Your guide to Bitcoin, Ethereum and Web 3.0
The only investors who make money buying Bitcoin are the whales and professional traders – and if you bought the cryptocurrency after 2015, you probably lost money.
That is according to a new report from the Bank for International Settlements, which claims that more “sophisticated investors” in the crypto market have done well for themselves over the past seven years, but retail investors have generally lost out.
Monday’s “Crypto shock and retail losses” report looks at how retail investors flooded the space as the price of coins and tokens began to plunge — and most buying volume took place when Bitcoin was above $30,000. Currently, Bitcoin is trading at around $25,000, down 64 % from all-time high above $69,000.
“Data on major crypto trading platforms during August 2015-December 2022 shows that a majority of crypto app users in almost all economies lost their Bitcoin holdings,” the report said, referring to the state of the market after the collapse of the Terra crypto project.
Terra, at its peak, was one of the largest blockchain ecosystems in space. Its original coin, LUNA, had a market capitalization of over $30 billion, until it collapsed last May – sending “shock waves through the system”, in the words of the BIS researchers, and bringing the price of all digital assets down with it.
The BIS report also looks at the collapse of digital asset exchange FTX in November and how it hit the ecosystem. The exchange, which was once one of the largest and most respected, went bankrupt after a rush of customers tried to withdraw money at the same time. The bank run resulted in the exchange being forced to admit that it did not have one-to-one reserves of customer funds.
FTX was allegedly criminally mismanaged, and its ex-CEO, Sam Bankman-Fried, now faces eight charges in the US
The BIS notes that despite Terra’s crash and FTX’s fall, activity on crypto trading apps picked up after news of their failures – but larger holders were usually able to “at the expense of smaller investors” as they know when to sell Bitcoin and other crypto to retail investors before a sharp decline.
“These losses may be exacerbated by the fact that larger, more sophisticated investors tended to sell their coins just before sharp price drops, while smaller investors continued to buy,” the report said.
“These patterns highlight the need for better investor protection in the crypto space,” the BIS concludes, echoing the sentiment of US regulators in recent months.
Regulators and lawmakers alike have become increasingly concerned with reining in the crypto industry following the collapse of FTX. The SEC, which first began cracking down on crypto in 2018, has stepped up its “regulation by enforcement” methods recently, handing out fines to celebrities and stock exchanges – all in the name of “investor protection”, in the words of the body’s chairman Gary Gensler.
