A recent report by the Bank for International Settlements (BIS) revealed that the crypto industry lost more than $650 billion after two major scandals rocked the market last year.
The report titled “Crypto Shocks and Retail Losses,” explained the trading behavior of investors during and after the scandals, their gains and losses, and the effects of the cryptocurrency turmoil on the wider financial system.
Retail investors bought the decline
Last year, there were a number of terrible incidents in the crypto space that resulted in the bankruptcy of several companies and the subsequent disappearance of over $1.8 billion from the market.
One of these events is the so-called $40 billion The collapse of the Terra-Luna ecosystem in May. According to the BIS, more than $450 billion disappeared from the market after the crash.
About six months later, the world’s third largest cryptocurrency exchange FTX fellremoving more than $200 billion from the market.
BIS also found that daily user activity on cryptocurrency trading platforms increased last year as investors tried to adjust their wallets. They tried to move away from chips that were under stress.
While whales and larger investors sold off their holdings, medium holders and retail investors increased their bitcoin positions by buying the decline. According to the BIS, the whales “probably cashed in at the expense of smaller holders.”
Limited impact on the wider financial system
Additionally, the report revealed a weak correlation between crypto losses and the wider financial system. The BIS suggested that crypto scandals have a limited impact on the wider financial sector due to the current level of cryptocurrency adoption.
While individual and institutional investors have seen huge losses in their cryptocurrency investments, the traditional financial system has remained untouched.
“Our analysis also suggests that the sharp decline in the size of the crypto sector has so far had no repercussions for the wider financial system. However, if cryptocurrencies were more tied to the real economy and the traditional financial system, the combined impact of the cryptocurrency shock could be much greater,” the bank said.
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