Bitcoin has gained a cult following among young investors because of its ability to offer better safe-haven features than its traditional rival gold. The cryptocurrency’s digital and decentralized characteristics appeal to the youth, for it has grown alongside the internet boom.
deVere Group, a global financial consultancy, surveyed more than 700 millennials in December last year and found that 67 percent of them preferred Bitcoin over gold. But as more 18-35-year-olds pick up their first bitcoin trade, they are also taking one of the biggest investment risks of their lives, warns the Financial Conduct Authority.
In a report published Tuesday, the UK regulator said that almost two-thirds of new investors buying Bitcoin and similar “high-risk” assets would struggle to cope up with losses if their investments bitter.
“We are worried that some investors are being tempted — often through online adverts or high-pressure sales tactics — into buying higher-risk products that are very unlikely to be suitable for them,” said Sheldon Mills, executive director of consumers and competition at the FCA.
The warnings appeared as the number of retail traders surged dramatically to an all-time high during the coronavirus pandemic. People locked down at homes with additional time, and stimulus money picked up low-cost trading platforms to invest in random assets. Bitcoin surged by more than 1,500 percent during the period, led partially by a retail boom.
According to blockchain analytics firm Coin Metrics, the number of active Bitcoin addresses surged by more than 100 percent in 2020. The cryptocurrency grew into both retail and institutional investors’ conscience as the global central banks injected trillions of dollars into their economies to safeguard them from the pandemic’s aftermath.
That severely affected their national currencies’ purchasing power, with the global store of value, the US dollar, losing more than 12 percent of its worth against the top foreign currencies’ basket.
Bitcoin served as an anti-inflation, anti-fiat asset during the period.
The FCA noted after a survey that most of the young investors rely on hyped information before deciding to invest in riskier assets like bitcoin. They carry poor awareness and understanding of the trade risks, taking upside cues from perma-bullish social media influencers on YouTube and Twitter.
They believe they would get out of the market at extremely high profits.
40 percent of FCA survey responders could not explain why they invested in a particular stock or cryptocurrency. The regulator added that bitcoin and other high-risk assets remain “unsuitable” for investors with no prior experience in financial markets.