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More people hold cryptoassets – but many don’t understand them

Written by: Emma Lunn
About 2.3 million people now hold cryptoassets, up from 1.9 million last year, but understanding of crypto is declining.

Research by the Financial Conduct Authority (FCA) found that holding cryptoassets has become more common, but attitudes towards them have changed.

Nearly four in 10 (38%) of crypto users regard them as a gamble, down from 47% last year. Meanwhile increasing numbers see them as either a complement or alternative to mainstream investments.

However, the level of overall understanding of cryptocurrencies is declining, with only 71% correctly identifying the definition of cryptocurrency from a list of statements.

More than half of crypto users said they have had a positive experience so far and are likely to buy more (rising from 41% to 53%). Fewer people also regret having bought cryptocurrencies, down from 15% to 11%.

The FCA research also found that the average crypto holding is £300 and 14% of crypto investors have borrowed money to get involved with cryptocurrency.

Sheldon Mills, the FCA’s executive director for consumers and competition, said: “The research highlights increased interest in cryptoassets among UK customers. The market has continued to grow, and some investors have benefitted as prices have risen. However, it is important for customers to understand that because these products are largely unregulated that if something goes wrong they are unlikely to have access to the FSCS or the Financial Ombudsman Service. If consumers invest in these types of products, they should be prepared to lose all their money.”

Investment experts are typically wary of crypto assets. Many see crypto as a gamble rather than an investment and point to the FCA’s previous warning that investors in cryptocurrencies should be prepared to lose all their money.

Laith Khalaf, financial analyst at AJ Bell, said: “The FCA’s latest research on crypto paints a broadly positive picture and shows most consumers are using crypto sensibly and moderately.

“However, there is a dark underbelly lurking in the figures, which suggests there is still potential for widespread consumer harm. The fact that 14% of crypto buyers have borrowed to invest is simply terrifying. The extreme volatility and uncertain long-term outlook for crypto means holdings can be wiped out, leaving borrowers with nothing but their debt as a memento. Around one in five crypto buyers said they were driven by FOMO, which is never a good motivation for financial decisions. A similar proportion said they were buying crypto instead of shares or other investments, which suggests some consumers are leapfrogging traditional assets which can help to build long term wealth.”

One of the biggest risk of cryptocurrencies is that there is no clear path for cryptocurrency to achieve widespread acceptance as a means of exchange between consumers and businesses. The carbon footprint of crypto mining has further dented its credentials as a long-term alternative to the existing monetary system.

Rick Eling, investment director at Quilter, said: “The fact that participation in cryptocurrencies is up, but understanding is down paints a troubling picture. Rather than people seeing crypto as a gamble, the research suggests they see it as an investment. To me, the rise of crypto is nothing more than a bubble fed by ignorance.

“Hats off to those that have actually made money, and there’s nothing wrong with that. But cryptocurrency gambling is not investing. As responsible investors we fear for the safety of the majority, for the inexperienced, and for those whose investment expertise goes no further than an Instagram post that makes you feel like easy money exists.

“The fact of the matter is that if someone can make a lot of money quickly, they can lose the lot just as quickly. That is pure gambling.”

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