(Our regular analysis of cryptocurrencies)

By Medha Singh

May 14 (Reuters) - What's happened to the army of retail

traders who used to drive bitcoin's biggest rallies?

U.S. crypto exchange Coinbase reported just $56

billion in consumer trading volumes in the first quarter of

2024, when bitcoin leapt to record heights close to $74,000.

While that represents a fledgling recovery in retail

interest - almost double the level in the final quarter of last

year - it's way below the $133.75 billion quarterly average

during the last comparable rally in 2021.

The retail investor was in the driving seat of that wild

2021 ride, as COVID lockdowns, cheap money and personal savings

drove up prices of "meme" stocks and spawned bouts of intense

FOMO, or fear of missing out. By contrast, the latest rally was

a more solemn, institutional affair propelled by the birth of

U.S. bitcoin exchange-traded funds.

"It's the million-dollar question in crypto right now - when

will retail traders come back?" said Michael Rinko, analyst at

Delphi Digital.

In another sign of the retail retreat, Google trends data

shows search interest in the term "bitcoin" in March was only

half of the peak in 2021.

Some small-time investors are still nursing the chills of

the more than two-year long crypto winter, when bitcoin stayed

limp at levels between $20,000 to $30,000.

Billions of customer funds were also trapped in the

implosion of high profile crypto companies, including Three

Arrows Capital, Celsius Network and FTX, whose founder Sam

Bankman-Fried was sentenced to 25 years in prison for fraud.

"The key force behind the reduced activity stems from

lessons learned throughout the harrowing year, which was 2022,"

said Vetle Lunde, analyst at K33 Research.

"The contagion and collapse of a vast portion of

retail-facing lending platforms illustrated that considerable

risks were hiding behind the attractive yields."

Some market participants reckon bitcoin, which accounts for

more than half of the $2.26 trillion digital assets market

capitalization, will be hit by a period of rotation as investors

take profits on the coin and decide to buy riskier altcoins such

as the no. 2 crypto ether and others.

Indeed, ether lags its larger rival bitcoin and is

yet to exceed its 2021 peak.

"Instead of just blindly jumping into crypto in whatever

seems to be hot at the time, people are now focused much more on

what is a secure and safe asset to invest in," said John Glover,

chief investment officer at crypto lending platform Ledn.

It remains to be seen if or when speculative crypto traders

will return to the market in force.

Right now, bitcoin's tumble to $62,809, 15% below its

mid-March record high is serving as a reminder of the sharp

volatility and risk that comes with the asset.

"The meme in crypto is - bitcoin needs to hit $100,000 for

retail to come back," said Rinko at Delphi Digital. "Who knows

if that's the magic number but we do need to get to a number

that really ignites FOMO."