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Why Do Young Investors Purchase Crypto?

UK Watchdog FCA says “Young investors are buying crypto for the ‘THRILL’”

The UK’s Financial Conduct Authority has warned that the younger generation of traders are investing for a wrong reason – specifically in crypto.

The FCA has conducted a research and found out that there is a “new, younger, more diverse group” of investors that are engaging in “high-risk” investments. Cryptocurrencies are included in the mentioned investments, together with foreign exchange.

Younger people seemed to be getting involved in such trading because of the availability of new apps, the FCA stated. And the investors are doing it for wrong reasons.

“The research found that for many investors, emotions and feelings such as enjoying the thrill of investing, and social factors like the status that comes from a sense of ownership in the companies they invest in, were key reasons behind their decisions to invest,” the FCA said in a post about its findings published today.

Together with BritainThinks, an international insight and strategy consultancy, the FCA has surveyed 517 self-directed investors that came from the UK – those who are making investment decisions on their own behalf, instead of seeking financial advice.

Most of the interviewed were aged between 45-64, as older richer men are the biggest demographic of self-directed investors. However, the survey also included newer, younger investors: 53 respondents were aged 18-29 and 166 were aged 30-44.

The study discovered that the newer self-directed investors are the younger ones, the ones who are “less aware of risks,” and more likely to put their money in riskier investments – like crypto – than older investors who “typically built up to risk over time.”

The investors are attracted to the “buzz” of investing, partly thanks to “online influencers and experts such as Elon Musk” who praises crypto, as the report says.

38% of those who have been surveyed didn’t list at least one functional reason for investing in their top three.

The FCA also discovered that traders had a “high confidence and claimed knowledge” – but often weren’t well prepared for investing. Four out of 10 of the surveyed, for instance, didn’t think that “losing some money” was a risk at all when it comes to investing.

Also the 78% of the investors stated that they “trust their instincts” when knowing when to buy and sell.

Young, inexperienced traders, have moved the markets this year when they bought up dying shares from the old video game retailer, GameStop. The amateur traders had sent the cost of the shares – which previously were shorted by hedge funds – over the roof.

Wall Street went into chaos and Melvin Capital, a hedge fund, received almost a $3 billion bailout from two other hedge funds after closing its GameStop shorts.

Apps that plan to “democratize finance” through drawing in trades that don’t have a background in finance are now extremely famous: Robinhood, which allows their users to buy and sell shares or even digital assets, like Bitcoin, gained six million new customers in 2021 alone.

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