According to recent data from the Bank of International Settlements (BIS), the major crypto debacles of 2022 have caused a spike in retail crypto trading. However, data suggests that large investors sold their assets at the expense of smaller investors trying to diversify their assets following moments of crisis.
BIS is an international financial institution owned by central banks that fosters international monetary and financial cooperation and serves as a bank for central banks.
The institution’s report highlighted the need for global coordination in regulating digital assets and warned against increased exposure to the global financial system. Referring to the investing pattern, the BIS also outlined the dire need for investor protection. It said:
These patterns highlight the need for better investor protection in the crypto space.
Notably, the report concludes that to protect the real economy and traditional financial system, the authorities must consider banning specific activities, regulating the sector, or a mix of both. Further, it notes that an appropriate mix of all these measures will be needed to promote market integrity, investor protection, and financial stability.
Options include banning specific crypto activities, containing crypto, regulating the sector, or combining these. Containment may prevent risks in crypto from spilling over to the real economy and traditional financial system. Appropriate measures will be needed to promote market integrity, investor protection, and financial stability.
An analysis of retail investor returns on Bitcoin for approximately seven years starting in 2015 suggests that retail investors have lost about half their investments as of December 2022 despite the major escalation in price that took place from 2015 to 2021. The data is based on the activities across crypto exchange apps and downloads from August 2015 to mid-December 2022 in 95 countries, along with on-chain data.
As per data, the increase in the price of cryptocurrencies led to increased users across platforms. It stated:
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, as per the report, most global investors have probably lost money on their crypto investments. These losses could be negated because larger and more aware investors started selling their assets right before prices declined.
This was the time when smaller investors continued to buy. The report’s conclusions add to the concerns held by regulators around market manipulation and insider trading in digital assets.
However, most global investors have probably lost money on their crypto investments. These losses could be exacerbated because larger, more sophisticated investors tended to sell their coins right before steep price declines, while smaller investors were still buying.
The report adds that after Terra and Luna’s collapse in May and the FTT token and exchange FTX, bitcoin, ether, and other assets fell by more than 20% within a few days. However, daily active users spiked on major exchanges 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 crypto assets, including asset-backed stablecoins.”
In November, the Bank of International Settlements (BIS) published its “BIS Working Papers,” a report which comprehensively studied and commented on Bitcoin. The report suggested that investors’ growing interest in Bitcoin is due to the rising prices. It also added the analysis of blockchain data from when Bitcoin prices rose. The analysis showed that the smaller investors purchased whereas, the larger holders (popularly known as whales) sold, thus profiting from the smaller investors’ expense.