A large majority of people who invest in Bitcoin inevitably lose money, studies show
Bitcoin has been around for decades, but in that time researchers at the BIS noted that the cryptocurrency has not been widely used for regular transactions or for real-world financing.
Around three-quarters of newly minted bitcoin investors have lost money putting their money into the big crypto game, according to new research from one of the world’s leading central banking institutions.
A Bank of International Settlements working paper released on Monday looked at the crypto world from 2015 to 2022 and found evidence to establish what we were all already thinking, that most people, from 73 to 81% of new crypto investors, inevitably lost money on their first investment . Most people who bought into crypto came from Turkey, Singapore, the UK and the US during that time.
Economists noted that “risk-seeking” young men under the age of 35 are the main segment of new bitcoin investors, according to the report. Even more interestingly, the newfound crypto-investors aren’t engaging with the idea of crypto because of some lofty ideals of decentralized finance or breaking away from big banks, but because they hope to get banked after being lured in with promises. with great returns for minimal effort.
If you are a crypto critic, this working paper can do nothing but confirm your own biases. However, the report assumed that a user bought bitcoin when they downloaded a crypto app. The economists found that 73% of users downloaded their crypto app when the price of bitcoin was on the rise, passing $20,000. If a user bought $100 worth of bitcoin in the months that followed, the median investor would have lost $431, for example, or 48% of their $900 investment.
Nevertheless, the study is focused on two major events in recent crypto history that help inform the conclusions. The paper analyzed the shock to the bitcoin ecosystem when the Chinese government began cracking down on crypto mining in 2021, as well as unrest in Kazakhstan, both of which caused shock in the crypto market.
After China made cryptomining largely illegal, it forced miners to export their operations to other countries, with many moving on to neighboring Kazakhstan with the promise of little regulation and cheap electricity. In January, however, rising fuel prices and power outages linked to the never-ending demand for electricity from crypto miners led to violent and deadly riots. The government reportedly shut down internet services and took 15% of miners offline. Oh, but the real horror of the events at the time, at least for the bitcoin bulls, was that it also sent bitcoin prices crashing.
Miners eventually moved to places like Texas, but after both China and Kazakhstan, the report noted that far fewer people wanted to adopt bitcoin. The China event led to a 39% drop in bitcoin prices and a 30% reduction in new users. Kazakhstan sent prices down 19%, and new users down 15%. The researchers’ other study of bitcoin prices narrowed the variables even further, so that the correlation between prices and new users appears to maintain the same trajectory.
And here’s the kicker, people who have a lot of bitcoin, the so-called crypto “whales” or even “humpbacks” tend to sell during periods of price increases. All the smaller investors flooding the markets are just fodder for the real bitcoin bulls to sell their shares “allowing early investors and insiders to cash out at their expense.”
As noted by Cointelegraph, the research is consistent with other reports from sites such as Glassnode, which noted on Monday that the percentage of addresses making a profit has hit a two-year low.
Crypto exchanges have pushed the narrative that users need to get in quickly because crypto is somehow “the future”. This was especially the case back in 2021 when the price of crypto rose rapidly. Big name actors pushed the “line go up” narrative like The Crypto.com Superbowl ad with the tagline “fortune favors the brave” as just one example. Now, several investors are trying to withdraw their money from Crypto.com due to concerns that the reserves are mostly made up of junk coins. FTX’s ad with Larry David saying you don’t want to miss the future that is decentralized finance worked to generate support, until last week when the entire stock market exploded.
So what about all the talk about the need to break away from the power of big banks? Well, the economists at the Bank of International Settlements said it quite clearly.
“Users [are] to be attracted to Bitcoin by rising prices – rather than an aversion to traditional banks, the pursuit of a store of value or mistrust of public institutions,” the researchers noted.
If most crypto investors were really worried about decentralization over the hope of making the lines go up, it would be an even bigger setback if Ethereum went from less centralized proof-of-work to fully centralized proof-of-stake. As David Gerard, author of Attack of the 50 foot blockchainsaid it in a recent blog, “Decentralization is always false.”
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