Most investors lost money on their crypto investments, and small investors were likely hit hardest, according to a new research paper from staff of the Bank for International Settlements (BIS).

A new paper by BIS staffers examines data on crypto trading using a novel database built by the authors on crypto app usage and blockchain data.

Among other things, it finds that in the wake of the major crypto market shocks over the past year — namely, the collapse of the Terra/Luna stablecoin and the failure of FTX — crypto trading activity surged.

Large investors — so-called “whales” with at least 1,000 Bitcoin in their crypto wallets — were generally selling their holdings, whereas smaller retail investors (“krill”) were typically buying, before prices dropped steeply, the paper said.

“These patterns suggest that users tried to weather the storm by adjusting their portfolios away from owning tokens under stress towards other cryptoassets, including asset-backed stablecoins. However, larger investors probably cashed out at the expense of smaller holders,” the researchers found.

Additionally, the researchers conclude that, over longer periods, there is also a pattern of retail investors losing money on crypto.

According to their research, the number of retail crypto traders is closely correlated with the price of Bitcoin, with rising user numbers generally trailing higher prices by about two months — indicating that speculative investment is the primary driver of retail usage.

“The fact that adoption rises in the wake of price increases suggests that users enter the system attracted by high prices and in the expectation that prices continue to go up,” the paper said, noting that this correlation holds regardless of overall financial market conditions, including stock market performance or volatility, and measures of global uncertainty.

Given that many crypto traders are lured in by higher prices, which have since tumbled, “a majority of investors probably lost money on their bitcoin investment,” it said.

“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. These patterns highlight the need for better investor protection in the crypto space,” it concluded.