KEY POINTS
- 69% of traders under 40 who invest in cryptocurrencies mistakenly believe they're regulated, according to the UK's Financial Conduct Authority.
- 68% of younger traders compare investing in cryptocurrencies and other high-risk products to gambling, the authority said.
- The FCA had previously warned that a "new, younger and more diverse group of consumers" are moving into riskier investments.
ENGLAND — According to the U.K. Financial Conduct Authority, the majority of cryptocurrency investors under the age of 40 are unaware that it is not a regulated product.
Since cryptocurrencies are not regulated in the United Kingdom, people who lose money due to any
reason, such as a hack on an exchange, are not protected by consumer protection laws.
However, the FCA's research indicates that most young people who invest in cryptocurrencies are unaware of this, with 69% believing falsely that it is regulated.
According to a survey by the financial services watchdog, three-quarters of younger investors are motivated by "competition" with friends and family when it comes to investing in cryptocurrencies or other high-risk products like foreign exchange or crowdfunding.
According to the FCA, 68% of respondents compared buying such assets to gambling. The regulator claims that results came from surveys with 1,000 participants between the ages of 18 and 40 who bought one or more high-risk investment products.
According to the FCA, more than half (58%) of respondents claimed they were persuaded to make a high-risk investment after reading about it in the media or on social media.
As of right now, Bitcoin is almost at an all-time high after surpassing $60,000 last week. The largest digital currency in the world has a reputation for being incredibly volatile, falling from over $64,000 in April to under $30,000 in July. Even so far this year, the price has more than doubled.
Despite the claim made by bitcoin's proponents that it can be used to build wealth over time, the FCA found that only 21% of British people under 40 said they were considering holding onto their most recent investment for longer than a year.
"More people are seeking high returns, as we are seeing. But high returns can also entail greater risks, according to Sarah Pritchard, the FCA's executive director of markets.
"We want to increase consumer confidence in their ability to invest and assist them in doing so safely while understanding the level of risk involved."
In order to raise awareness of the risks associated with investing in high-risk assets, the regulator claims to have enlisted the assistance of Olympic gold medalist in BMX Charlotte Worthington.
It comes after the FCA issued a warning earlier this year, citing the rise of online trading apps as one possible cause, that a "new, younger, more diverse group of consumers" was engaging in higher risk investments.
Using websites like Robinhood and Reddit, novice investors descended upon the stock market this year, causing volatile trading in so-called "meme stocks" like GameStop and AMC.
The U.S. Securities and Exchange Commission claimed on Monday that Robinhood and other online brokerage companies had gamified investing to promote user activity.
A similar warning from Bank of England Governor Andrew Bailey was echoed by the FCA at the beginning of this year when it advised cryptocurrency investors to be ready to lose all of their money.
Deputy Governor of the BOE Jon Cunliffe last week compared the expansion of the cryptocurrency market to the rise of subprime mortgages, which fueled the global financial crisis of 2008.