Author: Jasper De Maere, Wintermute
Compiled and Edited: BitpushNews
Bitpush Note:
As a leading market maker in the crypto industry, Wintermute handles hundreds of billions of dollars in daily trading volume. Compared to ordinary researchers, they can cut through the fog and see the most authentic flow of retail funds. In this latest report, Wintermute puts forward an alarming view for the crypto circle: the "retail faith" that once supported the crypto market is wavering. In the past, cryptocurrencies and stocks usually rose and fell together, but since the end of 2024, this relationship has completely reversed—retail investors have begun to make a "binary choice" between the two.
Main Text:
Retail activity drives the cryptocurrency market. Through speculation, reflexive buying on dips, and agile capital rotation within the token world, retail investors define every major market cycle. However, new data suggests that the relationship between retail investors and cryptocurrencies is changing. For some time, we have observed that the stock market is attracting retail attention at the expense of altcoins. New data from J.P. Morgan's strategy department, combined with our own flow data, now indicates that stocks and cryptocurrencies are increasingly becoming complementary risk assets.
Key Points
-
Reversal Phenomenon: Retail investment activity in cryptocurrencies and stocks used to move in the same direction. But since the end of 2024, the two have shown an inverse relationship: when retail buys stocks, they are quiet in the cryptocurrency market, and vice versa.
-
Compressed Volatility Premium: The volatility premium of cryptocurrencies relative to stocks, which was once their biggest attraction to retail, is now structurally compressing. Volatility is no longer a diversifying product feature in cryptocurrency investment.
-
Technical Drivers: Some underappreciated technical reasons have accelerated this shift. For example, easier access to cryptocurrencies has dismantled the "captive audience" effect; meanwhile, large language model (LLM)-driven analysis is narrowing the cognitive advantage gap in the stock market, a phenomenon that has not yet occurred in the cryptocurrency space.
-
Traditional Indicators Fail: Traditional leading indicators of crypto risk appetite (such as M2 money supply) are failing. Investors should increasingly view cryptocurrencies through a multi-asset portfolio lens, similar to how they treat other mature asset classes.
Reversal Phenomenon
By overlaying Wintermute's proprietary crypto retail flow data with J.P. Morgan's retail stock inflow data, we gain a new perspective on the relationship between retail stock and crypto activity.
Historically, the two have maintained a synchronized trend until the end of 2024. At that time, high risk appetite drove buying in both, as they both acted as outlets for excess capital (see M2) and risk appetite.
However, since the end of 2024, this relationship has broken down: as retail flooded into the stock market at an unprecedented rate, they remained inactive in cryptocurrencies, and the divergence between the two has now reached a historical extreme.
Zooming in, we use altcoin market capitalization as a long-term proxy for retail crypto activity.
It closely aligns with our retail flow data and has an unbiased and longer history. Between 2022 and the end of 2024, cryptocurrencies and stocks fluctuated roughly in sync, both being viewed by the retail sector as a type of high-risk investment portfolio. The decoupling at the end of 2024 is very noticeable, reflecting that retail activity has become more short-term driven, volatile, and to some extent, lacking in sustainability.
The rolling correlation between retail activity and altcoin market capitalization confirms this shift. What was once a volatile but generally positive relationship has turned negative. Retail is now allocating between the two, rather than injecting funds into both simultaneously.
Focusing on 2025 and overlaying key catalysts makes this dynamic clearer. Several points are noteworthy:
-
Memecoins and AI agents had their moments in the spotlight when stock market activity stalled, as retail found speculative outlets elsewhere.
-
Retail continued to buy the dip aggressively in the stock market, both during the tariff policy announcement in April 2025 and in recent market volatility.
-
After October 10th, the market almost completely shifted to stocks, and this trend continues.
Causality
The rolling correlation between retail activity and altcoin market capitalization confirms this shift. The once volatile but overall positive relationship has now turned negative. Retail is now choosing between the two, rather than investing in both.
This new data also confirms this. Retail activity in the stock market has become a new variable that cryptocurrency investors should closely monitor to identify windows of opportunity where retail funds might more sustainably flow into cryptocurrencies.
Volatility = The Product Itself
One reason retail is attracted to and remains active in cryptocurrency is the asset's volatility characteristics. Volatility is the product. It was the initial force that drew retail into the crypto space.
However, although the actual volatility of cryptocurrencies still far exceeds that of stocks, a structural contraction trend has formed, and this trend is difficult to reverse in the short term. The volatility ratio of BTC to the Nasdaq Index (NDX) continues to decline, even compressing to below 2x in the first half of 2025.
Thoughts on key drivers:
-
Market Maturation: With the increasing number of sophisticated investors and new liquidity tools such as ETFs and DATs, the reflexive volatility peaks that defined earlier cycles have been smoothed out.
-
Market Capacity: At a market capitalization of $2.3 trillion (even 40% below the all-time high), the market requires far greater capital flows to move than it did five years ago.
As volatility compresses, the core selling point of cryptocurrencies to retail erodes. The "excess volatility" that defined the 21-22 cycle and attracted a generation of retail investors is gone. For volatility-seeking retail, stocks are becoming increasingly attractive.
Technical Factors
In addition to the structural changes in the crypto market itself, some technical factors are also accelerating this shift, which is rarely mentioned.
-
Facilitation of Crypto Access — The integration of crypto trading by fintech companies and traditional brokerage platforms (or the introduction of stock trading by crypto-native platforms) has indeed lowered the barrier to entry, but its more profound impact is on the exit process. In previous cycles, the cumbersome process of depositing funds meant that once money entered the crypto market, it was easily "locked in" and naturally circulated among various tokens. Now, these smooth entry and exit channels mean that funds can flow freely between the stock market and the crypto market without significant obstacles.
-
Gaining an Information Edge — Retail seems to be increasingly attracted to the stock market, partly because they are gaining an unprecedented "analytical advantage" through artificial intelligence (AI). Large language models (LLMs) have greatly enhanced the analytical capabilities of retail investors, giving them a sense that they can compete on an equal footing with institutions.
This feeling does not exist in the cryptocurrency market. Although data-based analysis of cryptocurrencies is feasible, the crypto market lacks a consensus valuation framework, the value capture mechanisms of tokens are unclear, and the number of investable assets continues to膨胀, making it difficult for retail to gain that sense of "having an edge."
Conclusion
Retail investors, once the most reliable source of self-reinforcing demand for the crypto market, are increasingly satisfying their risk appetite elsewhere.
The stock market not only offers increasingly competitive volatility but also a growing analytical advantage, and the ability to seamlessly switch from crypto to stock trading through applications already on retail investors' phones.
Cryptocurrencies still have a place in retail investment portfolios, but they are now just one of many choices, no longer the main battlefield for speculation.
This shift should also reshape how investors view the market. Some proven traditional indicators have failed. For crypto investors, simply finding leading indicators of risk appetite and combining them with a crypto-native framework is no longer enough to win. Investors need to increasingly view cryptocurrencies through a cross-asset portfolio lens, just as is standard practice in stocks and fixed income.
