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‘All or nothing’ crypto-currency gamblers

14 February 2021

AJ Bell warned that a whole generation of investors are playing “Russian roulette” with their money after new research revealed half of cryptocurrency investors in the UK don’t have traditional savings or investment accounts.

In a survey of 1,134 cryptocurrency holders, nearly three fifths (58%) said they don’t have an ISA, while 53% don’t have a pension.

Laith Khalaf, financial analyst, AJ Bell, said: “Our research suggests that a generation of investors have leap-frogged traditional savings and investments and jumped straight into the deep end by buying cryptocurrencies. If you’re the world’s richest man, investing $1.5 billion of the assets of your electric car company into Bitcoin is one thing. But UK consumers seem to be playing Russian roulette with their money on the cryptocurrency markets.”

According to AJ Bell’s findings, a large number of crypto investors have a limited understanding of the risks involved. Nearly a third (30%) of cryptocurrency investors said they are not willing to lose any of the money they’ve invested, with just one in four prepared to lose 75% or more of their investment, despite the FCA warning that consumers should be willing to lose all of their money if investing in cryptocurrencies.

Khalaf explained: “The unpredictability of the future of cryptocurrencies means putting money into Bitcoin is more speculation than investment. In ten years’ time, it’s possible the price of Bitcoin will be significantly higher than it is now, it’s also possible it will be close to worthless. It’s such a new and evolving market that no one can predict with any confidence which one of these scenarios, or any in between, might prevail.

“The same is not true of investing in the stock market. While there are no guarantees, there’s a very good chance that over ten years you will make a positive return from an investment. For novice investors, a simple, low cost tracker fund, purchased in an ISA, will likely fit the bill. Investing is about gradually building up a nest egg, rather than getting rich quick.”

AJ Bell’s research comes just days after it was revealed that Elon Musk’s car firm Tesla bought around £1.1 billion worth of Bitcoin in January, causing the price of Bitcoin to soar to a record high.

Khalaf added: “Our research suggests there are some investors who are buying cryptocurrencies in a sensible manner – on top of a diversified portfolio, and with their eyes wide open to the potential losses. But these measured crypto investors seem to be the exception rather than the rule.

“While no one can doubt Elon Musk’s exceptional record of achievements, Tesla’s purchase of $1.5 billion of Bitcoin isn’t a strategy private investors should follow without stopping to consider the downside. Indeed, in their latest regulatory filing, Tesla took care to outline many of the risks of buying cryptocurrencies. Mr Musk can afford to lose a few quid if things don’t go to plan, not everyone else is in the same boat.”

Bitcoin image: thought-catalog-unsplash

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