The UK regulator’s attempts to warn consumers off cryptocurrencies have failed to have an impact, with experts branding latest data on the sector as “terrifying”.
The Financial Conduct Authority has ramped up its warnings over the risks for investors in the sector in recent months, repeatedly raising the prospect of consumers losing the entirety of their money if they back a cryptocurrency.
New research from the watchdog suggests that these warnings have proved inefficient, however.
Figures released by the FCA on 17 June showed only 1 in 10 people who had heard of cryptocurrencies were aware of the consumer warnings on the FCA’s website.
Though the regulator’s paper showed Brits held a largely positive view of cryptocurrencies, the FCA’s research showed that the UK crypto sector has “a dark underbelly” with potential for widespread consumer harm, said AJ Bell analyst Laith Khalaf.
“The fact that 14% of crypto buyers have borrowed to invest is simply terrifying,” said Khalaf of the data.
“The extreme volatility and uncertain long-term outlook for crypto means holdings can be wiped out, leaving borrowers with nothing but their debt as a memento. Around one in five crypto buyers said they were driven by FOMO [fear of missing out], which is never a good motivation for financial decisions.”
The FCA was contacted for comment. The published data was collected from a January survey by the regulator, prior to the latest boom and bust in cryptocurrency prices.
A major rally started in February after Tesla invested in bitcoin, pushing the token as high as $64,829 in April before it experienced several flash crashes. Following a recent so-called ‘death cross’, bitcoin fell as low as $28,814 on 22 June.
Susannah Streeter, senior investment and markets analyst at Hargreaves Lansdown, said the watchdog is now “on alert, sniffing out fresh danger” as consumers turn to cryptocurrencies as a form of investing their hard-earned cash for future returns.
“The watchdog is clearly concerned the message is not getting through,” Streeter wrote in a note following the data, which also showed that of those who had seen the warnings, 44% said they had no effect on their plans to keep or purchase tokens.
“[Bitcoin’s] volatility that 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.”
Even crypto advocates said the research showed the regulator had more work to do on making sure the public is well-informed of the risks, with more than 2.3 million Brits having invested in cryptocurrencies at the time.
“For those investors who are committed to the proposition and are investing for the long-term this is not an issue, as the base case remains the same,” said Dan Moczulski, regional UK manager and head of business development at crypto trading platform eToro. “However, anyone buying on sheer momentum needs to think again, do their research and decide if they believe in the reasoning behind the investment, not just the price movement.”
Calls have emerged for the FCA to speed up the regulation of companies who trade in or are exposed to cryptoassets, after several major delays to its authorisations process. Only a handful of firms have received approval from the FCA under its temporary registration regime — a scheme developed to help the watchdog deal with a backlog in applications — while many still wait in the wings.
“The fact that most of those surveyed use an exchange for dealing with their investments highlights the pressing need for the regulatory approval process for companies who deal with cryptoassets to be resolved, and quickly,” said Neil Williams, a white-collar crime lawyer at Mayfair-based law firm Gherson Solicitors.
“There have been arguments put forward on both sides as to the reasons for the delay — either firms aren’t reaching the stringent standards required for approval, or the bar has been unfairly set too high. Whatever the reasons, the survey confirms that the public are embracing cryptocurrencies in ever-greater numbers, which increases the need for regulatory protection.”
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