Crypto retail investors have lost money over the past 7 years

Crypto retail investors have lost crypto money over the years. The volatile nature of cryptocurrencies and the lack of regulation in the crypto market has led to many cases where investors have lost large amounts of money. According to the BIS report, chasing retail crypto prices is a loss.

Recent years have seen a rise in the popularity of cryptocurrencies, with Bitcoin leading the pack. As cryptocurrency prices soared, many retail investors jumped on the bandwagon, hoping to make a quick profit. However, for many investors, their journey into the world of cryptocurrencies has been a painful one, with most losing money.

One of the main reasons retail investors have lost money is the highly volatile nature of cryptocurrencies. Cryptocurrency prices can fluctuate rapidly, sometimes by up to 10-20% in a single day. This makes it extremely difficult for retail investors to predict price movements accurately, leading to poor investment decisions.

Why do retail crypto investors suffer losses?

The price of Bitcoin reached an all-time high of nearly $65,000 in April 2021, but dropped to around $30,000 in June 2021. BTC is currently trading below the $24,000 mark, a drop of over 65% compared to its historical record. Retail buyers, who are individual investors with smaller amounts of capital, are generally more exposed to market volatility and may be more likely to experience losses.

Another reason for losses experienced by retail investors is the need for knowledge and understanding of underlying cryptocurrency technology and market dynamics. Retail investors need due diligence and research to enter the market, making poor investment decisions based on hype and speculation. Furthermore, the need for more regulation and supervision in the cryptocurrency market has also contributed to the losses suffered by retail investors.

Unlike traditional financial markets, cryptocurrency is unregulated, leaving investors vulnerable to fraudulent activity and market manipulation.

Finally, the herd mentality of retail investors also played a significant role in their losses. Many investors entered the market when cryptocurrencies peaked, driven by fear of missing out on potential profits. Even after whale purchases or professional traders with deep pockets. However, when prices plummeted, many retail investors panicked, exacerbating their losses.

Whales eat all profits in adverse market conditions

The Bank of International Settlement released a report on Feb. 20 incorporating the scenarios discussed for retail investors. This is evident from last year when the market lost billions of dollars, significantly impacting retailers. More than $450 billion came out during the market turmoil following the collapse of Terra (LUNA) in May 2022 alone. Another $200 billion was lost following the bankruptcy of FTX in November 2022.

In the period discussed, “crypto trading activity increased sharply, with large and sophisticated investors selling and small retail investors buying,” the report added. This is evident in the graphs added below.

Two episodes of market turbulence in 2022 Source: BIS

The BIS notes that despite the Terra crash and the FTX crash, activity on crypto trading apps jumped after their flaws were disclosed – but large holders have typically managed “at the expense of smaller investors” as they know when sell Bitcoin and other cryptos. for retail investors before a sharp decline.

“These losses may be exacerbated by the fact that larger and more sophisticated investors tend to sell their coins right before sharp price drops, while smaller investors are still buying,” the report reads.

Retail crypto price chasing method loses money

A new set of retail investors have jumped on the crypto bandwagon, lured by good profit margins. The graph below supports the aforementioned statement. On-chain data, exchange metrics, and cryptocurrency app download statistics collected by BIS researchers suggest that most average retail crypto investors lost money from August 2015 through the end of 2022.

Retailers chased prices, with most losing money Source: BIS
Retailers chased prices, with most losing money Source: BIS

The report stated:

“Data from major cryptocurrency trading platforms from August 2015 to December 2022 shows that, as a result, the majority of cryptocurrency app users in nearly all economies have seen losses on their bitcoin holdings.”

Many BTC holders/investors have lost money in different geographic areas. Not surprisingly, losses were greatest in several emerging economies such as India, Turkey, Brazil and others. But here’s the part that created a stir in the crypto market: according to the BIS study, the devastations wrought by the collapse of renowned crypto institutions did not have a severe impact on the broader financial market. The BIS researchers insisted that “cryptocurrency crashes have little impact on broader financial conditions.”

Data collected by the BIS team pointed to the weak correlation between crypto losses and stress in the broader financial market.

The crypto turmoil had little effect on the broader financial system Source: BIS
The crypto turmoil had little effect on the broader financial system Source: BIS

“Despite crypto’s large user base and substantial losses for many investors, the market turmoil in 2022 has had little noticeable impact on broader financial conditions outside of crypto, highlighting the largely self-referential nature of crypto as a class. asset.”

To inject some stability, the BIS team recommended the following:

BIS recommendation to ensure stability Source: BIS
BIS recommendation to ensure stability Source: BIS

Lately, the head of the BIS, Agustin Carstens, has publicly declared fiat to be the superior form of money compared to cryptocurrencies. This may not be the case given the pitfalls the former still embodies, as covered by BeInCrypto.

Taking the opposite route: a cryptographic

Despite the obvious censures against Bitcoin and the cryptocurrency market in general, Bitcoin has outperformed significant asset classes over the years.

Bitcoin Compared to Other Traditional Asset Classes Source: Twitter
Bitcoin Compared to Other Traditional Asset Classes Source: twitter

Meanwhile, the daily correlation coefficient between BTC and the S&P 500 (SPX) has entered negative territory for the first time since November 2022. This is truly a confidence step for Bitcoin to not only break away from the traditional stock market, but also will have a chance again. to capture investors’ appreciation as a hedge against inflation.

However, the crypto contagion was severe. It goes without saying that this niche, but emerging cryptocurrency market has a lot of room for development. Especially when compared to fiat currencies.

Taking a relatively neutral approach, Travis Kling, a key figure behind a cryptocurrency management company, spoke to BeInCrypto. Although Carstens declared fiat the winner, Kling would not necessarily claim it as a “winner”.

“Bitcoin did not act as a store of value. Acted as an unprofitable SAAS stock. That doesn’t look set to change anytime soon. BTC is likely to move as an unprofitable SAAS stock in the future. It’s the inverse of DXY, which proves the big boy point.”

Finally, he concluded by drawing a parallel with the apparent price correction. ‘The price of BTC is about the same as it was five years ago. And if you look at what’s been accomplished in this ecosystem over those five years and where it boils down to today in 2023, it doesn’t look like we’re moving forward on the road to victory over fiat. Not even close.’

But then again, he’s an advocate of cryptography and believes in “this technology’s potential to make the world a better place.” And I want to do everything I can to help realize that potential.’

Whatever the case, if the cryptocurrency market wants to compete with the participating players, it must ensure better investor protection. This is not the case at the time of writing.


All information contained on our website is published in good faith and for general information purposes only. Any action you take on information found on our website is strictly at your own risk.

Leave a Comment