The Financial Conduct Authority has warned consumers are turning to cryptoassets, such as Bitcoin and Ether, to "get rich quick" despite not understanding what they are purchasing.
In two pieces of research published today (March 7) the regulator found many consumers saw cryptoassets as a "fast-track to easy wealth" and were influenced by friends and social media.
The research found many consumers overestimated their knowledge of cryptoassets, with several citing they wished to buy a "whole" coin and not realising they could buy just part of one.
However, whilst it identified some risk around the lack of understanding of cryptoassets, the regulator said the potential harm posed to consumers may not be as high as originally predicted.
The FCA estimated only 3 per cent of those surveyed had ever bought cryptoassets and 73 per cent of UK consumers still do not know what a "cryptocurrency" or its definition is.
The regulator found the term "cryptocurrency" was most recognised by middle class or upper middle class men aged 20-44 years old.
The regulator said: "Consumers generally don’t spend much on cryptoassets and they tend to use their own money, with around half of those who bought cryptoassets in our small sub-sample spending under £200."
Christopher Woolard, executive director of strategy and competition at the FCA, said the research had provided the regulator with previously unseen evidence on consumer interaction with cryptoassets.
He said: "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."
Many cryptoassets, including Bitcoin, are not regulated in the UK and it is unlikely consumers would be entitled to make complaints to the Financial Ombudsman Service or seek redress from the Financial Services Compensation Scheme if things go wrong.
The FCA is currently consulting on guidance to clarify the types of cryptoassets that fall within its existing regulatory perimeter and HM Treasury is exploring legislative change to broaden the regulator’s remit to cover further types of cryptoassets.
rachel.addison@ft.com
