The paper's authors – Raphael Auer, Giulio Cornelli, Sebastian Doerr, Jon Frost and Leonardo Gambacorta – created a database of crypto exchange apps used by retail investors daily in 95 countries between 2015 and 2022. They found that when the price of Bitcoin rises, more people decide to download and use crypto exchange apps. These users, the researchers observed, are disproportionately younger and male – the most risk-seeking segment of the population. And this group ends up fueling the profits of larger investors, who sell their holdings as new market participants drive up the price.
"[A]t the time of writing, 73–81 percent of users had likely lost money on their investments in cryptocurrencies," the paper reveals. "Analysis of blockchain data finds that, as prices were rising and smaller users were buying Bitcoin, the largest holders (the so-called 'whales' or 'humpbacks') were selling – making a return at the smaller users' expense." This trend, the researchers argue, invites further scrutiny of claims that cryptocurrencies will "democratize" the financial system. "Our findings raise concerns that individual decisions are backward-looking and that many retail investors are not fully informed of the risk or volatility of the crypto sector," the authors conclude.
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