What is Crypto?
If you’re reading this article, you probably already know what Cryptocurrency is or, at least, have heard of it. It’s a digital asset designed to be used as a payment method over the internet and widely known for making early investors into Crypto millionaires. A study from the Financial Conduct Authority (FCA) in 2021 showed that in the UK, a whopping 78% of adults have heard of Crypto – but whilst awareness of Crypto is increasing, the study showed the level of understanding of what Crypto is was actually declining. This is a little bit concerning, but let's carry on...
What’s the hype with Crypto?
Couple the press coverage of the almost unbelievable success stories of early Bitcoin investors with the endorsements from major celebrities like Elon Musk and Kim Kardashian, it’s not hard to see why Crypto has become part of our everyday language.
There has also been a rise in easily accessible trading apps, such as Crypto.com, that mean you can invest in Crypto within minutes and for the last few years, the London Underground has been plastered with adverts encouraging commuters not to ‘miss out’ on the Crypto hype.
These adverts are a big problem. They don’t make it clear that investing in Crypto is a huge gamble. It’s an unregulated industry, and you’ve got no consumer protection, and no qualified advisers to speak too. The Crypto market changes rapidly, meaning investments can very quickly go up, but also very quickly shoot down.
If only there was as much hype about regulated financial advice as there was Crypto. Despite our best efforts, getting a proper financial plan in place with advice from the experts just doesn’t seem as sexy as investing in a digital currency that’s made people millionaires overnight.
Why is Crypto being regulated?
With the rapidly increasing interest in Crypto, both the Government and the FCA can no longer ignore the problem: millions of people are investing in a very high risk, speculative investment that could potentially see them losing money they could not afford to lose.
Even though investing in Crypto is very high risk, the FCA study found that less and less people see investing in Crypto as a gamble, and are increasingly likely to see them as an alternative to a mainstream investment. But the most worrying find? People who are persuaded by adverts are much more likely to regret their purchase. Regulating the industry will mean these adverts have to meet the same standards as all other financial promotions.
What will actually change?
There's a big report that details everything that's being changed, but we understand most people don't want to spend their time reading through that! So, here's a summary of the key things:
- Anyone advertising an investment in Crypto in the UK will have to have clear risk warnings on their adverts, like the rest of us already do!
- Cryptocurrencies and trading platforms will be banned from ‘inducing to invest’. In normal people language, that means they can’t offer you cash back, a referral scheme or an incentive to invest with them.
- On the platforms themselves, there needs to be adequate risk warnings throughout so when someone goes to invest, they’re clearly reminded about the risks before making their decision.
- They can only send promotions to you directly if you are classified as a certified, sophisticated investor, which discounts most of us already!
Does this mean it is safer to invest in Crypto?
To put it simply, no. It will take months before regulation kicks in, and Crypto platforms are already twisting the narrative on social media by implying regulation means they are now seen as a mainstream investment. This is not the case.
Essentially, the market will still be incredibly volatile and it’s still a very high-risk investment. All that will change is that people will be less likely to be manipulated by clever advertising, and will (hopefully) be warned repeatedly of the risks when looking at investing in Crypto.
What should you do instead of investing in Crypto?
Get advice from a qualified professional. There isn’t one financial plan that fits everyone, so getting a qualified adviser to look at your finances and understand your financial goals means you will get personalised advice on what is best for you, whether that includes investing or not.
Capital is always at risk when investing, and the potential losses and gains should always be made clear to you, so you can make the most informed decision.
For anyone interested in reading the full FCA report, you can find it here.