Retail Investors Lost Half Of Bitcoin Investment: Why The Globe Should Coordinate Regulation

Major cryptocurrency debacles of 2022 caused a surge in retail crypto trading. However, large investors sold their assets at the expense of smaller investors who were attempting to diversify their assets during moments of crisis, according to new data from the Bank for International Settlements (BIS).

The BIS report states that these patterns highlight "the need for better investor protection in the crypto space," and reiterates its previous calls for global coordination in regulating digital assets, warning against increased exposure to the global financial system.

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It suggests options such as "banning specific crypto activities, containing crypto, regulating the sector, or a combination of these" to promote market integrity, investor protection, and financial stability.

The report also highlights that a study of retail investor returns on bitcoin for an approximately seven-year period starting in 2015 found that the median retail investor lost about half their investment by December 2022, despite the major increase in price that occurred from 2015 to 2021.

The study used crypto exchange app activity and downloads from August 2015 to mid-December 2022 in 95 countries, as well as on-chain data to reach its conclusion.

As the price of the original cryptocurrency led to spikes in users across platforms, the study found that in the period between August 2015 and November 2021, when Bitcoin's BTC/USD price reached a high of $69,000, the global average daily active users increased from 100,000 to more than 30 million.

However, the report states that "most global investors have probably lost money on their crypto investments," and highlights the fact that larger, more sophisticated investors tended to sell their coins just before sharp price declines, while smaller investors were still buying.

Regulators remain concerned about market manipulation and insider trading in digital assets. Following the collapse of Terra LUNC/USD and Luna LUNA/USD in May, and the collapse of the FTT token and exchange FTX FTT/USD, Bitcoin, Ether ETH/USD, and other assets fell by over 20% within a few days.

But, the study found that daily active users spiked on major exchanges Binance BNB/USD, Coinbase COIN, and FTX during both those crises, as users tried to "weather the storm by adjusting their portfolios away from owning tokens under stress towards other crypto assets, including asset-backed stablecoins."

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