How Inexperienced Investors Are ‘Playing Russian Roulette’ With Bitcoin, According To This Analyst


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Most bitcoin investors don’t have a tax-free savings or pension account, and they’re far more reluctant to lose money on their investment than the volatility in crypto assets suggests they should be, according to new research. Last week, MarketWatch reported on exclusive data from a crypto app showing that young men are tremendously overrepresented in trading bitcoins, compared to the demographics of the investing world as a whole.

One behavioral finance expert attributed this to the fact that young men are generally overconfident traders, and are much more likely to rush into speculative trends than women or older investors. A Must Read: ‘Over Confidence’ – Why Most Men Under 30 Trade Bitcoins On Tuesday, an investigation published by British broker and online investment platform AJ Bell provided more insight into the behavior and the perspectives of people flocking to bitcoins and other crypto assets. According to a survey of 1,134 people conducted in January 2021 by market research agency Find Out Now, 58% of crypto investors do not have an Individual Savings Account, or ISA, which is the popular tax-free account available to UK residents Only 50% of them had a savings account of any kind and only 17% had a general investment portfolio. “Our research suggests that a generation of investors has outgrown traditional savings and investments and jumped right into the abyss by buying cryptocurrencies,” said Laith Khalaf, analyst at AJ Bell. “UK consumers appear to be playing Russian roulette with their money in the cryptocurrency markets.” Bitcoin BTCUSD, -1.61%, by far the most popular crypto asset, has enjoyed a spectacular rally over the past year. Its price has risen 550% since the beginning of 2020, when it was priced at around $ 7,300, according to CoinDesk. Most recently, the price of bitcoin jumped 25% from January 7-9, breaking the $ 48,000 barrier. The sudden price move came after electric vehicle maker Tesla TSLA, -1.62% announced on January 8 that it had bought $ 1.5 billion worth of bitcoin and could start accepting it as payment. Also read: Bitcoin tops $ 45,000 and hits $ 48,000, fueled by Tesla investment Much has been written about how institutional money has helped propel Bitcoin to highs. Payment giant PayPal PYPL, + 0.72% now offers bitcoin services and BlackRock BLK, + 0.32%, the epitome of institutional money, is set to offer clients exposure to crypto futures through new funds. But retail investors are a crucial part of the bitcoin trend. This is the same group targeted by tabloid headlines suggesting that bitcoin will hit a million dollars and regulators warned that they “should be prepared to lose all their money” on crypto investments. The majority, 53%, of the crypto holders surveyed in AJ Bell’s research do not have a pension. “Not only do many consumers buy cryptocurrencies without having an ISA, pension or savings account, there also appears to be a significant misunderstanding of the risks involved,” Khalaf said. Plus: electricity to power bitcoin soars to new heights as Tesla’s price rises. The vast majority are also uncomfortable with the losses that may come, and 30% of people say they wouldn’t be comfortable losing any of the money they invest in crypto. . “Only one in four cryptocurrency investors would be willing to lose 75% or more of their investment, which is not beyond the limits of what is possible, given the volatility of the asset class,” said Khalaf. As for why they bought cryptocurrencies in the first place, AJ Bell’s research suggests that the retail investor frenzy has been fueled by a feedback loop: 34% of respondents said one of the reasons they bought cryptocurrencies it was to “capitalize on digital trends.” . “Some of the top assets like bitcoin were less popular. 11% said low interest rates on cash were a factor, 5% said they were driven by inflation concerns, and 11% wants to make digital payments with crypto assets.