Data | Over 73% crypto currency users lost money, smaller investors most affected

As prices rose, smaller investors bought Bitcoin and the largest holders sold the cryptocurrency making big returns

November 22, 2022 10:45 am | Updated 12:05 pm IST

Picture used for representational purpose

Picture used for representational purpose

After the U.S. and Turkey, India has the third highest number of registered downloads of crypto exchange apps, according to a working research paper* published in the Bank for International Settlements. The study analysed 200 crypto exchange apps across 95 countries between August 2015 and June 2022. As of June 2022, there were over 30 million crypto exchange app downloads in India (Chart 1). But in terms of downloads per capita, India features among the countries with the lowest number of downloads. This is because of its vast population and crypto awareness being mostly limited to urban pockets. Countries such as the U.S., Canada, Australia and the U.K. rank much higher in terms of per capita downloads. These app adoption figures were calculated by the authors using Sensor Tower, a proprietary app intelligence data provider.

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India also features among those countries with the lowest average monthly app usage per 1 lakh people. In India, the number of daily active users in June 2022 was less than 150 per 1 lakh population. Active users are those who had at least one session on an app over a month. It is important to note that legal restrictions may have played a role in the low usage of such apps in India.

The authors’ databases did not contain individual performances of crypto currency investments. However, using simulation, the authors arrived at an estimated number of investors who lost and gained money. By juxtaposing the number of users who downloaded the apps with the Bitcoin prices at the time of download, they found that 73% of users downloaded the app when the price of Bitcoin was over $20,000, as shown in Chart 2. The authors assumed that these users invested in Bitcoin on the same day that they downloaded the app and would have thus incurred a loss on their initial investment.

Only a few of these investors made large gains. A majority likely lost money (Chart 3). The authors assumed that each new user bought $100 of Bitcoin in the month of the first app download and in each subsequent month. Using this assumption, they calculated that 73%-81% of the users would have lost money. A median investor would have lost $431, corresponding to 48% of the total $900 invested, the paper concluded.

In fact, an analysis of blockchain data shows that as prices were rising and smaller users were buying Bitcoin, the largest holders were selling Bitcoin, making returns at the smaller users’ expense. The authors argue that many retail investors are not fully informed of the risk.

According to the authors’ calculations, the Bitcoin prices and user numbers moved in tandem. Chart 4 shows that daily active users increased as Bitcoin price trends went up, with both the curves almost mimicking each other.

Thus, most new investors were attracted to higher prices and not because crypto is considered by some to be a “safe haven”, the authors argue. Chart 5 shows that nearly 40% of the investors were men under the age of 35 — commonly identified as risk takers. These users are more sensitive to price changes than other segments. The authors also found that Android users, who are relatively lower income individuals, were more sensitive to price than iOS users.

These points indicate that users gravitated towards Bitcoin due to rising prices and not due to their dislike for traditional banks.

Source: Crypto trading and Bitcoin prices: evidence from a new database of retail adoption

Also read: How a crypto fall triggered ‘stampede’ liquidation

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