Retail crypto investors when facing financial constraints: Evidence from energy shocks and the use and downloads of crypto trading apps

Abstract

This paper demonstrates a significant negative association between national energy price increases and retail investor participation in cryptocurrency trading, using data from crypto trading app usage and downloads from August 2015 to December 2022. The results hold even when accounting for concurrent changes in cryptocurrency prices, suggesting that investors' budgetary constraints influence their crypto investment decisions. The findings challenge the notion of cryptocurrencies as a hedge against inflation during periods of high energy prices, highlighting the sensitivity of retail investors to economic shocks. This study contributes to understanding the economic factors affecting cryptocurrency investments and underscores the need for diversified investment strategies in volatile economic conditions. As the cryptocurrency market matures, it will likely become less dependent on Bitcoin's price, with other factors such as energy price shocks, adoption rates, regulatory developments, and blockchain integration playing an increasingly important role. Additionally, global economic and geopolitical events impacting energy prices can significantly influence crypto demand, revealing the need for further research on investor behavior under stress.