Cryptocurrency traders – according to a new study into operation the UK’s Office of Financial Conduct – are young, diverse partners who are not always balanced in their investment decisions.
The study, conducted by BritainThinks, an international strategic advisory firm, between mid-August 2020 and the end of January, was based on a sample of 517 “self-managed investors” – those who make investment decisions on their own behalf and do not seek professional financial advice.
The findings suggest that 38% of respondents do not have a functional reason for their investment choices, instead preferring emotional factors such as excitement from trading and enjoying a sense of ownership in the companies they invest in, which maintains perceived social status.
Challenge, competition, and novelty, for these investors, eclipse more sober, long-term motivations, such as putting their cash into more efficient and profitable goals. While most respondents claimed to have high confidence and sufficient knowledge of their field of investment, many allegedly lacked awareness or belief in the risks they were taking.
More than 40% did not consider “losing money” a potential investment risk, and the vast majority (78%) agreed with the statement “I trust my instincts to tell me when it’s time to buy and sell.” 78% also agreed that “There are certain types of investments, industries or companies that I consider to be a “safe bet”. “
In addition, this cohort of investors was found to be more ethnically diverse and younger, and more likely to be female than conventional investors. The study attributes this to the greater availability offered by new investment applications, in addition to ads on social media and YouTube, on which many respondents rely on tips and investment news.
However, together with the desire for novelty and investment challenges, there is a relative inability of these investors to financially overcome potential investment losses. 59% of respondents with less than three years of investment experience would find their lifestyle fundamentally affected by a significant loss. Commenting on the findings of the study, Sheldon Mills, FCA’s Executive Director for Consumer and Competition, said:
“We fear that some investors are tempted – often through online advertising or high-pressure sales tactics – to buy higher-risk products that may not be right for them.”
“Investors need to remember their overall willingness to take risks, diversify their investments and invest only the money they can afford to lose in high-risk products,” he added.
In parallel with the publication of the FCA study on Tuesday, it is launching a digital campaign to discourage investment damage, with a series of targeted questions aimed at getting traders to pause to think before diving.