Amateur Bitcoin investors behave like gamblers, study shows
AMATEUR Bitcoin investors are behaving like problem gamblers by becoming delusional and obsessed with their investments, City watchdogs have warned.
The Financial Conduct Authority (FCA) yesterday published the first results of its study into the impact of cryptocurrencies, of which Bitcoin is the best known, having previously warned over the high levels of risk and volatility investors were exposing themselves to.
Bitcoin hit the headlines at the end of 2017 when its price soared to almost $20,000 (£15,200) for a single coin. This led many to pour their money into it, and other cryptocurrencies, but within a year the price collapsed and is now below $4,000 (£3,050).
The review likens buying digital currencies to gambling, concluding that few investors have a good understanding of what they are purchasing. The watchdog said many consumers referred to buying a “whole coin” suggesting they were unaware they could purchase just a fraction. According to the review, most respondents believed that making a profit was “highly likely or even inevitable” with only a few understanding the high level of risk.
The FCA said this bore similarities with the kind of “distorted thinking” that makes problem gamblers believe they can outsmart slot machines.
It read: “Like online gamblers repeatedly checking their bets, some respondents admitted behaviours such as compulsively checking the value of their portfolios.” Although the FCA found that the actual harm caused by cryptocurrency trading could be lower than expected, worryingly more than one in 10 respondents said they used their long-term savings to buy the digital coins.
Social media is rife with scammers posing as cryptocurrency traders and offering huge profits to those who sign up. Action Fraud, the police reporting centre for fraud, recently issued a warning about the prevalence of this type of scam on Instagram. Laura Suter, of investment firm AJ Bell, warned against viewing cryptocurrencies as a viable investment.
She said: “Before you invest you should make sure you understand what you’re getting into, that you know the risk of what you’re buying and that you’re not just relying on hype and excitement from friends or social media.
“Investing is not a get-rich-quick scheme, it’s a way to build wealth slowly and with patience.”