How do you feel about cryptocurrency, including Bitcoin or Ether?  After being the subject of much press and hype, the world of cryptocurrency speculation has been a lot quieter of late, largely the result of plummeting prices.

Despite less adverts targeting investors and excitable news coverage, financial regulators continue to consider how they might approach cryptocurrency regulation in the future.  This is important because consumer protection is at stake; with cryptocurrency offering a decentralised, anonymous and entirely unregulated environment, there’s a significant risk of people losing their shirts when speculating in this market.

As part of their work to understand cryptocurrency, the Financial Conduct Authority (FCA) has published some new research considering UK consumer attitudes towards crypto assets.  This research includes qualitative interviews with UK consumers and a national survey.  Their qualitative research has indicated some potential consumer harm, as many people just don’t understand what they are buying.  For example, the FCA reported that several of those interviewed talked about wanting to buy a ‘whole’ coin, which suggested they didn’t realise they could purchase part of a crypto asset.

Despite this apparent lack of consumer understanding, crypto asset owners interviewed for the survey were often looking for ways to ‘get rich quick’.  They spoke about their friends, acquaintances and social media influencers as their key motivations for wanting to buy crypto assets.  Within both the survey and qualitative research, the FCA found that some crypto asset owners had bought the digital currency without carrying out any form of research first.

But despite widespread ignorance around the details and risks, the FCA concluded in their research that the overall scale of harm might not be as high as previously believed. They found that 73% of UK consumer don’t know what a cryptocurrency is or can’t define it.  The most aware of cryptocurrencies are men between the ages of 20 and 44.

The FCA is estimating that only 3% of consumers have ever bought a cryptocurrency, and around half spent less than £200 on their purchase.  Most of those who bought a cryptocurrency funded the purchase out of their disposable income, which suggests there is little risk to their wealth from making

this very speculative investment.

The most favoured cryptocurrency seems to be, unsurprisingly, Bitcoin.  More than 50% of the crypto asset owner survey sub-sample said they had spent their money on Bitcoin.  One in three had purchased Ether, another cryptocurrency.

Christopher Woolard, the FCA’s Executive Director of Strategy and Competition, said:

“This research gives us evidence we haven’t had before about how consumers interact with crypto assets.  This will help us ensure we are acting on evidence as we seek to protect consumers and market integrity.

“The results suggest that although cryptoassets may not be well understood by many consumers, the vast majority don’t buy or use them currently.  Whilst the research suggests some harm to individual cryptoasset users, it does not suggest a large impact on wider society.

“Nevertheless, cryptoassets are complex, volatile products – consumers investing in them should be prepared to lose all of their money.”

That’s wise words from the FCA; cryptocurrency speculation is a very high-risk activity, and the risk of total capital loss is genuine. It’s not the first time the regulator has warned on the dangers of cryptocurrencies; in the past, they have pointed out how highly volatile and risky these are.

With no regulation for many forms of cryptocurrency, in the UK or internationally, it’s unlikely you would be entitled to make complaints to the Financial Ombudsman Service or protected by the Financial Services Compensation Scheme if things go wrong.

It will be interesting to see how the FCA’s work on this area develops.  They are currently working with the Government and Bank of England, as part of a UK Cryptoassets Taskforce, to understand and address the harms from crypto assets and encourage innovation in the interests of consumers.  This work could result in some crypto assets falling within the scope of UK financial services regulation or even result in a ban on the same of certain cryptoasset derivatives to retail investors.

From our perspective at Wells Gibson, before speculating with cryptoassets, you need to consider how much risk you are willing and able to take.  Furthermore, do you need to take this sort of risk to achieve and maintain the lifestyle that’s important to you.