Is stock selection by AI more reliable than trading in digital currencies? When volatility disappears, retail investors are accelerating their exit from the cryptocurrency market and turning to the stock market.

Individual retail investors who once drove a significant increase in the cryptocurrency market are now shifting their investment focus to the stock market, leading to a noticeable decrease in the momentum of the digital asset market. A report released by market maker Wintermute cited data from JPMorgan, indicating that since the end of 2024, individual investors have been continuously withdrawing funds from the cryptocurrency market and reallocating them to the stock market. Especially after the sharp volatility in the cryptocurrency market in October last year, this trend of fund transfer has accelerated significantly - marking a significant change in the correlation cycle between stock and cryptocurrency prices, forming a new market differentiation pattern. This shift has touched on fundamental issues in the cryptocurrency market structure. Unlike stocks supported by corporate profits, dividends, and institutional mandatory buying pressure, cryptocurrencies have long relied on the speculative spirit of retail investors as the main driving force. If this demand is now being diverted to the increasingly stimulating stock trading, the question arises whether digital assets can maintain their recovery without new catalysts to attract ordinary investors back. Wintermute pointed out that in previous cycles, excess risk appetite among retail investors was often focused on cryptocurrencies. But now, cryptocurrencies have become one of many risky asset categories, all with similar volatility characteristics that retail investors can use for investment and speculation. According to Coinglass data, the selloff in the cryptocurrency market in October last year led to a disappearance of over $19 billion in market positions, with losses of up to $7 billion in less than an hour. Subsequently, market maker Wintermute described this fund flow as a "near-complete strategic shift to the stock market", emphasizing that this trend is still ongoing. The price trend of Bitcoin confirms this shift - its peak was close to $126,000, but has now dropped to around $66,000; over the weekend, amid geopolitical turmoil (with the US and Israel launching airstrikes against Iran), Bitcoin prices continued to fluctuate around $66,000. The cryptocurrency industry is eager to find explanations - whether it be the fading popularity of gold, prediction markets, or meme coins - to explain why retail investors are disappearing. Cosmo Jiang, portfolio manager at Pantera Capital, said that this attraction may not be limited to stocks. "You can see this from the monthly ETF data for recent popular assets, including gold, silver, quantum, and other thematic ETF surges, while Bitcoin and Ethereum are experiencing outflows," he said. "I think this directly indicates that a large number of speculative retail investors are now focusing on and rotating to these other thematic trades." Fund data reflects this shift. Data shows that over the past three months, there has been an outflow of nearly $3 billion from physical Bitcoin ETFs, but there are signs of net inflows recently. In contrast, stock funds, with their much longer history and significantly larger market size than cryptocurrency products, continue to attract a large amount of "crazy inflows". Thematic products are also showing a trend of capital inflows - for example, gold-themed ETFs saw a net inflow of over $20 billion during the same period. A deeper structural explanation is that the volatility of cryptocurrencies, which is the very characteristic that makes it irresistibly attractive to retail investors, is converging. According to Wintermute data, the ratio of Bitcoin's realized volatility to the Nasdaq has been continuously declining, falling below 2 times in the first half of 2025. For ordinary traders chasing super-proportional volatility, the gap between cryptocurrencies and stocks is narrowing. "Our view is that the increase in retail activity in the stock market is drawing the life out of cryptocurrencies," Wintermute said. Wintermute also pointed out a more subtle shift: retail investors are increasingly feeling that they have an analytical advantage in stock investments, partly due to artificial intelligence tools making profit analysis and stock screening more accessible. This sense of advantage cannot extend to the cryptocurrency field - the lack of a consensus valuation framework, and the continuous expansion of its investable areas, make it harder for individual investors to be confident in making wise bets. This means that cryptocurrencies must provide more value in order to win back retail investors. "This implies that fundamentals will be more important in the future," Jiang said. "The only way for the industry to sustainably grow is to create products and token issuances with real fundamentals - and this demand is becoming increasingly apparent."