Chasing the crypto dream could be a risky business for consumers
Cryptocurrencies based on blockchain are one of the biggest technological disruptions of the last decade. They offer potential for innovations in payments and services, but also pose some serious risks and challenges.
Prior to the crypto crash last summer, the value of cryptocurrencies had been rising. Since emerging into the mainstream, the number of consumer investors in crypto has grown – no doubt attracted by the large gains made in the recent past.
Euroconsumers’ Start Talking webinar on Crypto in 2022 examined these issues and many more with speakers from the European Commission involved in drafting the proposed Markets in Crypto-Assets Regulation (MiCA), industry body Blockchain 4 Europe and Natasha de Teran, a leading author on payment systems.
Cryptocrash put consumer investments at risk
Since our webinar in March 2022, the world of cryptoassets has seen its biggest crash to date, with some currencies losing up to 97% of their value in a single day. This illustrates perfectly the risks of investing in these products.
And the lack of regulatory protection for crypto investments means that currently consumers have very limited rights to redress and are left exposed when things go wrong.
The European Union’s MiCA Bill due to come into force sometime in 2023 will provide more protection for consumers against the risks associated with crypto investments and fraud.
Under the new rules “crypto-asset service providers will have to respect strong requirements to protect consumers wallets and become liable in case they lose investors’ crypto-assets.”
The rise of crypto influencers
Despite many consumers staying well away from crypto as an investment, there’s a significant number of mostly young investors who choose to put their money in. We know younger consumers tend to access a lot of their financial information from social media, and are much more open to innovations outside of traditional banking and finance.
There’s also been a rise in celebrity endorsements of crypto schemes and of social media influencers being paid to endorse sometimes risky cryptocurrency schemes.
Euroconsumers and Meta have recently collaborated on a campaign that gives young people advice and reminders on how to avoid scams and fraud in the online world, including specific advice on influencers and cryptocurrencies.
Consumer investments in cryptoassets
Against this backdrop, our Spanish member OCU wanted to find out how potential investors approach putting their money into something as risky as cryptocurrency and where they get their information and advice from.
OCU, with funding from the Spanish Ministry of Consumption surveyed consumers to understand their attitudes, experience and knowledge of crypto investment. The results help shed a light on wider trends in cryptocurrency investment and knowledge which can be applied to other jurisdictions.
Generally, knowledge about cryptocurrency beyond the very basics is low. Two out of three Spaniards could not name any cryptocurrency, those that could were mostly younger people.
Practical knowledge was limited, when respondents were asked if they could withdraw it, convert it into euros and deposit it or use it to pay for different goods and services, only 1% answered all options correctly.
6% of Spaniards over 16 years of age have invested in cryptocurrencies or in some other cryptoactive – of these 9% were men compared to only 2% of women.
61% of young investors between 16 and 30 years old have moved part of their capital to some cryptoactive, this is twice as many as among older investors.
The percentage of people who have ever invested in cryptocurrencies decreases as age increases.
The opportunity to make a profit is driving investment, despite the risks.
Of those that invest 61% think they are somewhat riskier or much riskier than other investments
But, 60% think it is somewhat or considerably more profitable than other shares or funds.
40% of those who currently have some investment in cryptoassets have less than 500 euros invested
13% have invested 5,000 euros or more.
34% of cryptocurrency investors reported losing some of the money they had invested
Who doesn’t invest?
A large majority have not invested in cryptocurrencies because they do not trust it and do not know enough about it.
Investment funds are the most popular products, with one in three Spanish investors using them.
Half of the respondents thought cryptocurrencies were a high-risk investment, and that it was possible to lose everything invested in a very short period of time.
42% believe there is a lot of fraud related to cryptocurrencies.
Where do they get advice?
Nine out of ten young investors do not use a financial advisor at all: they rely on their own research and knowledge.
Yet, only 19% claim to be well or very well informed about them, and 59% of the total investors who participated in the survey think that information on crypto-assets is usually manipulated by interested sources.
Advising on an unpredictable crypto future
With an unpredictable future for cryptocurrencies, OCU has recommended that consumers stay away from them and invest in more familiar assets. Until regulations such as the MiCA Bill come into force, investors are unprotected in the event of problems.
All of Euroconsumers organisations: OCU in Spain, Test Achats in Belgium, Altroconsumo in Italy and Deco Proteste in Portugal provide independent investment advice. For consumers looking for investment opportunities, our advice is to check out the national sites.
However, for consumers who are still prepared to take risks on crypto, OCU’s advice is to:
Allocate a very small amount to cryptoactives, which can be risked (and lost) without being a problem.
Before deciding to invest through one or another cryptocurrency trading platform, check out national financial supervisors lists of providers for information.
To avoid falling victim to a cyberattack, better deposit your cryptocurrencies in cold wallets which store keys offline and away from cybercriminals.
The survey was carried out in September 2022, prior to the end of year cryptocurrency crashes with a weighted and representative sample of the Spanish population (1,941 over 16 years). You can read the full survey from OCU here (in Spanish).