The Bank for International Settlements (BIS) says that rising Bitcoin (BTC) prices spur much greater adoption just a few months later.
In a new bulletin from BIS, the institution says retail investors pour into Bitcoin after the price begins to rise, in hopes of chasing high returns.
“While the Bitcoin price and user numbers have moved in lockstep, upticks in user numbers usually lagged rises in the price by an average of about two months. The fact that adoption rises in the wake of price increases suggests that users enter the system attracted by high prices and with the expectation that prices continue to go up.
Indeed, this positive correlation remains robust when controlling for other potential drivers, such as overall financial market conditions, uncertainty or country characteristics. In particular, the price of Bitcoin remains a much more important predictor of adoption compared with many other indicators, including stock market performance or volatility, changes in the price of gold or the levels of global uncertainty.”
BIS says while Bitcoin price increases appeared tied to more retail investors entering the crypto market, most of these investors have likely lost money on their holdings for failing to time the market swings.
“Around the world, bitcoin price increases have been tied to greater entry by retail investors. However, most global investors have probably lost money on their crypto investments.
These losses could be exacerbated by the fact that larger, more sophisticated investors tended to sell their coins right before steep price declines, while smaller investors were still buying.”
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