Cryptocurrencies are one of the hottest topics in finance right now, and new investors are rushing to get in on the hype. The market is especially appealing to the younger generation with platforms like Robinhood make it seamless to invest in crypto. However, due to the lack of regulations, the market comes with various risks.
The UK’s Financial Conduct Authority (FCA) is the latest to issue a warning in this regard, stating that young investors are taking on big risks trading cryptocurrencies. According to research conducted by the regulator, a “new, younger, more diverse group” of investors are engaging in “high-risk” investments like cryptocurrencies and foreign exchange.
The FCA noted that this has been possible as a result of easily available mobile applications. But the regulator added that these investors are doing for all the wrong reasons.
“The research found that for many investors, emotions and feelings such as enjoying the thrill of investing, and social factors like the status that comes from a sense of ownership in the companies they invest in, were key reasons behind their decisions to invest,” the FCA said.
The survey was conducted in collaboration with BritainThinks, an international insight and strategy consultancy. It comprised of 517 self-directed investors from the UK, who were making their own financial decisions.
Out of the participants, 218 were aged between 45-64, while 166 were aged between 30-44, and 53 respondents were aged 18-29. The survey reports that younger investors are “less aware of risks,” and have higher chances of getting into risky investments like cryptocurrencies. Older investors tend to “typically built up to risk over time.”
The regulator continued that these investors are attracted to the “buzz” of investing because “online influencers and experts such as Elon Musk” have been praising cryptocurrencies. 38% of the participants did not have a functional reason as to why they are investing.
The survey also reported that traders had “high confidence and claimed knowledge” but wasn’t prepared to invest in most cases. Four out of ten surveyed noted they didn’t consider “losing some money” as a risk when investing. 78% of investors said they trust [their] instincts” when knowing when to buy and sell.
However, it must be noted that these young traders were able to shake the traditional as well as the cryptocurrency market with the recent GameStop and Dogecoin saga.
Meanwhile, the FCA has been continually issuing warnings regarding involvement in the crypto space. Back in January, the regulator reminded consumers that crypto assets aren’t governed by any investment regulations, adding that any investment made in them could result in high profits or deafening losses. It went on to add that any company boasting heavy returns is likely a fraud.