BIS Report: Retail Investors Love Chasing Highs! Median Loss Around 400 USD, About 60% of Taiwanese Investors Entered Bitcoin at Over 20,000 USD

The Bank for International Settlements, in its latest report "Crypto shocks and retail losses," studied the impact of events in the cryptocurrency industry on investors. After analyzing the gains and losses of retail investors, it was found that the majority of retail investors are currently experiencing losses in the market. Additionally, despite the ongoing development of the cryptocurrency industry, its impact on the overall financial environment is relatively limited.

Cryptocurrency Market Value Plummets Due to Black Swan Events

According to a report by the Bank for International Settlements (BIS), despite the high price volatility and lack of real-world utility in productive use cases, millions of investors have entered the cryptocurrency market over the past few years, with retail investors making up the majority.

This phenomenon has driven up the prices and market capitalization of cryptocurrencies, reaching a peak in November 2021 with Bitcoin hitting $69,000, while the average global daily active users increased from around 100,000 to over 30 million.

However, as the bear market of 2022 approaches, the cryptocurrency market capitalization has decreased by $1.8 trillion compared to its peak value, with last year's Terra/Luna crash and FTX declaring bankruptcy having the biggest impact on market capitalization. During these periods, the cryptocurrency market capitalization decreased by approximately $450 billion and $200 billion respectively.

Whales are Swallowing Shrimp

However, BIS has discovered a surprising phenomenon where the trading volumes of the three major centralized exchanges, Binance, Coinbase, and FTX, have significantly increased after the two aforementioned black swan events. BIS believes that users are trying to adjust their investment portfolios to weather the storm, such as converting crypto assets with downward pressure into stablecoins.

Additionally, data shows that in the days following the impact events, the amount of Bitcoin held by whales (> 1,000 coins) decreased, while small holders (< 1 coin) and medium holders (1-1,000 coins) chose to increase their Bitcoin holdings, with small holders showing the most significant increase.

Through the price trend, it can be seen that whales were offloading to small and medium holders before and after the incident, allowing them to mitigate risks during sharp declines.

Retail Investors Love Chasing Prices, But Many Are in Loss

Despite the significant increase in cryptocurrency investors in recent years, much of it is driven by "price increases." As shown in the table below, there is a clear positive correlation between the price of Bitcoin (red line) and the daily active users of crypto exchanges' apps (blue line), meaning that higher prices attract more investors. However, the increase in user numbers usually lags behind the price increase by about two months.

Furthermore, after analyzing investors in various regions, BIS found that about three-quarters of users downloaded crypto exchange apps when the price of Bitcoin exceeded $20,000.

BIS assumed that investors began to dollar-cost average $100 worth of Bitcoin each month from the month they downloaded the app. If settled in December of last year, it would be found that most investors were in a loss, with the median investor losing $431.

This phenomenon is even more pronounced in emerging market economies such as Brazil, India, Pakistan, Thailand, and Turkey, where if local investors continue to dollar-cost average each month, over 80% of them will lose money.

Note: Approximately 60-70% of investors in Taiwan downloaded crypto exchange apps when the price of Bitcoin exceeded $20,000

Does the Cryptocurrency Industry Have a Significant Impact on the Overall Financial System?

As the cryptocurrency industry continues to develop, BIS is concerned whether its risks will spill over into the broader financial system.

The horizontal axis in the chart below represents the level of cryptocurrency adoption in a country from January 2021 to June 2022, while the vertical axis represents the changes in local stock market prices on the left and financial conditions on the right. Each point represents a country, and the lines indicate the estimated relationship between cryptocurrency adoption and broader financial system conditions.

The chart shows that the impact of the cryptocurrency industry on stock prices or broader financial markets is limited, at best showing a weak correlation, affecting primarily retail investors.