Majority of bitcoin retail investors lost money in the last seven years: BIS

Quick Take

  • A data report from the Bank for International Settlements, shows that after the collapses of Terra/Luna and FTX in 2022, crypto trading spiked as whales sold and retail traders bought crypto.
  • The study also estimates that a majority of retail bitcoin investors over the last seven years lost money on the asset.

The major crypto debacles of 2022 caused a spike in retail crypto trading, new data from the Bank for International Settlements suggests. However, the data suggests that large investors sold their assets at the expense of smaller investors attempting to diversify their assets following moments of crisis.

"These patterns highlight the need for better investor protection in the crypto space," the report from BIS, an institution that financial regulators use as a resource to inform their own thinking, concludes. The Swiss-based bank for central banks reiterated previous calls for global coordination in regulating digital assets, and warns against increased exposure to the global financial system. 

"Options include banning specific crypto activities, containing crypto, regulating the sector or a combination of these. Containment may prevent risks in crypto from spilling over to the real economy and traditional financial system," the report concludes. "The appropriate mix of measures will be needed to promote market integrity, investor protection and financial stability."

An analysis of retail investor returns on bitcoin for an approximately seven-year period starting in 2015 found that the median retail investor lost about half their investment by Dec. 2022, despite the major jump in price that occurred from 2015 to 2021. The data is based on crypto exchange app activity and downloads from August 2015 to mid-December 2022 in 95 countries, as well as on-chain data. 

The price of the original cryptocurrency led to spikes in users across platforms, the study found: In the time between August 2015 and November 2021, when bitcoin’s price peaked at $69,000, the global average daily active users bounced from 100,000 to more than 30 million.

"However, most global investors have probably lost money on their crypto investments. These losses could be exacerbated by the fact that larger, more sophisticated investors tended to sell their coins right before steep price declines, while smaller investors were still buying," the report reads. That may further concerns already held by regulators around market manipulation and insider trading in digital assets. 

After the collapse of Terra and Luna in May, and the collapse of the FTT token and exchange FTX, bitcoin, ether and other assets fell by more than 20% within a few days. But daily active users spiked on major exchanges Binance, Coinbase and FTX during both those crises, which BIS concludes was due to users trying to, "weather the storm by adjusting their portfolios away from owning tokens under stress towards other cryptoassets, including asset-backed stablecoins." 

Disclaimer: The former CEO and majority shareholder of The Block has disclosed a series of loans from former FTX and Alameda founder Sam Bankman-Fried.

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