Context
The terms ‘cryptocurrencies’ and ‘FSCS protection of crypto investments’ are amongst the most searched for items on the FSCS website. However the FSCS doesn’t protect cryptocurrencies because they are not a ‘specified investment’ under the UK regulatory regime. It is important that if consumers embrace financial innovations such as these, they have a good understanding of the decisions that they are making. Consumers are at risk if they don’t understand how cryptocurrencies work and especially so if they believe, erroneously, that they are protected by the FSCS.
The study
The FSCS is an independent body, funded by the financial services sector, which pays out compensation when financial firms go out of business. The goal of the research is to help FSCS and stakeholders across the financial services sector to identify gaps and opportunities to provide consumers with accurate information about FSCS protection. In particular, FSCS felt it was important to conduct this research not only to understand how to protect consumers but also to contribute to public debate about cryptocurrencies.
The research was conducted online among 2,203 people age 18+ in the UK. Respondents were sourced from the research company Kantar’s Profiles Audience Network. All interviews were conducted as online self-completion between 2nd and 20th March 2023 and collected based on controlled quotas evenly distributed between age group, gender and region. All respondents were reported to own any savings or investments. A total of 2,001 of them reported to have heard of cryptocurrencies prior to the research.
Key findings
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Awareness: most (91%) of consumers with savings or investments say they have heard of cryptocurrencies but only 11% say they have a good understanding of how they work. This increases to 23% among under 35s. Bitcoin is by far the best know, with 74% of those aware of cryptocurrencies having heard of it - awareness of other cryptocurrencies and digital assets is much lower.
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Investing behaviour: of those aware of cryptocurrencies, 9% currently invest in them while another 9% have previously invested but no longer do so. A further 27% are open to investing. Most of these (80% of those with experience or open to investing) cite reasons that can be grouped as being ‘swayed by the hype’ as a motivation to invest. In contrast, only 54% cite at least one of the more conventional reasons to choose an investment product, such as it being an option to diversify risk or due to poor performance of traditional investments.
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Spend: spend is relatively low with 59% of those with experience investing spending less than £250 on their first purchase, and 45% less than £250 in total across all purchases. Performance was mixed - 35% describe the performance of their investment as better than expected, 32% as worse than expected and 30% as in line with their expectations.
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Risk: there was a level of awareness of risk with 54% of those with experience or open to investing agree that they could end up regretting investing in cryptocurrencies, while 51% agree that it is easy to invest and 52% agree they see crypto ads everywhere. Almost a quarter (23%) would consider getting into debt to buy cryptocurrencies, increasing to 34% among under 25s and 29% of those with household incomes of less than £15,000. Two thirds (64%) of those aware of cryptocurrencies say that investing in it is basically gambling, while 75% believe that their promotion should be regulated.
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Advice: financial advisers are the most trusted source when it comes to providing accurate information about investing in cryptocurrencies.
Points to consider
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Methodological limitations: The methodology relies on self-reporting which may not be accurate. In particular, consumers may be reluctant to disclose the extent of investment or of losses made when investing in cryptocurrencies.
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Relevance: Highly relevant as the UK Government continues to consider how cryptocurrencies should be used, and as the cost-of-living crisis may encourage consumers to take more financial risks.
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Generalisability/ transferability: This work is specific to the UK adult population but the findings around consumer awareness and behaviour likely to be relevant in other markets, even if regulations around cryptocurrencies differ.
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Applicability: This study will be of interest to government, regulators, policy makers, financial advisors and financial services providers.
