Study Shows FOMO Drives Crypto Krill To Bitcoin Whales With Up To 81% Seeing Losses

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(Kitco News) – The crypto community is awash with pundits and ideologists touting cryptocurrency as a smart way to hedge against inflation, or a principled way to stay out of corrupt financial systems, or a prudent way to protect against global crises.

A recent study by the Bank for International Settlements (BIS) shows that these arguments are like the buffet at a casino: a nice bonus when it’s there and a convenient way to justify the whole exercise, but not what people are up to brings through the door.

In a working paper titled “Crypto Trading and Bitcoin Prices: Evidence from a New Retail Adoption Database,” authors Sebastian Doerr, Jon Frost, Raphael Auer, Giulio Cornelli, and Leonardo Gambacorta created a large dataset of retail investors’ everyday use of crypto -Exchange apps in 95 countries from 2015 to 2022.

The authors show that there is one overwhelming factor driving people to download crypto apps and buy Bitcoin: price increases.

“First, we show that an increase in the price of bitcoin is associated with a significant increase in new users, i.e. the entry of new investors,” they write, adding that the positive correlation between notable price increases is strong, even if they are for others Factors such as “general financial market conditions, uncertainty or country characteristics” are controlled.

Perhaps most tellingly, they write that “the price of bitcoin remains the most important factor in controlling global uncertainty or volatility, contradicting explanations based on bitcoin as a safe haven.” Even accounting for differences in quality and trust in institutions or the level of economic sophistication, a simple price increase “still has an economically and statistically significant effect on the number of new users and explains the lion’s share of the variability in new user entry.”

The study also makes it very clear that the “crypto bro” cliché is well deserved. “By far the largest group of users – nearly 40% – were males under the age of 35,” they write. “Men between the ages of 35 and 54 accounted for another 25 percent on average.” That means over 65% of people on platforms like Binance, Coinbase, and (Schauder) FTX are male, and they’re young.

What makes this demographic so special in the world of finance? Is it their prudent spending decisions? Your passion for careful planning? Perhaps it is their deep understanding of macroeconomic and historical factors that drives financial markets? Maybe a penchant for due diligence?

If you said risk taking, you’re right. Men under the age of 35 are “the most risk-taking segment of the population” and “more sensitive to Bitcoin price changes than female users and older men”.

Adopting crypto platforms and bitcoin investing is a young man’s game. “Less than 35% of all users worldwide are female, and the majority of female crypto app users are under 35,” they write.

When the authors correlated the timing of downloads and purchases with the demographics of downloads and purchases, the conclusion was clear: “Taken together, these patterns are consistent with the speculative motive caused by feedback trading considerations, i.e. users who are Bitcoin is attracted to rising prices rather than dislike of traditional banks, search for stores of value, or distrust of public institutions.”

But hey, this demo might answer, so what? So we young men jump into crypto when crypto is doing well…why does that matter? Well, as most older men (and almost all women) will be happy to tell you, hopping on the bandwagon and buying big is a lousy investment. The young bucks are led to the slaughterhouse like lambs. Or like krill for the whales.

The authors write that their findings “support the notion that investors, by and large, view cryptocurrencies as a speculative investment (a ‘gamble’) and not as a means of payment for real economic transactions.” They also ask a question that has answered itself in a post-Luna, post-Venture, post-FTX world: “If users are primarily driven by backward price action, then are they fully aware of a price’s potential consequences prepared? Correction?”

“Our estimates that 73-81% of global investors are likely to have lost money on their crypto investment and that larger investors (“humps”) tend to sell when smaller investors are buying may prompt further investigation of the claims that crypto will “democratize” the financial system,” they conclude.

Well, when almost everyone who voted with their wallets share in massive losses of their crypto “investments”, that’s a kind of democracy, isn’t it?

Disclaimer: The views expressed in this article are those of the author and may not reflect those of the author Kitco Metals Inc. The author has made every effort to ensure the accuracy of the information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is for informational purposes only. It is not an invitation to exchange goods, securities or other financial instruments. Kitco Metals Inc. and the author of this article assume no responsibility for any loss and/or damage resulting from the use of this publication.


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