According to a new analysis by the Bank of International Settlements (BIS), the cryptocurrency market suffered losses of over $650 billion as a result of two significant crises that shook the sector last year.
The “Crypto Shocks and Retail Losses” paper described how investors traded before and after the scandals, their gains and losses, and the ways in which the instability in the cryptocurrency market affected the larger financial system.
Around $1.8 billion was lost from the market as a result of the terrible catastrophes that occurred in the crypto industry last year and put some businesses into bankruptcy.
The $40 billion Terra-Luna ecological collapse in May is one such instance. The BIS estimates that following the crisis, the market lost approximately $450 billion.
Six months later, the third-largest cryptocurrency exchange in the world, FTX, went down, wiping away more than $200 billion from the market.
The BIS also discovered that when investors sought to alter their portfolios, everyday user activity on cryptocurrency trading platforms increased last year. They made an effort to get away from the stressed-out tokens.
Medium-sized holders and retail investors expanded their bitcoin stakes by purchasing the dip while whales and bigger investors sold off their holdings. The whales “probably cashed out at the detriment of lesser investors,” according to the BIS.
The analysis also showed that there was no connection between crypto losses and the overall financial system. Due to the present level of cryptocurrency usage, the BIS said that controversies involving cryptocurrencies have little impact on the whole financial industry.
The conventional banking system was unaffected while individual and institutional investors suffered significant losses on their cryptocurrency investments.
However, our data indicate that the sharp fall in the size of the cryptocurrency industry has not yet had an impact on the larger financial system. The overall effect of a shock in the cryptocurrency realm, however, may have been considerably worse if crypto were better integrated with the actual economy and the conventional financial system, the bank added.
