Competition and Hype Drive Young Crypto Investors, UK Watchdog Finds

A sizable majority of young investors seeking high-risk opportunities are motivated by competition and hype, a new survey has indicated. They often turn to cryptocurrency and forex products, according to the poll conducted by the U.K.’s financial regulator.

The U.K.’s Financial Conduct Authority (FCA) has carried out new research into the attitudes of young investors towards high-risk products. The watchdog has surveyed 1,000 respondents, aged between 18 and 40, as it launches a 5-year campaign to reach out to inexperienced investors that could cost the British taxpayer £11 million ($15 million).

Through the poll, the regulator has been able to establish that many of these investors are driven by competition with friends and family members when investing in cryptocurrency and forex. Three-quarters of the surveyed, 76%, said they felt a sense of competitiveness while two-thirds, or 68%, likened the experience to gambling.

At the same time, only a fifth of all respondents, 21%, were considering holding their most recent investment for more than a year and just 8% were expecting to keep the assets for at least five years. That’s despite a prevailing preference (60% of the polled) for long-term investments providing more stable, albeit lower, returns.

Hype in the news and on social media has been another driving force for new investors looking into acquiring high-risk products. Well over half of the participants in the study, 58%, said they felt encouraged to put funds into investments they were constantly hearing about in the news coverage, through social media channels, and from other people.

FCA’s new research also shows that most of the young investors who bought cryptocurrencies, a staggering 69%, believed these were regulated by the FCA and another 57% thought the same is valid for the forex products they purchased. The financial watchdog has concluded that these people were unable to understand the lack of adequate protection for them and their money.

The financial authority also notes that the survey has been conducted after around a million U.K. investors increased their holdings or made a high-risk investment between April and October 2020, during the height of the Covid-19 pandemic. Announcing the results of its research, the FCA further emphasized:

The regulator is concerned that new investors are increasingly accessing higher-risk investments which may not be right for them, or reflect their risk tolerance.

The regulator now wants to help investors make the right decisions through its Investsmart campaign which was launched on Wednesday. The initiative is part of the agency’s consumer investments strategy. It was announced in September, with the goal to build investor confidence and limit the number of people falling victim to scams or being enticed to invest in products that are too risky.

Investsmart targets inexperienced investors through social media and online, the FCA detailed. The campaign urges investors to ignore the hype and directs them to the regulator’s website where they’ll be able to receive appropriate assistance. “With our InvestSmart campaign we’re taking an innovative approach to reaching those tempted by high-risk products so that they can better understand the risks and where to get advice,” said Sarah Pritchard, executive director of markets at the FCA.

Do you agree with the findings in the FCA survey? Let us know in the comments section below.