The number of people who own crypto-assets like Bitcoin has jumped by a quarter to 2.3 million in the past year, poll finds, but experts have expressed concerns over a ‘terrifying’ lack of knowledge of the risks involved.
A Financial Conduct Authority (FCA) survey found that while more people are aware of the existence of cryptocurrencies and other digital assets, the understanding of what they are is in decline.
He found that 78% of adults have heard of cryptoassets, up from 73% a year ago.
However, of those people, only one in ten has seen the FCA’s warnings that investors could lose all of their money.
Three in 10 people could not correctly identify the definition of a cryptocurrency from a selection of possible answers. One in 7 crypto buyers said they borrowed money to finance the purchase and one in five said they were motivated by fear of missing out, or “FOMO.”
Cryptocurrencies are digital “coins” built on a decentralized database that records all transactions and is secured using complex codes, or cryptography. Because the database, known as the blockchain, is decentralized, it doesn’t need a single central organization like a bank to process transactions.
Although the number of retailers accepting bitcoin, the most popular cryptocurrency, is increasing, it is still far from being widely used as a medium of exchange.
Andrew Bailey, the Governor of the Bank of England, is one of many prominent people to issue a cryptocurrency warning. This week, he said the value of crypto assets is “very volatile and could be nothing.”
Despite the warnings, cryptoassets are increasingly viewed as a safe investment by the public. The FCA poll found that 38% of those who bought them believed they were taking a bet, up from 47% a year ago.
Enthusiasm for crypto-assets is also increasing, with more than half of crypto users reporting having had a positive experience so far and are likely to buy more from 41% to 53%.
Laith Khalaf, financial analyst at AJ Bell, said that while the research painted a “largely positive” picture, some aspects of the results were deeply concerning.
“There is a dark underbelly lurking in the numbers, which suggests that there is still potential for widespread harm to consumers,” he said.
“The fact that 14% of crypto buyers have borrowed to invest is just terrifying.
“The extreme volatility and uncertain long-term outlook for crypto means that holdings can be wiped out, leaving borrowers only their debt to remember.”
FOMO is “never a good motivation for financial decisions,” Khalaf added.
“Buying cryptocurrency is a dangerous financial activity and while many consumers seem to understand the risks, some are carelessly playing with fire.
“There is no clear path for cryptocurrency to be widely accepted as a medium of exchange between consumers and businesses and the carbon footprint of crypto mining has further weakened its credentials by as a long-term alternative to the existing monetary system. “
Kevin Pratt, financial expert at Forbes Advisor UK, said it was “disturbing” to read that one in eight consumers mistakenly think crypto investments are somehow protected by the regulator.
“You are concerned that sooner or later a lot of fingers will be badly burned, and not just from fluctuations in asset values,” Pratt said.
“After all, scammers follow the money. But perhaps authorities need to speed up their thinking on how to increase and improve crypto regulation and extend regulatory protection.
“If this is not feasible due to the nature of cryptography, then the warnings should become clearer and more visible.”
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This notice was published: 2021-06-17 16:08:16