The Financial Conduct Authority (FCA) has today published two pieces of research looking at UK consumer attitudes to cryptoassets - such as Bitcoin or Ether - indicating potential harms, including the fact that many consumers may not fully understand what they are purchasing.
The research includes qualitative interviews with UK consumers and a national survey, which found that several of those interviewed talked of wanting to buy a ‘whole’ coin, suggesting they did not realise they could buy part of a cryptoasset.
Despite this lack of understanding, the cryptoasset owners interviewed were often looking for ways to ‘get rich quick’, citing friends, acquaintances and social media influencers as key motivations for buying cryptoassets.
The research found that some cryptoasset owners made their purchases without completing any research beforehand.
However, despite the general poor understanding of cryptoassets amongst UK consumers, the survey suggested that currently the overall scale of harm may not be as high as previously thought.
The FCA revealed that 73 per cent of UK consumers surveyed don’t know what a 'cryptocurrency' is or are unable to define it – those most aware of them are likely to be men aged between 20 and 44.
It estimated that only three per cent of consumers surveyed had ever bought cryptoassets. Of the small sub-sample of consumers who had bought cryptoassets, around half spent under £200 – a large majority of these said they had financed the purchases through their disposable income.
Bitcoin appears to be the favourite cryptoasset for consumers with more than half of the cryptoasset owner survey sub-sample reporting to have spent their money on this product, while one in three chose Ether.
Christopher Woolard, the FCA’s executive director of strategy and competition, said the results will help the regulator ensure it is acting on evidence as it seeks to protect consumers and market integrity.
“The results suggest that although cryptoassets may not be well understood by many consumers, the vast majority don’t buy or use them currently – whilst the research suggests some harm to individual cryptoasset users, it does not suggest a large impact on wider society.
“Nevertheless, cryptoassets are complex, volatile products – consumers investing in them should be prepared to lose all of their money,” he added.
The FCA has previously warned that cryptoassets are highly volatile and risky, with many tokens not currently regulated in the UK. This means it is unlikely that consumers will be entitled to make complaints to the Financial Ombudsman Service or protected by the Financial Services Compensation Scheme if things go wrong.
The FCA is working with the government and Bank of England, as part of a UK Cryptoassets Taskforce, to understand and address the harms from cryptoassets and encourage innovation in the interests of consumers.
It is also currently consulting on guidance to clarify the types of cryptoassets that fall within the existing regulatory perimeter. Later this year the FCA will consult on banning the sale of certain cryptoasset derivatives to retail investors.
HM Treasury is also exploring legislative change to potentially broaden the FCA’s regulatory remit to bring in further types of cryptoassets.
Also commenting on the results, AJ Bell personal finance analyst Laura Suter: "This research shows that investors went into cryptocurrencies for all the wrong reasons, ticking off every single warning sign for investing. Many people said they bought cryptocurrencies without understanding them, because they wanted to ‘get rich quick’, and had seen lots of excitement on social media about them.
“The subsequent collapse in the price of bitcoin and other cryptocurrencies should serve as a warning signal for those getting into investing that you need to do your research before you put your hard-earned cash into something. Many people in the study said they bought cryptocurrencies because friends told them to or because a taxi driver told them it was a safe bet, but failed to do any research themselves.
"It’s a timely reminder that before you invest you should make sure you understand what you’re getting into, that you know the risk of what you’re buying and that you’re not just relying on hype and excitement from friends or social media. Investing is not a get rich quick scheme, it’s a way to build wealth slowly and with patience – and anything that instils a “fear or missing out” or requires you to invest before thinking is best to be avoided.”
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