FCA Concerned Over Uptick in Crypto Investing | MDX Crypto

FCA Concerned Over Uptick in Crypto Investing

Spike In Crypto Investing Across The UK Has FCA Worried

There is a growing interest in cryptocurrency investing in the UK, per a Financial Conduct Authority (FCA) survey. The UK regulator says that 2.3 million adults in the UK now hold crypto assets in their investment portfolio. 

In 2020, 1.9 million UK adults made cryptocurrency purchases signalling a 21% increase in crypto assets purchases in less than a year. Currently, 4.4%, up from 3.9% of UK adults, now hold cryptocurrencies. 

The FCA survey results also point to a rising awareness in cryptocurrency investing, with 78% of UK adults now saying that they have heard of digital currencies, up from 73% in 2020.

FCA worried over Bitcoin

Rising Interest, Low Awareness

However, the regulator has sent a warning that despite the rising interest in cryptocurrency investing, fewer users seem to understand the basics of cryptocurrency investing and the risks involved. UK citizens are taking the plunge and are buying a variety of digital assets. 

Unfortunately, over 30% of these buyers lack a basic understanding of what cryptocurrencies are. This basic lack of comprehension is 4% higher than it was in the 2020 group of buyers. “Despite more people having now heard about cryptocurrency, the overall level of understanding has fallen. This suggests there may be a risk of consumers engaging with cryptocurrency without a clear understanding of it,”  says the FCA.

Deaf Ear To Regulator’s Warnings

In the past, the FCA, alongside other regulators such as the US Securities and Exchange Commission, have raised warnings over the risks in the wide and unregulated crypto speculation sector. The FCA has, for instance, issued repeat warnings that investors in digital currencies stand to risk all their capital should they make poor investment decisions. 

44% of investors who have read these FCA warnings say that they will not change their digital currency purchase decisions. 43% say that they will heed FCA and halt their digital currency speculation initiatives. One in ten cryptocurrency investors, though, have not seen the FCA warnings.

Buyers that have low awareness of risks in cryptocurrency investing display some troubling investment decisions. One in five UK crypto traders says that they have made FOMO or fear-of-missing-out driven purchases. One in 7 crypto buyers in the UK also says that they have borrowed money to make crypto purchases. 

Every investor fears missing the boat on a lucrative deal, but professional investors have learned to make emotional sentiment free investment decisions. Any trader that makes emotionally-charged investment decisions often make losses. 

The use of crypto investment strategies can curb the influence of FOMO amongst traders. Purchasing bitcoin with credit is also a risky investment decision because cryptocurrency values are highly volatile. It could take a long time before a crypto asset has accumulated sufficient worth to pay off high-interest credit card debt. 

The FCA survey also shows that several cryptocurrency buyers believe that their investment enjoys similar regulatory oversight as mainstream financial products. They were therefore overusing features such as leverage placing their capital at high risk.

Rising Positive Crypto Buying Experiences

Most buyers seek investment advice from social media platforms such as Reddit. They place close to half of their investment capital into digital currencies as part of their investment strategy.  38% of them label their strategy as a gamble, an improvement from 47% of buyers in 2020.

On the bright side, over 50% of UK crypto-asset investors say they have had a positive experience with the market. 53% of them are likely to make more purchases. The number of investors taking a keen interest in the market movements by checking into their apps and balances daily has doubled from lows of 13% in 2020 to 29%. 

Most UK buyers are HODLers and are long term bullish. They plan to make purchases and hold on to them, trusting that they will make profits over time. 70% of these buyers are millennials under the age of 35. Bitcoin is the cryptocurrency of choice amongst UK buyers. 

66% of buyers hold BTC, while 35% of them have Ether. 21% of UK buyers have Litecoin, while 18% and 15% of buyers have bought XRP and bitcoin cash, respectively.

Rising Regulations

The FCA has banned crypto derivatives trading. The regulator forbids the marketing, sale and distribution of crypto based options, CFDs and futures to retail investors. Sceptics of the regulator’s tightening rules against cryptocurrency investment access say that the FCA’s moves will only drive retail investors to unregulated platforms. Here, buyers will have fewer protections. 

“It’s a shame because the only players that are regulated (or want to be) to offer crypto derivatives products to retail (Coinshares, Crypto Facilities, etc.) are generally good actors. This move will drive retail users to unregulated platforms like Deribit and BitMEX, offering even less protection than regulated players. So, it’s not clear how the average retail user wins in this scenario,” says Dermot O’Riordan of blockchain venture capital firm Eden Block. The watchdog now has its eyes set on cryptocurrency dealers that fail its anti-money laundering laws.