Following the FCA’s press release on the new rules for marketing cryptoassets, Rio Stedford, financial planning expert at Quilter has commented.
He said:“Cryptocurrency ownership more than doubled from 2021 to 2022, with 10% of people saying they now own it. Given the extremely high level of risk associated with crypto assets, today’s announcement from the FCA brings some welcome reassurance that those who do not understand these risks but are lured in regardless will be better protected, helping to prevent consumer harm.
“While some have made money through cryptocurrency, and there is nothing wrong with that, those investing are taking a real gamble with their money as they run the risk of losing everything. It is particularly concerning where people are inexperienced investors and may be vulnerable to the promotions regularly seen on social media which can be highly misleading, and therefore it is right that those promoting crypto will soon be held accountable. These new rules follow a significant crackdown in the US, and we could see further changes yet in a bid to protect consumers.
“Many people with cryptoassets will have invested only a small amount of money, but it is unlikely that they could afford to lose that money should things go wrong – particularly in the current climate. A quarter (24%) of all UK adults have low financial resilience, according to the FCA’s Financial Lives survey, meaning they are already in financial difficulty, or could very quickly find themselves in difficulty as they have little to no savings. A risky move such as investing in crypto could prove incredibly damaging should what little money they have saved be lost.
“While further clarity is required to determine how it will be achieved, the FCA will also now ensure that those opting to invest in crypto have the appropriate knowledge and experience to make such a choice, and people will also have the opportunity to back out within a cooling-off period should they regret their decision.
“Those interested in holding cryptoassets also face a significant risk of fraud given the number of fraudulent digital tokens out there. While it is understandable that many people have seen headlines showcasing the rise of cryptocurrency and decided that they do not want to miss out, this is not a good investment strategy. Investing is not about making quick returns, but about getting rich slowly and crafting an investment strategy which takes into account how much you can realistically set aside each month to invest, your capacity for loss and appetite to risk given your investment objectives. For instance, if you are aiming to build up enough money for a deposit on a house in the near term, you may want to reduce the amount of risk you take on. Diversified, multi-asset portfolios will better guard you against violent swings in asset prices and ensure your long-term objectives are achievable. Something cryptoassets are currently ill-equipped to provide.”