While all investments are subject to some degree of risk, Bitcoin and other cryptocurrencies have extremely volatile pricing, yo-yoing by as much as 30 per cent in a single day.
Added to the far higher price risk represented by cryptocurrencies and forex, where investors bet on the future value of two currencies relative to one another, is the fact that neither is covered by the Financial Services Compensation Scheme.
UK investors who invest their money into a regulated investment have the comfort of knowing that should the investment provider fail, their stake is protected up to the value of £85,000. With forex and cryptoassets, investors easily losing everything.
With the onset of the global pandemic and a burst of new investment platforms launching, offering investors easy and cheap access to crypto and forex trading, the number of people investing for the first time rose steeply last year.
Such has the popularity of high-risk investing grown that in March this year, the Financial Conduct Authority issued a statement warning younger consumers it was “worried that some investors are being tempted – often through online adverts or high-pressure sales tactics – into buying higher-risk products that are very unlikely to be suitable for them”.
The UK regulator has launched InvestSmart, a campaign aimed at helping consumers make informed investment decisions that suit their financial circumstances and attitude to risk. The campaign will run on social media platforms YouTube and TikTok.
In an interview with i, the Executive Director, Markets of Financial Conduct Authority (FCA), Ms. Sarah Pritchard said: “We want to create confident consumers. This campaign is about empowering younger investors, not inhibiting them.”
As part of its preparation for the campaign launch, the FCA surveyed 18 to 40 year-olds who have invested in high-risk assets and found 76 per cent admitted their decisions had been driven by a sense of competitiveness with friends or family.
Some 43 per cent said their investment decision boiled down to wanting to beat their peers when it came to making returns, while 58 per cent said the constant barrage of information online and on social media encouraged them to commit their savings to a specific asset.
Ms Pritchard added: “We don’t believe that the actions of many of these new investors reflect what they describe as their tolerance to risk.
“Sixty per cent of those invested in high-risk assets said they want stable returns. We don’t want to limit choice, we are just asking investors to pause and consider. Are you prepared to lose all your money? If the answer is yes, then fine.”
FCA partnered with Charlotte Worthington, the BMX freestyle’s first women’s champion in the recent Tokyo Olympics to raise awareness, to highlight the pitfalls of high-risk activities as well as the need for preparation before attempting them.
Investors are encouraged to ask these five questions before making a purchase:
- Can I afford to lose my money?
- Do I understand the investment and can I get my money out easily?
- Are my investments regulated?
- Am I protected if my investment provider goes bust?
- Should I get financial advice or guidance from an independent source?
Ms Pritchard added that the regulator will launch a formal consultation later this year, to extend its powers to crack down on advertisers promoting highrisk investments.