From our “surveys that show that most bears like to defecate in arboreal areas” desk: a pair of surveys commissioned by the FCA recently has revealed that most cryptocurrency investors purchased cryptocurrency in an attempt to get rich quick, and do not fully understand what they are investing in.
In October 2018 the FCA published a joint report with the Bank of England and UK Treasury into the regulatory framework surrounding cryptocurrency. The report identified 3 major risks of harm from cryptocurrency, but noted at the time that there was little data on how much crytocurrency was actually used by UK consumers. Or in other words, how important these risks really were.
Hence the research recently published, which concludes the answer is: not very.
Two reports were published: one consisted of in-depth discussions with 31 cryptocurrency punters, the other an opinion poll of 2,132 UK consumers (not necessarily crypto currency investors).
The opinion poll found that only 3% of UK consumers had bought cryptocurrencies, and 73% didn’t know what a cryptocurrency was. Most of the other 27% were of the middle or upper-middle classes.
Of those who didn’t own cryptocurrency, only 7% said they would consider buying cryptocurrency in the future, and only 1% said they definitely would. Which is bad news for those hoping a new wave of demand will pump the price of Bitcoin again. Perhaps cryptocurrency just needs more hype and media coverage. Umm… yeah.
Half of the small number who did buy cryptocurrency spent less than £200.
The more in-depth survey found that the typical cryptocurrency investor did not have a steady job and aimed to make money without having to do much work.
Relatively few of them were in conventional or steady jobs or pursuing typical career trajectories, instead favouring more ad hoc, gig economy, freelance or part-time employment. Many described a desire to ‘get rich quick’ and ‘get ahead’.
Their engagement with cryptoassets often featured in the context of multiple strategies they had explored to make money on top of what they earned through anyemployment. They often described a motivation to make money for minimal effort, seeking what they saw as the ‘smart’ way or the ‘shortcut’.
Cryptocurrency investors typically got into cryptocurrency on the recommendation of a friend, after reading about / seeing cryptocurrency in the media, or attending a seminar. FOMO (Fear Of Missing Out) was a typical motivator for buying; i.e. seeing that Bitcoin and other cryptocurrencies had rocketed in value, and buying in the hope of further gains (which inevitably meant they were likely to buy at the top of the market).
Investors displayed a generally poor understanding of what they were investing in, arbitrarily flitting between talking about the technology of blockchain and the value of cryptocurrency as an investment, and making basic errors such as choosing a particular coin because they could buy a whole one (ignoring the fact that you can buy fractions of cryptocurrencies and it is of no importance whether you own a whole one or not).
They displayed a distrust of mainstream media and regulators, while often showing an unquestioning trust in organisations that benefited from their investment in cryptocurrency. In one example, “Karina” used Bitcoin Magazine as a source of information when deciding which cryptocurrencies to buy, and accordingly followed Bitcoin Magazine’s advice to buy Ethereum, not knowing that Bitcoin Magazine was owned by the guy who created Ethereum.
Many investors displayed similar patterns of behaviour to problem gamblers.
While some respondents understood the “high risk” associated with their purchase of cryptoassets, most believed that profit was highly likely or even inevitable at some point. The dramatic fluctuations in price and the inherent riskiness in purchasing cryptoassets were rationalised as part of the thrill and, like online gamblers repeatedly checking their bets, some respondents admitted behaviours such as compulsively checking the value of their portfolios.
In a similar vein, they tended to post-rationalise money lost on cryptocurrency as “money they could afford to lose”.
Kyle was at university when he spent his entire student loan instalment on cryptoassets. He justified this to himself by saying he would have wasted the money anyway. “It was dead money anyway, I would have wasted it on weed.”
The majority of investors had no exit strategy. (Which meant that they stood no chance of making money from trading cryptocurrency; the mathematics of a zero-sum game mean that it is impossible for all participants to make a profit by holding out. The minority that cash in during the pump stage make money at the expense of the majority who “hodl” into the dump stage.) Most were holding out for outlandish returns.
I was hoping I would make so much money that I would be able to buy a house, and maybe a Lamborghini too. -Fred, 26
I’m going to leave it until it gets somewhere around a quarter of a million to a million. -Marcus, 40
The FCA concludes its executive summary by saying that consultations into whether the FCA should take further action over this insignificant fad that affects a minority of problem gamblers will continue.
If you find yourself stuck in a lift with a cryptocurrency bagholder who claims it’s not about getting rich quick but investing in an exciting new technology (which will get you rich quick), the FCA’s surveys are here.