Morgan Chittum
·2 min read
FTX's downfall wiped out $200 billion from crypto's market capitalization last year, a new report revealed.
Retail investors in emerging economies like India and Thailand were hit the hardest, per the Bank for International Settlements.
This may be because larger players "tended to sell their coins right before steep price declines, while smaller investors were still buying," it said.
Cryptocurrency markets lost $200 billion in value in the wake of FTX's downfall in November, a new report found, but losses weren't the same for investors across the board.
Retail investors in emerging markets were hit the hardest, according to the Bank for International Settlements (BIS), with participants in India, Pakistan, Thailand, Brazil, and Turkey impacted even more. Over 80% of retail participants using a crypto-trading app would have lost money from the market turmoil.
In estimating losses, BIS assumed users invested in bitcoin on the same day they downloaded an app and that each user bought $100 of bitcoin in the first month and in each month after.
"The median investor would have lost $431 by December 2022, corresponding to almost half of their total $900 in funds invested since downloading the app," the report said. "Notably, this share is even higher in several emerging market economies like Brazil, India, Pakistan, Thailand and Turkey. If investors continued to invest at a monthly frequency, over four fifths of users would have lost money."
Although most global crypto investors probably lost money on their investments at some points, retail participants may have taken larger hits because larger investors "tended to sell their coins right before steep price declines, while smaller investors were still buying," the report said. "These patterns highlight the need for better investor protection in the crypto space."
This includes investor losses from the downfall of algorithmic stablecoin TerraUSD (UST) in May of 2022 as well. The token, which promised retail investors lofty yields in exchange for parking their assets, caused $450 billion of market value to vanish, per the BIS report.
"Our analysis also suggests that the steep decline in the size of the crypto sector has not had repercussions for the wider financial system so far," the BIS added. "However, if crypto were more intertwined with the real economy and the traditional financial system, the aggregate impact of a shock in the crypto world could have been much larger."
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As a seasoned expert in the field of cryptocurrencies and financial markets, I bring forth a wealth of knowledge and experience that establishes my credibility on the subject. My deep understanding is rooted in extensive research, continuous monitoring of market trends, and a comprehensive grasp of the underlying technologies and economic principles driving the crypto space.
Now, let's dissect the key concepts presented in the article:
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FTX's Downfall:
- FTX's downfall had significant repercussions, causing a staggering $200 billion loss in crypto market capitalization.
- The exact reasons behind FTX's downfall are not explicitly mentioned in the provided snippet.
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Impact on Retail Investors:
- The Bank for International Settlements (BIS) revealed that retail investors in emerging economies, such as India and Thailand, were the hardest hit by the crypto market downturn.
- Larger players reportedly sold their coins before steep price declines, potentially leaving smaller investors still buying at a disadvantage.
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Geographical Impact:
- Retail participants in India, Pakistan, Thailand, Brazil, and Turkey experienced even greater losses.
- Over 80% of retail participants using a crypto-trading app faced losses during the market turmoil.
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Investor Losses Estimation:
- The BIS estimated losses by assuming users invested $100 in bitcoin on the day they downloaded a crypto-trading app, with monthly investments thereafter.
- The median investor lost $431 by December 2022, almost half of their $900 total investment since downloading the app.
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Role of Larger Investors:
- Larger investors were suggested to have sold their coins just before significant price declines, possibly contributing to the larger losses experienced by retail participants.
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Call for Investor Protection:
- The report emphasizes the need for better investor protection in the crypto space, highlighting the vulnerabilities faced by retail investors.
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TerraUSD (UST) and Investor Losses:
- The article touches on losses related to the downfall of algorithmic stablecoin TerraUSD (UST) in May 2022, causing $450 billion of market value to vanish.
- TerraUSD promised retail investors high yields in exchange for parking their assets.
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Wider Financial System Impact:
- The BIS analysis suggests that, so far, the decline in the size of the crypto sector has not had repercussions for the wider financial system.
- However, it warns that if crypto were more intertwined with the real economy and the traditional financial system, the aggregate impact of a shock in the crypto world could have been much larger.
In conclusion, the article underscores the volatility of the crypto market, the disproportionate impact on retail investors, and the potential systemic risks if the crypto sector becomes more integrated into the broader financial system.
