Major cryptocurrency debacles in 2022 caused a surge in cryptocurrency trading. However, large investors sold their assets at the expense of smaller investors who tried to diversify their assets in times of crisis, according to new data from the Bank for International Settlements (BIS).
The BIS report says these patterns highlight “the need for better investor protection in the crypto space”, and reiterates its previous calls for global coordination in digital asset regulation, warning against increased exposure to the global financial system.
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It suggests options such as “ban specific crypto activities, contain crypto, regulate the sector or a combination thereof” to promote market integrity, investor protection and financial stability.
The report also highlights that a study of retail investor returns on bitcoin over a roughly seven-year period from 2015 found that the median retail investor lost about half of their investment by December 2022, despite the large price increase that occurred from 2015 to 2021.
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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 (CRYPTO: BTC) price peaked at $69,000, the global average daily active user increased . from 100,000 to more than 30 million.
However, the report states that “most global investors are likely to have lost money on their crypto investments,” highlighting the fact that larger, more sophisticated investors tended to sell their coins just before sharp price drops, while smaller investors continued to buy.
Regulators remain concerned about market manipulation and insider trading in digital assets. After the collapse of Terra (CRYPTO: LUNC) and Luna (CRYPTO: LUNA) in May, and the collapse of the FTT token and exchange FTX (CRYPTO: FTT), Bitcoin, Ether (CRYPTO: ETH), and other assets fell by over 20% in a matter of days.
But the study found that daily active users increased on major exchanges Binance (CRYPTO: BNB), Coin base (NASDAQ:COIN), and FTX during both of these crises, as users tried to “weather the storm by realigning their portfolios away from owning tokens under stress towards other crypto assets, including asset-backed stablecoins.”
Next: Hong Kong’s Securities Watchdog proposes to allow retail investors to trade big-cap cryptocurrencies
