Data | Over 73% of cryptocurrency users have lost money, with small investors being the most affected



Image used for representational purposes

After the United States and Turkey, India has the third highest number of recorded downloads of crypto exchange apps, according to a research paper* published in the Bank for International Settlements. The study analyzed 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 is among the countries with the lowest number of downloads. This is because its large population and crypto awareness is mostly confined to urban pockets. Countries like the United States, Canada, Australia, and the United Kingdom rank much higher in terms of downloads per capita. These app adoption figures were calculated by the authors using Sensor Tower, a proprietary app intelligence data provider.

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India is also among the countries with the lowest average monthly app usage per 1,000 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 have had at least one session on an application for a month. It is important to note that legal restrictions may have played a role in the low usage of these apps in India.

The authors’ databases did not contain individual cryptocurrency investment performance. However, using the simulation, the authors arrived at an estimate of how many investors lost and gained money. By juxtaposing the number of users who downloaded the apps with Bitcoin prices at the time of download, they found that 73% of users downloaded the app when the Bitcoin price was above $20,000, as shown Chart 2. The authors assumed that these users invested in bitcoin the same day they downloaded the app and thus suffered a loss on their initial investment.

Only a few of these investors made significant gains. A majority probably lost money ( Chart 3). The authors assumed that each new user purchased $100 worth of Bitcoin in the month the app was first downloaded and in each subsequent month. Using this assumption, they calculated that 73% to 81% of users would have lost money. A median investor would have lost $431, which is 48% of the total $900 invested, the paper concludes.

In fact, analysis of blockchain data shows that as prices rose and smaller users bought Bitcoin, larger holders sold Bitcoin, earning returns at the expense of smaller users. The authors argue that many retail investors are not fully informed about the risk.

According to the authors’ calculations, Bitcoin prices and the number of users moved in tandem. Chart 4 shows that daily active users increased as Bitcoin price trends increased, with the two curves almost mimicking each other.

Thus, most new investors were attracted by 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 investors were men under 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 low-income people, were more price sensitive than iOS users.

These points indicate that users have turned to Bitcoin because of rising prices and not because of their dislike of traditional banks.

Source: Crypto Trading and Bitcoin Price: Evidence from a New Retail Adoption Database

Also Read: How a Crypto Slump Triggered a ‘Red-Out’ Liquidation

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