising risk appetite means buying both asset classes at the same time, both of which are to some extent outlets for excess funds (refer to M2) and risk appetite.

But starting in late 2024, this relationship completely broke down, and the most extreme polarization in recent years occurred: retail investors are pouring into the stock market at a record rate, while staying on the sidelines in the crypto market.

Looking at the extended period, we use the total market capitalization of altcoins as a long-term proxy indicator for retail crypto activities. It is highly consistent with our retail capital flows and has objective, longer historical data.

• 2022 to late 2024: Crypto and stocks are roughly in sync, and both are considered high-risk investment portfolios by retail investors.

• Late 2024: Decoupling is significant. At the same time, retail investor behavior has become more short-term, more volatile, and less structural.

The rolling correlation between retail activity and altcoin market capitalization confirms this shift: the once volatile but overall positive correlation has turned negative. Retail investors are now allocating between the two, rather than buying at the same time.

Focusing on 2025, after superimposing key catalytic events, the logic becomes clearer:

• When stock market activity stagnates, retail investors will turn to meme coins and AI agents to find speculative opportunities

• Before and after the announcement of tariffs in April 2025 and recently, retail investors continued to aggressively buy stocks at the bottom

• After October 10, funds almost completely shifted to stocks, a trend that continues today

Causation

To be clear: We do not believe that the scale of crypto retail investors is large enough to divert funds from the stock market. Our conclusion is that the rising activity of retail investors in the stock market is draining funds and sentiment from the crypto market.

This new data confirms this. The activity of retail investors in the stock market has become a new variable that crypto investors must closely monitor to determine when crypto can regain continued buying from retail investors.

Volatility is the core product

There are many reasons why retail investors are so active and attracted to crypto, but one of the core ones is volatility itself. Volatility is the product and is at the heart of what attracted retail investors to crypto markets in the first place.

However, although crypto volatility still far exceeds that of the stock market, real volatility has experienced structural compression, and this trend is difficult to reverse. The BTC/NDX volatility ratio continues to decline, and the volatility multiple even fell below 2x in the first half of 2025.

Key drivers

1. As the market matures, the number of professional investors continues to increase, and new liquidity tools such as ETFs and DATs are added, which suppresses the spontaneous surge in volatility that is typical of early cycles.

2. Even if the market volume fell by 40% from the historical high, the total market value of the encryption market still reached US$2.3 trillion. To move the market forward, the amount of capital required is much greater than it was five years ago.

As volatility compresses, crypto’s core appeal to retail investors is eroding. The epic moves of 2021–2022 that attracted a generation of retail investors to the market no longer exist. Stocks are becoming increasingly competitive for retail investors chasing volatility.

Technology Drivers

In addition to the market structure of encryption itself, technical factors are accelerating this change, but they are not highly discussed.

1. Financial deposit and withdrawal channels

• Fintech integrates crypto trading with traditional brokerages, and crypto-native platforms also integrate stocks, lowering the entry barrier.

• But what is more critical is the exit efficiency: in the early cycle, deposit friction caused funds to be trapped in the ecosystem once they entered encryption, forming a natural rotation between tokens. Today, seamless deposits and withdrawals mean funds can flow freely between crypto and stocks with extremely low friction.

2. Sense of information superiority

Retail investors are increasingly attracted to stocks, partly due to the new sense of information advantage brought by AI. Large models significantly improve the analytical capabilities of retail investors, making them feel like they have a level playing field.

This feeling is missing in the crypto market:

• Although data-based analysis is possible, crypto lacks a consensus valuation framework

• The token value accumulation mechanism is unclear

• The continued expansion of investable targets makes it difficult for retail investors to gain the sense of certainty that "I have an advantage."

Conclusion

Once upon a time, retail investors were the most reliable source of spontaneous demand in the crypto market. Today, their risk appetite is increasingly being met elsewhere. Equities offer increasingly competitive volatility, an increasingly clear sense of analytical edge, and the experience of seamlessly switching from crypto to equities from the same app. Crypto still has a place in retail portfolios, but it has gone from being a speculative workhorse to being one of many allocation options.

This shift will also reshape investors' market observation framework: some time-tested indicators have become invalid. For crypto investors to succeed, risk appetite indicators + crypto-native frameworks alone are no longer enough. Investors must increasingly view crypto through a multi-asset portfolio lens, as is standard practice in the equity and fixed income markets.