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  1. Analysis
July 30, 2021

The trendy fool’s game: Jumping blind into cryptos

By Mohamed Dabo

The Financial Conduct Authority (FCA) says many people seem to know less and less about cryptoassets even as they continue to buy more and more of them. Mohamed Dabo reports

While ownership of cryptoassets continues to increase, the regulator says, the level of understanding of the digital currencies is declining, suggesting that some crypto users may not fully understand what they are buying.

Median holdings have risen (up from £260 to £300) in a strong period of price increases, but the profile of cryptocurrency owners has not changed substantially – the population remains skewed towards men who are over 35 and are from the AB social grade.

“However, we find that attitudes have shifted, as cryptocurrencies appear to have become more normalised – fewer crypto users regard them as a gamble (38%, down from 47%) and more see them as an alternative or complement to mainstream investments, with half of crypto users saying they intend to invest more,” the FCA says in a new report.

The FCA’s study estimates that 2.3 million adults now hold cryptoassets (up from 1.9 million last year). 78% of adults have now heard of cryptoassets, up from 73% in a year.

A surge of interest in cryptos

The 2021 research follows heightened public interest and media coverage, alongside continued growth of the cryptocurrency market, including high cryptocurrency prices.

It also comes after more widespread involvement of financial services firms in the market, and significant institutional investment. With these trends in mind, it is unsurprising that our research shows that both ownership and awareness have risen.

This also follows a period of continued interest in the cryptocurrency market from the Government, the FCA, the Bank of England and the Payment Systems Regulator, including through the UK Cryptoasset Taskforce.

Overall, public awareness and our estimate for ownership is up to around 2.3 million, up from around 1.9 million in 2020 – and 78% of adults have now heard of cryptocurrencies.

For this year’s study the UK population was taken to be approximately 52 million, while in 2020 it was taken to be around 50 million.

More investors see cryptos as alternative to mainstream investments

The consumer research shows that as holding cryptoassets has become more common attitudes to them have changed. 38% of crypto users regard them as a gamble (down from 47% last year), while increasing numbers see them as either a complement or alternative to mainstream investments.

By contrast, the level of overall understanding of cryptocurrencies is declining, suggesting that some people who have heard of crypto may not fully understand, with only 71% correctly identified the definition of cryptocurrency from a list of statements.

Enthusiasm for cryptoassets is growing with over half of crypto users saying 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%.

1 in 10 who had heard of cryptocurrency said they are aware of consumer warnings on the FCA website. Of these, 43% said they were discouraged from buying crypto. Most consumers recognise that crypto investments are not protected, although 12% of crypto users believe otherwise.

A familiar warning from the regulator

Sheldon Mills, FCA’s Executive Director, 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.”

FCA keeps a wary eye on cryptoassets

The research is the FCA’s fourth consumer research publication on cryptoassets ownership.

It is part of the FCA’s strategy to develop its thinking on the potential harms and benefits to consumers from cryptoassets and help better understand consumers’ attitudes and patterns of use.

During that period the FCA issued further consumer warnings, stating that investing in cryptoassets is high risk and that investors should be prepared to lose all their money.

The FCA says it will continue working closely with HM Treasury and other regulators, including through the UK Cryptoasset Taskforce.

Meanwhile, some firms continue to offer investments in cryptoassets, or lending or investments linked to cryptoassets, that promise high returns.

Cryptocurrencies are, generally, outside the regulatory perimeter. The FCA perimeter determines which activities require authorisation and what level of protection consumers can expect for the financial services and products they purchase.

The perimeter is decided by the Government and Parliament through legislation.

While cryptocurrencies can take many forms, and tokens can have very different properties, the most well-known take the form of unregulated, transferable tokens, including Bitcoin, Ether and Ripple.

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