UK’s FCA On Alert As More Investors Pile Into Crypto World

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UK’s FCA On Alert As More Investors Pile Into Crypto World
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The FCA has published its report on crypto asset ownership, warning about the dangers: FCA research reveals increase in cryptoasset ownership | FCA

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The FCA Is On Alert As Invesment In Crypto Assets Grows

"The UK’s financial watchdog is on alert, sniffing out fresh danger after its research shows the number of people holding crypto assets has risen by more than a fifth in just a year.

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The FCA survey shows 2.3 million adults have money invested in the crypto world and as more traders have piled in, and awareness has grown, the perception is that they have become less risky. Whereas last year almost half of all people viewed them as a gamble (47%), now just over a third do (38%).

That is a dangerous financial attitude to take, given the volatility of cryptocurrencies and tokens. It’s no surprise that the FCA has used the publication of this research as an opportunity to issue a fresh warning that people risk losing all their money if they trade in crypto assets.

Only a tenth of people surveyed said they were aware of previous warnings issued by the FCA, so the watchdog is clearly concerned the message is not getting through.

Instead, appetite for crypto investment is increasing, with more than half of all current holders saying they are likely to buy more. Regrets are increasingly few and far between with only 11% saying they wish they hadn’t bought in, compared to 15% a year earlier.

Given the dramatic price rise of some currencies like Bitcoin since last year, this is in many ways understandable. This time last year one Bitcoin cost just under $10,000, today it’s worth just shy of $40,000. But in between, the currency has been hugely volatile, losing almost half its value in a matter of weeks, after reaching a high point of more than $63,000 in April.

Volatility Causing The Nervousness

It’s this volatility which makes the regulator extremely nervous. There is a danger that because of so many posts and tips swirling around on social media, people may have been persuaded to invest emergency savings to make a quick buck, leaving them without a financial safety net.

The twists and turns in the crypto world are far from over and fresh gyrations in value are expected. Just in the last few weeks, jitters have been caused by a crackdown on paying in crypto currencies in China. The seizure of $2.3 million in Bitcoin paid as ransom by the Colonial Pipeline Company to hackers was another drag on its price. The rapid move by US agents in tracing and tracking the ransom paid, then retrieving it after gaining access to a private key to unlock the bitcoin wallet was a blow to crypto fans who have until now lauded its untraceable nature.

The decision by El Salvador to allow Bitcoin to be used as legal tender in the country helped its recovery, which was then also boosted by former cheerleader Elon Musk appearing to soften his new hard line stance against the currency providing it becomes more energy efficient.

The wax and wane of support also comes at a time when central banks are looking at much tougher rules around crypto, and potentially setting up their own digital coins to bring crypto assets into the regulated banking sector.

For investors it’s important to bear in mind that the payments world is in a state of flux, and the rules of the future game have not yet been drawn up.

Although it’s clear that cryptocurrencies in some form will find a place  at the table in the financial system, given the interest by large companies and governments, it’s very unclear which of the thousands of coins and tokens will retain their value in the future and what role they will play. Given the distinct lack of certainty on the horizon, investors should only dabble at the fringes of their portfolio, and understand the risks they face.’’

Article by Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown


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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver

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