On July 1, the Bank for International Settlements published an article titled “Distrust or Speculation?” The research article of “Socio-economic Drivers of U.S. Cryptocurrency Investment”, the author conducts research on current U.S. cryptocurrency investors from survey reports and data reports.
According to the introduction of the Bank for International Settlements (BIS) on the official website of the Ministry of Foreign Affairs of China, the Bank for International Settlements (BIS) was established in 1930. It was originally set up to deal with German war reparations after the First World War, and later evolved into An international financial institution cooperating with central banks of various countries is the oldest international financial organization in the world. The Bank for International Settlements is headquartered in Basel, Switzerland, with representative offices in Hong Kong and Mexico City.
The author will interpret this report below.
Cryptocurrencies such as Bitcoin and Ethereum have been sold as substitutes for government-issued currencies and commercial banks. Proponents of cryptocurrency believe that the key value proposition of asset classes is their firm resistance to devaluation and scrutiny by governments or financial institutions on who can trade. The Bank for International Settlements assessed whether distrust of the existing financial system is indeed a motivation for investing in cryptocurrencies, and also studied the socio-economic characteristics of cryptocurrency holders.
The paper uses US survey data to consider whether cryptocurrency as an alternative to the mainstream financial system is attractive to retail investors. It also provides an overview of investors and discusses their understanding of the asset class. The Bank for International Settlements analyzed the cryptocurrency investment patterns of different cryptocurrencies over time.
They found no evidence to support the hypothesis that cryptocurrency is seen as an alternative to the mainstream financial system. Investors of cryptocurrency are not more concerned about the safety of cash or commercial banking than others. Cryptocurrency investors are often educated, young and male. People with experience in using digital finance are more likely to invest in cryptocurrencies. In recent years, although the level of knowledge about cryptocurrencies has tended to be consistent, a gap in cryptocurrency ownership between genders has emerged.
The Bank for International Settlements studied the differences in investor characteristics among different cryptocurrencies and found that owners of cryptocurrencies tend to stick to their investments.
Using representative data from the US Consumer Payment Choice Survey, it refuted the assumption that cryptocurrency investors are motivated by distrust of fiat currencies or regulated finance. Compared with the general population, there is no difference in the level of investors’ concerns about the safety of cash or commercial banking services. The Bank for International Settlements found that cryptocurrency investors are often educated, young and digital natives. In recent years, there has been a gap in the ownership of transgender cryptocurrencies. The Bank for International Settlements studied how the investor characteristics of different cryptocurrencies have changed and showed that owners of cryptocurrencies are increasingly inclined to hold their investments for longer periods of time.
Digital currency, cryptocurrency, distributed ledger technology, blockchain, payment, digitization, banking, household finance, currency, bitcoin, ether, xrp, bitcoin cash, litecoin, stellar coin, eos
What caused the cryptocurrency bull market in 2021?
The first finding in the BIS study is mentioned in the introduction.
According to the Bank for International Settlements, the bull market we saw earlier this year was caused by Robin Hood’s suspension of gaming stock trading in late January.
Bai Ze’s Note:
On January 11, 2021, Game Station announced an agreement with the venture capital fund RC Venture LLC. Three members from RC Venture joined Game Station’s directors to promote its transformation into a digital retailer. This news became the key to the reversal of Game Station’s stock price-a large number of US stocks retail investors were attracted to buy its shares. What followed was a surge in stock prices. On January 13, the retail army first showed its power, and the game post soared nearly 94% in intraday trading.
The rising trend of the game station has attracted the attention of the American short-selling agency “Citron Research” (Citron Research). On January 21st, Andrew Left, the founder of Citron, publicly stated that the valuation of Game Inn is already too high, and the stock price will fall back to US$20 after it rises above US$40. Citron is a short-selling institution with a history of nearly 20 years. It is known for its aggressive short-selling. It has shorted more than 20 Chinese concept stock companies, of which 7 were delisted and delisted, and some companies were reorganized.
In the Wall Street Bets (WSB) section of the social forum Reddit, Andrew’s remarks caused an uproar. WSB is known as the “retail investor base” of the US stock market. They are dissatisfied with Citron’s statement and continue to hype game stations to attract retail investors to buy stocks. On January 22, millions of shares changed hands every few minutes, with a turnover of more than 197 million shares and a turnover of US$11.5 billion. The crazy trend of the game station means that short-selling institutions have suffered heavy losses. A survey by financial data analysis company S3 Partners found that as of January 27, investors who shorted game station stocks had a cumulative loss of US$23.6 billion this year, of which a single-day loss of US$14.3 billion on the 27th alone. On the same day, Melvin Capital, a US multi-billion hedge fund, announced that it had liquidated its short position in Game Post on Tuesday afternoon, and the institution began to “surrender” to retail investors.
The Bank for International Settlements believes that all disgruntled traders on Wall Street decided to transfer their funds to cryptocurrency after being cut off by the brokerage.
This was supported by news that appeared in the following days, which stated that the Rogue Reddit community had turned its attention to Dogecoin.
Elon Musk is also adding fuel to the fire. The Bank for International Settlements report stated that he was the chief culprit in smashing the crypto market in mid-May.
The Bank for International Settlements continues to claim that the plunge in cryptocurrency prices in May and June proves that cryptocurrencies are not censorship-resistant.
How many Americans hold cryptocurrency?
The second finding of the Bank for International Settlements research is that only 1.4% of Americans hold cryptocurrencies. And this statistic seems to be completely different from a May study by the New York Digital Investment Group, which showed that nearly 20% of the US population holds Bitcoin.
According to Nasdaq, NYDIG research uses the same standards as the U.S. Census Bureau. But even if we assume that the NYDIG study is biased, this still cannot explain such a huge difference in numbers between the two studies.
However, what can explain this difference is that the Bank for International Settlements used data from the 2019 US Consumer Payment Choice Survey. Annual survey conducted by the Federal Reserve Bank of Atlanta.
As early as 2019, we were not completely in a bull market. This means that there is not too much multimedia or investors paying attention to cryptocurrencies. Obviously, there will be no shortage of exposure for cryptocurrencies in 2020 and 2021.
The picture shows the annual exposure of Bitcoin. Image source: Coinmarketcap
In this regard, the Federal Reserve Bank of Atlanta has actually released the 2020 version of the Consumer Payment Choice Survey, and 4% of respondents said they hold some kind of cryptocurrency. This is more than twice the 1.4% figure in the BIS study, which raises the question of why they don’t use this data.
Whether to trust the current monetary system
The third in the BIS study found that the ownership of cryptocurrencies has nothing to do with distrust of the current financial system.
The research report pointed out that users who have a debit card, use mobile applications for payment, and use PayPal have increased the probability of investing in cryptocurrency by 1.9%, 3.5%, and 2%, respectively. The survey results also show that, given that there is no difference in the perceived security of cash and online banking, the demand for cryptocurrencies is not driven by distrust of cash or the financial industry.
In other words, people who use digital payments and people who invest in cryptocurrency have roughly the same level of trust in the current financial system, which means that cryptocurrency investors will not buy it.
Interestingly, neither of these two groups have very high levels of trust in the financial system. As shown in the brief data summary early in the study, Americans believe that the current financial system scores about 3 points (out of 5 points) for the safety of cash and bank payments.
In other words, it is obvious that most people nowadays invest in cryptocurrencies for profit, which does not mean distrust of the financial system.
Cryptocurrency awareness and ownership
The fourth finding of the Bank for International Settlements research is related to cryptocurrency awareness and ownership.
According to research reports, the most widely known cryptocurrency is Bitcoin, and it is still the case today, although Dogecoin may be a close second.
The three most widely owned cryptocurrencies are Bitcoin, Ethereum, and Litecoin, which can explain why these three continue to appear whenever a company enables cryptocurrency payments.
The average level of education of cryptocurrency holders is higher than that of the general population, and most of them have received three to four years of college education. It is equivalent to a bachelor’s degree in most universities and colleges.
This makes sense again, because even if the basic concept of cryptocurrency is improved, considerable financial knowledge and technical capabilities are required to complete some operations, such as using exchanges, using cryptocurrency wallets, and performing DeFi operations. As we can see in the chart here, XRP and Ethereum holders have the highest level of education, and both have higher education years that exceed a bachelor’s degree.
Among them, investors who hold Litecoin have the lowest level of education. I think this is because the biggest selling point of the Litecoin community is “Bit Gold and Lite Silver”, which may be the easiest idea to understand cryptocurrency. In the past year, with the successful listing of Grayscale’s Litecoin Trust, these statistics may have undergone some changes. I believe that all people who invest in Grayscale Trust have good higher education qualifications.
It is also worth pointing out that there may be other cryptocurrencies that attract more highly educated people, but they are not on the survey list.
The Bank for International Settlements research report also classified cryptocurrency holders by income, and the results were similar to the above-mentioned higher education survey. Considering that education plays an important role in future job salaries, this is not surprising.
Another interesting finding of the Bank for International Settlements in this part of the research comes from a 2017 reference survey, which showed that 80% of cryptocurrency investors believe that BTC will become the dominant cryptocurrency in five years. Some of the interviewees invested in this result, because 40% of the interviewees also stated that they intend to use futures contracts to trade Bitcoin.
This is important because over-leveraged trading is one of the main reasons why the crypto market is so turbulent. Whenever the price drops, billions of dollars of BTC from over-leveraged traders are liquidated, which can lead to a terrible flash crash.
Or it could be that the institution manipulated the price in order to deliberately create this situation. This can be explained by Wyckoff’s theory.
Note to the author: More than 100 years ago, Richard Wyckoff noticed a problem while working on Wall Street with the financial giants of JPMorgan Chase and Charles Dow: At that time, ordinary retail transactions They are often hit by institutions and large investors, who manipulate prices to scare away their stocks and commodities.
To help people discover this kind of market manipulation, Wyckoff recommends quoting all the fluctuations in the market and all the various stocks as if they were the result of one person’s operation. Let’s call him a theoretical player. Sitting behind the scenes and manipulating stocks will be detrimental to your investment. If you understand this, it will generate huge profits for you.
The base of long-term holders of cryptocurrencies
The fifth finding in the Bank for International Settlements research is probably the most important, and that is that most cryptocurrency investors become long-term holders.
Specifically, the probability of users who own cryptocurrencies in the three years of 2017, 2018, and 2019 has increased by 61%, 56%, and 55% for the three years of 2016, 2017, and 2018, respectively. In other words, those who have invested in cryptocurrencies in the past are likely to continue investing.
It is worth mentioning that the research report pointed out that long-term holding of cryptocurrency is likely to stabilize the entire cryptocurrency market and turn cryptocurrencies like BTC into a store of value such as gold.
The gender gap in cryptocurrency investors
The sixth finding in the Bank for International Settlements research is related to the gender gap in cryptocurrency investment.
According to data from the Bank for International Settlements, approximately 75% of cryptocurrency investors are men, and only approximately 25% of them are women.
Before 2017, the proportion of men and women investing in cryptocurrencies was roughly the same. However, since 2017, this gap has been widening rapidly.
We might think that female investors are not that interested in cryptocurrencies, but obviously, this is not the case. The proportion of women who understand cryptocurrency is basically the same as that of men, 65% to 75% to be precise.
So, what causes this difference in cryptocurrency investment between men and women? According to the Bank for International Settlements, the answer is that women are more risk-averse than men. As far as investment is concerned, cryptocurrencies are at a higher level of risk. And it is one of the key factors affecting the price of Bitcoin and other cryptocurrencies.
Policy recommendations of the Bank for International Settlements
After discussing all these interesting findings, BIS proposed a more interesting set of policy recommendations at the end of its research.
First, it believes that cryptocurrencies are not regarded as currencies by investors and the niche digital speculators we cited. Therefore, they should be strictly regulated.
Of course, the problem here is that BIS is a policy prescription based on US data. If you ask someone living in Turkey, Nigeria or El Salvador, you might get a very different answer.
BIS also seems to imply that proof-of-work cryptocurrencies in particular need to be strictly regulated. This is because BIS believes that after the last BTC is mined, transaction fees alone will not be able to sustain Bitcoin’s survival.
Therefore, the only solution is to cite institutions that may require regulation or supervision in the long run.
Effective supervision through international cooperation is the key to this industry. The inherent cross-border nature of encrypted assets and the uneven global implementation of international standards in this field make international cooperation a key component of effective supervision. This is especially necessary considering that this is a brand new industry. Supervisors in various countries have the necessary legal powers and channels for international cooperation, but the actual use of these powers and channels is another area that needs improvement.
to sum up
Every time I read a report or research on the cryptocurrency market, I think it’s important to pay attention to who put it together and how they come to their conclusions.
Regarding this study by the Bank for International Settlements, the author believes that they may have a negative bias towards cryptocurrencies and may not use the latest data from their sources. After all, they are a bank (in other words, BIS is a central bank’s bank).
The large-scale adoption of cryptocurrency is happening fast, and the speed of cryptocurrency innovation is also increasing day by day. Cryptocurrency is no longer a niche speculative asset class. They have been held by some giant listed companies and investment funds in the market.
Encrypted lending, lending, saving, and payment may be a profitable pastime in the Western world, but it is a prerequisite for the survival of millions of people elsewhere on the planet. So if this research shows us anything, it is that central banks are beginning to get nervous about the adoption and innovation of cryptocurrencies.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/bank-for-international-settlements-what-caused-this-round-of-cryptocurrency-bull-market/
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