FCA warns against young crypto investors’ willingness to take high risks

• Younger investors are getting involved in cryptocurrencies due to the thrill of investing and the availability of new apps.
• These investors make decisions on whether to buy or sell cryptocurrencies based on their instinct.
• Money is going to shift from boomers to millennials through inheritance, which could continue to boost the cryptocurrency market.

The UK’s Financial Conduct Authority (FCA) published research findings on younger investors, suggesting that the cohort is engaging in riskier investments, including cryptocurrencies and foreign exchange. 

Younger investors tend to allocate capital to Bitcoin

517 self-directed investors — who make decisions on investing on their own behalf — in the UK were surveyed by the FCA and strategy consultancy BritainThinks.

The research found that the new, younger, and “more diverse group” of investors are getting involved in the trading of cryptocurrencies due to the availability of new apps. The financial watchdog further argued that the younger generation is investing for the wrong reasons.

While newer individual investors tend to be younger, this cohort is more likely to allocate their money to speculative investments such as Bitcoin while at the same time being less aware of risks.

For many of these investors, emotions and instincts guide their reasons to invest, according to the FCA, and they enjoy the “thrill of investing,” as well as the social factors like the status of holding part of the ownership of the companies they invest in. 

Functional reasons, including saving up for retirement or to hedge against inflation, were cited as less important than the challenge and novelty of these high-risk products. 

40% of investors do not understand investment risks

The FCA suggests that higher-risk investment products may not always be suitable for younger consumers, as they could have a significant impact on their lives. 59% of those who were surveyed said that a significant investment loss would have a massive impact on their current or future lifestyle.

With social media continuing to be one of the main drivers of influence on the younger generation, largely attributed to influencers and celebrities such as Elon Musk advocating for Bitcoin and Dogecoin, younger investors are attracted to the buzz of investing. 

The research further indicated that young investors often are highly confident and have claimed knowledge, but on the other hand, show a lack of awareness of the risks associated with investing in products like crypto. 

Results show that 40% of these investors do not see the idea of “losing some money” as one of the risks of investing. A staggering 78% of these investors also rely on instinct to decide whether to buy or sell.

Millennial stimulus money is going into Bitcoin

The latest stimulus package in the US economy has seen a pump of $1.9 trillion into their economy, the largest of the three stimulus bills so far. Stimulus checks make up for around $380 billion of the stimulus package, with roughly $40 billion expected to flood the cryptocurrency market. 

Mizuho estimated that a large portion of the checks could go into Bitcoin and stocks, as 61% of respondents said they would be putting money into Bitcoin. 

A recent poll by Yahoo Finance found that at least 7% of people surveyed expect to use the money to invest in cryptocurrencies like Bitcoin. 10% of young investors aged 18 to 24 are planning to put their stimulus money into cryptocurrencies. Results on the millennial age group are even higher — 15% are purchasing digital assets with their stimulus payout. 

The tide is shifting to crypto

The average age of investors in Bitcoin has decreased from 37 in 2017 to 25 this year. BTC Markets, a Bitcoin exchange, also noted greater activity among its users based on the cohort aged under 30. 

In another survey, financial adviser DeVere found that over 67% of 700 millennial clients preferred Bitcoin to gold as a safe-haven asset.

As more institutions are getting comfortable or even endorsing cryptocurrencies alongside millennials, there is a generational change in thinking. The value of Bitcoin is essentially decentralized and based on the belief that it has fundamental value.

DeVere estimates that $60 trillion is due to shift to the younger generation, as millennials inherit as the boomers die out.

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