As published on international-adviser.com, Thursday 17 June, 2021.
The number of adults in the UK holding cryptoassets is rising, according to research by the Financial Conduct Authority (FCA).
Currently, 2.3 million people aged over 18 hold the assets compared to 1.9 million last year.
More people are now aware of cryptoassets than in 2020, with 78% of adults saying they have heard of them, up from 73% a year ago.
The study also found attitudes towards these types of assets have also changed, as fewer people (38%) consider them a gamble – down from 47% last year – and they increasingly view them as a complement or alternative to mainstream investments.
But, worryingly, the overall level of understanding of crypto is declining, suggesting that more people may have heard of these assets but don’t fully realise how they work, as only 71% was able to identify the correct definition of cryptocurrency, the regulator found.
The asset classes popularity is undoubtedly growing, and a greater number of people claimed to have had a positive experience so far (53%, up from 41% in 2020) and fewer investors regret buying them, down from 15% to 11%.
But only one-in-10 adults are aware of consumer warning for cryptocurrencies on the watchdog’s website. Of those, 43% said they were discouraged from purchasing them.
Additionally, more investors are aware that these type of assets are not protected, although 12% believe otherwise.
Sheldon Mills, FCA’s executive director, consumers and competition, said: “The research highlights increased interest in cryptoassets among UK customers. The market has continued to grow, and some investors have benefitted as prices have risen.
“However, it is important for customers to understand that, because these products are largely unregulated, if something goes wrong they are unlikely to have access to the FSCS or the Financial Ombudsman Service. If consumers invest in these types of products, they should be prepared to lose all their money.”
Jessica Galletley, researcher at Boring Money, added: “These figures from the FCA reflect Boring Money’s own findings that 4% of UK adults hold cryptocurrency today, while a further 3% have held some in the past.
“Ownership is most prevalent among younger adults, with over 10% of under 45s having held crypto assets at one time or another. It is also an overwhelmingly male pursuit, with 17% of men saying they would consider purchasing crypto, compared to 9% of women.
“There is also an interesting blurring going on between investors in traditional assets and holders of cryptocurrency, a much newer, more speculative way to invest than holding shares or funds. Among customers of the UK’s largest DIY Sipp and Isa platforms, nearly one in ten hold a ‘side-hustle’ in cryptocurrency.
“And it is people that are new to investing who are most likely to be dabbling in these assets, with nearly a third (31%) of investors who started investing in the last three years saying they’re open to buying cryptoassets.
“It is crucial for investors to recognise the more speculative and volatile nature of cryptoassets, which have been shown to swing dramatically in valuation over the last 12-18 months. If you do invest in crypto, you need to be prepared to lose some or all of your investment.
“There is a danger that inexperienced investors get burnt if they go full throttle into cryptoassets in the expectation of a repeat of the rapid price increases seen in Bitcoin and other cryptocurrencies recently.”
While cryptoasset demand is surging among DIY investors, the same cannot be said for IFAs.
Research by Opinium revealed that just 7% of UK advisers would actually recommend crypto to their clients, with 93% stating they would never do so.
The number decreases to 5% when it comes to ‘meme stocks’.
A third (34%) of IFAs reported an increase in clients enquiring about cryptocurrencies in 2021, while 14% have had more requests about meme stocks than in 2020. But 91% said they would be concerned if a client said they were investing in either type of product, regardless of their portfolio size.
Around a third (34%) are afraid that clients running their own investments could mean bad news for their business.
Despite this, only 33% of IFAs believe that crypto will become a legitimate vehicle in the future, and 24% said the same about meme stocks.
Alexa Nightingale, research director at Opinium said: “With the recent crypto and meme stock frenzy, it’s no surprise that advisers are seeing an increasing interest in these vehicles from investors.
“There is clearly uncertainty and concern in the industry, and advisers with clients of all sizes would be wary if their clients were investing in these products. However, these sorts of investments are becoming more mainstream, so it will be interesting to see how advisers navigate this in future.”