Buy stocks and sell cryptocurrencies! American retail investors are bottom-fishing with "differentiated treatment," as Bitcoin falls below "production costs" for the first time since July 2020

American retail investors exhibited a starkly different investment strategy in November, aggressively buying into the stock market while selling off cryptocurrency ETFs.

According to Wind Trading Desk, JP Morgan's latest research report shows that retail investors have sold approximately $4 billion worth of spot Bitcoin and Ethereum ETFs since November, surpassing the single-month sell-off record set in February this year. As panic spreads rapidly, the price of Bitcoin has fallen below its approximate "production cost" of $94,000 for the first time since July 2020.

However, the situation is quite the opposite in the stock market. Retail investors are actively "buying the dip." As of November 18, the monthly net inflow into global stock ETFs has reached $96 billion. If this pace continues, the total net inflow for stock ETFs in November could reach $160 billion, comparable to the enthusiasm seen in the previous two months.

JP Morgan believes that this "differentiated treatment" behavior indicates that retail investors do not view the cryptocurrency crash as a signal for a shift in overall risk assets.

As the "proxy stock" for Bitcoin, MicroStrategy, the world's largest "Bitcoin treasury" company, faces significant risks of being removed from major stock indices like MSCI. If this occurs, it could trigger passive fund outflows of up to $8.8 billion, putting severe pressure on its valuation. Investors need to pay close attention to the MSCI decision on January 15 next year.

Retail Investors Sell Cryptocurrency ETFs at Record Highs

The adjustment in the cryptocurrency market in November was primarily driven by non-native cryptocurrency investors, particularly retail investors who typically invest through spot Bitcoin and Ethereum ETFs. JP Morgan's data shows that retail investors sold approximately $4 billion worth of spot Bitcoin and Ethereum ETFs in November, exceeding the sell-off scale seen in February this year.

In contrast, native cryptocurrency investors have stabilized their deleveraging activities in November after significantly reducing leverage through perpetual futures in October. The ratio of open interest in Bitcoin and Ethereum perpetual futures to market capitalization indicates that the main driving force behind this round of adjustment has shifted from native investors to traditional investors.

The price of Bitcoin has fallen below JP Morgan's estimated production cost of $94,000 for the first time since July 2020. This production cost is derived from Hayes' (2018) cost calculation method, reflecting the failure of mining costs to support prices.

Stock Market Inflows Maintain Strong Momentum, High-Leverage Retail Investors Continue to Withdraw

In stark contrast to cryptocurrencies, retail investors' enthusiasm for stock ETFs remains high. Since November, the inflow of funds into stock ETFs has reached $96 billion, with $7 billion flowing into leveraged stock ETFs. At the current pace, the inflow into stock ETFs in November is expected to reach about $160 billion, maintaining the strong performance seen in September and October.

This differentiated behavior indicates that retail investors view stocks and cryptocurrencies as distinct asset classes. While retail investors have consistently bought stocks throughout the year, they sold cryptocurrency ETFs in February, March, and November, showing a clear selective allocation strategy.

Although overall retail funds continue to flow into the stock market, a more speculative and highly leveraged group of retail investors has shown a significant contraction in November, as evidenced by the decline in options trading and individual stock investment activities.

Data shows that the net buying volume of call options on individual stocks by small investors (holding fewer than 10 contracts) has significantly retreated from recent highs. Meanwhile, portfolios containing popular retail stocks have also underperformed the S&P 500 index, indicating that this most speculative capital is withdrawing from both the stock and cryptocurrency markets simultaneously.

Imminent Risk: MicroStrategy Faces Index Removal Risk

As a publicly traded company holding a large amount of Bitcoin, MicroStrategy's stock price has recently performed even worse than Bitcoin itself, with its valuation premium relative to its held Bitcoin having significantly narrowed. Reports indicate that the recent decline in stock price largely reflects market concerns about its potential removal from major stock indices.

Currently, MicroStrategy is included in several important indices such as the Nasdaq 100, MSCI USA, and MSCI Global. Of its $59 billion market capitalization, it is estimated that about $9 billion comes from passive funds (ETFs and mutual funds) tracking these indices.

MSCI is considering removing it and other companies holding digital assets as inventory reserves from its stock indices, with a final decision to be announced on January 15th next year. This is a critical risk point.

• Potential Huge Capital Outflow: If MicroStrategy is removed from the MSCI index, it could trigger $2.8 billion in passive fund sell-offs. If other index providers (such as Nasdaq and Russell) follow suit, the total outflow could reach as high as $8.8 billion.

• Dual Blow to Valuation and Liquidity: Removal would not only trigger direct selling pressure but also harm its market liquidity, potentially increasing the difficulty and cost of the company's future equity or debt financing Currently, the ratio of MicroStrategy's total market value (including stocks, bonds, and preferred shares) to the market value of its held Bitcoin has fallen to the lowest level since the pandemic. If the resolution on January 15 is unfavorable to it, this ratio will face further pressure to approach "1," meaning that its valuation premium as an operating company may be completely erased