- Jul 27, 2015
Somewhere between 73 and 81 percent of retail Bitcoin buyers are likely to be into the negative on their investment, according to research published Monday by the Bank of International Settlements (BIS).
In other words: the Bitcoin they bought is now worth less. Bitcoin is down 73 percent in the past year, and up 155 percent in the past five years. Losses are only realized upon sale. The Switzerland-based bank for other central banks wanted to understand why retail investors continue to participate in cryptocurrency exchanges to trade tokens like Bitcoin. It's a mystery, given that people don't generally use cryptocurrencies to make payments, to measure value, or to finance real-world investments. BIS published its findings in a working paper titled "Crypto trading and Bitcoin prices: evidence from a new database of retail adoption."
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.