About three-quarters of new bitcoin investors have lost money putting their funds in the big crypto game, according to new research from one of the world’s leading central banks.
A work document from the Bank for International Settlements published on Monday examined the world of crypto from 2015 to 2022 and found evidence to affirm what we all already thought, that most people, from 73-81% of new crypto investors inevitably lost money on their initial investment. Most of the people buying crypto were from Turkey, Singapore, UK and USA at that time.
Economists noted that “risk-seeking” young men under 35 are the main segment of new bitcoin investors, according to the report. Even more interestingly, these new crypto investors are not getting into the idea of crypto because of lofty ideals of decentralized finance or breaking away from the big banks, but because they hope to make banking after being sucked in by promises of big returns for minimal effort.
If you’re a crypto critic, this working paper might do little more than confirm your own biases. However, the report assumed that a user was buying bitcoin when downloading a crypto app. Economists found that 73% of users downloaded their crypto app when the price of bitcoin was rising above $20,000. If a user purchased $100 worth of bitcoins over the ensuing months, then a median investor would have lost, say, $431, or 48% of their $900 investment.
Still, the study focuses on two major events in recent crypto history that help inform its findings. The document analyzed the shock suffered by the bitcoin ecosystem when the Chinese government started cracking down on crypto mining in 2021 as well as unrest in Kazakhstan, both of which caused shocks to the crypto market.
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After China made crypto mining largely illegal, it forced miners to export their operations to other countries, and many moved to neighboring Kazakhstan with the promise of weak regulation and cleanliness. cheap electricity. However, in January, rising fuel prices and blackouts coupled with the relentless demand for electricity from crypto miners led to violence and deadly riots. The government would have shut down internet services and took 15% of miners offline. Oh, but the true horror of the events of that time, at least for bitcoin bulls, was it also sent bitcoin prices fall.
The miners eventually moved on to places like texas, but after China and Kazakhstan, the report noted that there were significantly fewer people looking to adopt bitcoin. The event in China led to a 39% drop in bitcoin prices and a 30% reduction in the number of new users. Kazakhstan lowered prices by 19% and new users by 15%. The researchers’ other studies of bitcoin prices further reduced the variables, making the correlation between prices and new users appear to follow the same trajectory.
And here comes the kicker, people holding a lot of bitcoin, so-called crypto “whales” or even “hunchbacks” tend to sell during periods of rising prices. All of these small investors flooding the markets are just fodder for real Bitcoin bulls to sell their stocks “allowing early investors and insiders to cash in at their expense.”
As noted CointelegraphThe research is consistent with other reports from sites like Glassnode, which noted on Monday that the percentage of addresses making a profit hit its lowest level in two years.
Crypto exchanges pushed the narrative that users need to get in fast because crypto is somehow “the future.” This was especially the case in 2021 when the price of crypto was rising rapidly. Big-name players pushed the “rise online” narrative like the Crypto.com Superbowl ad with the tagline “fortune favors the brave” like just an example. Now, more and more investors are trying to withdraw their funds from Crypto.com, fearing that its reserves may be mostly made up of junk coins. FTX’s announcement featuring Larry David explaining you don’t want to ‘miss’ the future of decentralized finance worked to engender support, until last week when the entire exchange exploded.
So what about all the talk about breaking away from the power of the big banks? Well, the economists at the Bank for International Settlements have said that quite clearly.
“Users [are] being drawn to Bitcoin by rising prices – rather than an aversion to traditional banks, a search for a store of value, or distrust of public institutions,” the researchers noted.
If most crypto investors were really concerned about decentralization in their hopes of pushing the line up, there would be an even bigger pushback about Ethereum moving from a less centralized proof-of-work to a fully-fledged proof-of-stake. centralized. Like David Gérard, author of 50ft Blockchain Attackplace it in a recent blog“Decentralization is always wrong.”
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