According to a survey by the FCA, social media hype and competition are pushing young investors towards high risk products.
Most cryptocurrency investors under the age of 40 don’t realize it isn’t a regulated product, according to the UK Financial Conduct Authority (FCA).
Cryptocurrencies are not regulated in the UK, meaning investors lack protection and risk their money when investing. But, according to a survey published by the FCA, most young people investing in crypto aren’t aware of this, with 69% of Brits incorrectly believing it is regulated.
FCA says young investors are driven by competition and hype
Three-quarters (76%) of younger investors are driven by “competition” with friends and family when it comes to investing in a cryptocurrency or other high-risk products such as foreign exchange or crowdfunding, a survey by the city watchdog revealed.
Meanwhile, 68% of respondents compared investing in such assets to gambling, the FCA said. The regulator says findings were the result of surveys with 1,000 respondents aged 18-40 who invested in one or more high-risk investment products.
More than half (58%) of respondents said they were incentivized to make a high-risk investment after hearing about it on the news or social media, according to the FCA.
Bitcoin is currently near an all-time high after surging above $64,000 today. The premier cryptocurrency has been known to be volatile by nature, dropping from more than $64,000 in April to below $30,000 in July. It’s still more than doubled in price so far this year.
Despite the description of bitcoin from its proponents as a long-term means of accumulating wealth, the FCA found that only 21% of under 40s in the UK said they were considering holding their most recent investment for more than a year.
“We are seeing more people chasing high returns. But high returns can mean higher risks,” said Sarah Pritchard, executive director of markets at the FCA. We want to give consumers greater confidence to invest and help them to do so safely, understanding the level of risk involved.”
The regulator says it’s enlisted the help of Olympic BMX gold medalist Charlotte Worthington for a campaign warning about the dangers of investing in high-risk assets.
It comes after the FCA warned earlier this year that a “new, younger, more diverse group of consumers” was engaging in high-risk financial investments like cryptocurrencies and forex.
Amateur investors piled into the stock market this year, using platforms like Robinhood and Reddit, leading to volatile trading in so-called “meme stocks” like GameStop and AMC.
As AtoZ Markets reported earlier this year, the FCA warned crypto investors should be prepared to lose all their money, echoing a similar warning from Bank of England Governor Andrew Bailey.
Be a smart investor
The regulator is encouraging consumers to be InvestSmart when thinking about investing. In particular, it recommends:
‘Five important questions to ask yourself before you invest’:
- Am I comfortable with the level of risk?
- Do I understand the investment being offered to me?
- Are my investments regulated?
- Am I protected if the investment provider or my adviser goes out of business?
- Should I get financial advice?
Think we missed something? Let us know in the comment section below.