n May 2010, Laszlo Hanyecz bought two large pizzas from Papa Johns using 10,000 bitcoins (the equivalent of £30). This bitcoin would today be worth over £170 million.
Fast forward to 2022, we see crypto ads plastered all over the subway on our morning commutes, scrolling through Instagram, we see crypto traders promoting their lavish lifestyles, and WhatsApp groups with our friends now include speculation on the last parts.
Being surrounded by the noise of crypto and the stories of those who made their fortune investing in it, it’s no wonder a lot of people get FOMO and think “if they can do it, then why can’t I?”
According to the Financial Conduct Authority, as of June last year, 2.3 million Britons had invested in crypto, but what’s scary is that 14% said they had borrowed to invest and 18% said they had borrowed to invest. have done for fear of missing out. .
The cost of living crisis means that more and more people are struggling financially and, naturally, this makes the promise of extremely high returns very attractive. The danger is that those most likely to try to invest in get-rich-quick schemes are the most vulnerable, as they cannot afford to lose money.
So what is cryptocurrency?
Cryptocurrencies are virtual currencies that can be bought and traded online. You can send cryptocurrency directly to another person without needing to hire a third party (like a bank) to process the transaction.
While digital currencies are likely to be the future of money, in many countries they are not yet considered legal tender or regulated, so there is still a long way to go. If you are considering investing your money there, it is essential that you fully understand the risks before doing so.
Is crypto regulated in the UK?
In short, no. For investments to be regulated by the Financial Conduct Authority, they must meet strict standards that treat customers fairly. If things go wrong with these investments, you will likely have access to the Financial Services Compensation Scheme and the Financial Ombudsman which have been set up to protect and compensate investors.
In contrast, cryptocurrencies are unregulated in the UK, which means there is no financial protection and no compensation for people who lose their digital assets.
The Financial Conduct Authority website states: “The FCA has not received regulatory oversight over direct investments in crypto-assets. There is no consumer protection. Therefore, if you buy crypto-assets, you must be prepared to lose all the money you invest.
What is the risk of a crypto investment?
In terms of risk, cryptocurrencies are at the very top. They are extremely volatile, which means that the value can bounce around a lot, both up and down – one month in 2018 the price of Bitcoin fell by 65%.
Crypto is a speculative investment and its value can be changed by something as simple as a tweet. Research suggests that Elon Musk’s previous tweets regarding certain cryptocurrencies had a direct impact on their value – something coined the “Musk Effect”. Imagine that the value of your savings depends on one man’s tweet.
How common are cryptocurrency scams?
As interest in cryptocurrency investments has grown, so have scams and frauds.
Scammers target consumers who are looking for investments online, especially when using search engines like Google and Bing. They use professional looking websites and often falsely claim endorsements from prominent figures and there have been a number of high profile coin scams to date.
The main takeaway is that if you are considering investing in crypto, make sure you do your due diligence and always follow these five steps before committing your savings.
Five steps to consider before investing in crypto
- Never invest in anything you don’t understand (and don’t be forced to invest anything).
- Ask yourself: can you afford to lose all the money you invest? If the answer is no, it’s not worth taking the risk.
- Do your research. The CIF has a list of companies that have registered to do crypto business in the UK. It also contains a warning list of unregistered and clone companies that are not allowed. Check it out before you commit any money.
- Remember, if the returns seem too good to be true, they probably are.
- Finally, consider seeking independent financial advice. If you’ve decided you absolutely want to invest, it’s a good idea to seek independent financial advice from people like me at First wealth about the best options that best suit you and your situation. There are many reputable services that can help you find a financial advisor depending on what you are looking for help with, including Impartial, guaranteed for and The personal finance company.
If you’ve been the victim of a crypto scam, you can report it to Action Fraud, the UK’s national reporting center for fraud and cybercrime. You can call them on 0300 123 2040 or report it on their website actionfraud.police.uk