Trading in cryptocurrencies has really taken off in the UK as millions stake their cash on gaining massive wealth from digital currencies.
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If you are a UK crypto trader or investor, you are in good company.
Nearly 2.5 million investors buy and sell cryptocurrencies like Bitcoin, according to the latest data from the UK’s crypto watchdog, the Financial Conduct Authority (FCA).
The number of UK crypto investors has surged by 500,000 since last year. Still, the regulator warns fewer than one in ten understand the risk of investing in cryptos like Bitcoin and Ethereum and fears that investor knowledge of how cryptos work is falling as their popularity grows.
The average holding climbed from £260 to £300 in a year.
Crypto knowledge drops as popularity grows
The profile of a British crypto investor is mainly male, aged over 35 years old, working as professionals or managers.
Three out of four UK adults are aware of cryptocurrencies, but one in three of them could not pick the definition of cryptocurrency from a list of answers. Seven out of ten only recognised Bitcoin, prompting the FCA to believe many adults who have heard of cryptocurrencies only recognise the most popular, Bitcoin.
The other most popular cryptos are Ethereum (35%), Litecoin (21%), XRP/Ripple (18%), and Bitcoin Cash (15%).
“Although more people have now heard about cryptocurrency, the overall level of understanding has fallen. This suggests there may be a risk of consumers engaging with cryptocurrency without a clear understanding of it,” the FCA said.
Like other global financial regulators, like the US Securities & Exchange Commission (SEC), the FCA has regularly warned anyone dabbling in cryptocurrency risks losing their money.
Quick profits or long term investments?
The wealth warning seems justified as nearly half of UK crypto investors are in the market to make a quick profit regardless of the risk.
Worryingly, one in six crypto owners has borrowed money to make their purchases.
The FCA research also discovered that many crypto owners mistakenly believed dabbling in cryptocurrency came with compensation protections like many other UK investments.
Why do people invest in cryptocurrency?
The FCA study also revealed that social media significantly influenced UK crypto owners, with many visiting websites like Reddit to find information about investing.
However, researchers noted that crypto owners influenced by advertising are more likely to regret staking their money than others.
Half of UK crypto owners confirmed that they intended to buy more crypto as they ‘know they will make money’ sooner or later, said the report.
When to take a rest from cryptocurrency investing
Three signs you need to take a break from cryptos are:
- You are spending your spare cash on crypto with no savings, leaving limited financial capacity to bear a loss
- You believe you can claim compensation if your investment goes wrong
- You are buying cryptos with borrowed money
Keeping crypto safe
Almost two-thirds of crypto investors keep their coins and tokens in a wallet through the exchange they bought them from.
One in four rely on a digital wallet, and one in five keep their crypto in a hardware wallet.
Crypto wallets are digital safe places to buy, sell or store cryptocurrency.
Many wallets are attached to exchanges, but some websites like Opera and Paypal support crypto trading.
The Opera browser comes with a built-in crypto wallet that you can switch on and off.
PayPal is a closed cryptosystem. What you buy must be sold through the site, and you can’t transfer crypto to another account.
Hardware wallets are devices that store cryptocurrencies that are not accessible to malware or hackers attacking exchanges. They are generally safer than digital wallets as users can move them offline for extra protection.
Besides exchanges, many firms offer digital wallets such as Bitcoin specialists Mycelium.
What if a crypto deal goes wrong?
The FCA only has a tiny anti-money laundering role in regulating cryptocurrency exchanges operating within Britain.
But that doesn’t matter, as 86 per cent of crypto owners and investors trade through offshore exchanges that are unregulated in the UK. This means they have no redress to an independent arbitrator who can award compensation if a crypto deal goes wrong or if coins are stolen by the constant menace of hackers.
The FCA and SEC have announced intentions to control crypto markets more tightly to protect savers and investors from theft and fraud.
What you need to know about trading crypto FAQ
The FCA has published extensive data and interpretations of the figures online for cryptocurrency owners.
A cryptocurrency is a digital-only store of value or means of payment. Most cryptocurrencies are hosted on blockchains, which are databases on decentralised computers. The decentralised network is not controlled by any government or central bank.
Bitcoin dominates the crypto market, holding around two-thirds of the market capitalisation of all cryptos. To most crypto owners, bitcoin is synonymous with the term crypto.
Many governments and banks believe the value in crypto lies in the blockchain rather than the currencies. The blockchain is the basis for Web3, which many governments and financial institutions see as ripe for developing blockchain-based digital currencies and payment systems that remain under their control.
The main disadvantage of cryptocurrency is that no ombudsman or moderator exists to listen to your complaints if an investment goes wrong. Other complaints from owners include sharp rises or falls in value that can quickly make millionaires and paupers and concerns about money laundering and other criminal activity funded by cryptos.
Most transactions take place through cryptocurrency exchanges or standalone digital wallets.
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