“I’ll either be rich or I’ll be wrong.”
This is how Sam, a 29-year-old cryptocurrency enthusiast who I interviewed on this week’s Money Clinic podcast, summed up his strategy for investing the last £ 2,000 of his savings in an extremely volatile and unregulated.
Pretending he is not a natural risk taker, Sam has never set foot in a casino or put money on a horse. “To me that sounds silly, like you’re throwing money away.”
He never considered investing in stocks and stocks. As a self-employed person, he never contributed to a pension or thought of creating a self-invested personal pension (Sipp). “No one has ever given me that kind of information,” he says.
So why is he willing to risk his money by betting on crypto?
Sam discovered that his younger brother had turned a £ 3,000 investment into £ 30,000 in four years – money he now intends to use as a property deposit. “I was very surprised and it made me feel a little stupid. . . why am I not doing this?
Bitcoin: “ I’ll be either rich or I’ll be wrong ”
Claer Barrett and his guests on whether to invest in crypto. Listen now
This is why so many young investors are ready to bet the farm on bitcoin. In the world of mainstream finance, Sam felt the odds to participate and win were stacked against him, but crypto offered the tantalizing opportunity to beat the system.
Considering the price swings of the past week, crypto hackers might be feeling slightly smug. But try to imagine how you might feel if you were at the very beginning of your investment journey.
Nonetheless, young investors ‘hiding’ their reserve money in cryptocurrencies raises questions for regulators, the wider investment industry, and policymakers – not to mention parents.
Many of my FT colleagues know that their older children are exchanging cryptocurrencies on their phones.
“I have a 20-year-old son and he texts me every day with a new coin,” explains Eva Szalay, FT’s currency correspondent.
The latest to spark his interest is the Shiba Inu – inspired by dogecoin, initially a joke motto based on a meme of a Japanese breed of dog. Both are now apparently worth billions of dollars. Combined with the high entertainment value, Eva concludes that crypto is a ‘natural space’ that young people can be drawn to.
Even so, we agree that rampant fraud, fierce price swings, and the ability to profit from transactions make crypto a dangerous place for reckless new investors.
Crypto’s unregulated status hasn’t stopped financial regulators around the world from firing warning shots at those who are convinced they are headed for the moon.
This week in the UK, advertising regulators banned ads on Tube that brazenly stated, “If you see bitcoin on the subway, it’s time to buy.”
The risks go beyond volatility. Many young investors like Sam only hold cryptocurrencies. Luno, the cryptocurrency exchange behind the banned ads, surveyed its clients last year and found that 55% had no other investments.
Sam, who describes crypto investing as “more like a smart game,” is willing to take the risk because he believes it’s the only way a youngster like him can make money.
The value of her wallet peaked at £ 5,300, but even after last week’s crash, she is still worth £ 3,700.
Sam and his brother stuck it out last week and are confident that the growing interest in crypto from hedge funds, asset managers and Wall Street banks will work in their favor – even if the Governor of the Bank of Canada. England, Andrew Bailey, warns they should be prepared. to lose all their money.
However, central banks and their monetary policy decisions weigh quite heavily on all of this. Soaring house and stock prices have made acquiring assets extremely expensive for young people. Should we even be surprised at the growing appeal of crypto and other forms of high risk investing like day trading and spread betting? They respond to the challenges that await them to the best of their ability.
Policymakers urgently need to address the fact that young people like Sam feel they are more likely to achieve their financial goals in an alternative, unregulated system than the traditional one.
Pensions and property are a good place to start. Auto-enrollment has “pushed” millions into retirement savings, but hasn’t benefited self-employed people like Sam.
In the UK housing initiatives like Help to Buy have fueled demand, not supply. I would say that we could do with “Help to Rent”, encouraging the development of affordable rented housing. It might be less ambitious than owning an overvalued property with a 95% mortgage, but it could be a game-changer from generation to generation.
While regulators have been quick to denigrate the rise of crypto and “memes stocks” on social media platforms, in the absence of any formal financial education, it is the investment message that is reaching young people.
“I feel that knowledge [about crypto] is easier to acquire, “Sam tells me. He’s understandably skeptical of the” ten times your money “claims made by some crypto-punting YouTubers, but adds,” I’ve never been told anything about finances or regular investments before, and I think it’s more on your terms. ”
Even if you profit from crypto, the mainstream financial world can still recoup theirs in the form of taxes and lending restrictions.
This week, Joe Biden, the US President, proposed that any crypto transfers worth more than $ 10,000 be reported to US tax authorities. If a crypto ETF is ever launched in the UK, investors could keep it in an Isa, meaning capital gains tax won’t be an issue.
Sam’s brother, with his plan to use his crypto profits for a property deposit, may find he is struggling to get a mortgage.
To have any chance of finding a lender, you need to sell your crypto holdings and produce a documentary record of their acquisition and sale, according to Pete Mugleston, founder of the. Online mortgage advisor website. He says there are currently only seven UK lenders who would consider this, and only if buyers apply through a specialist broker.
While crypto is beyond regulatory jurisdiction, that doesn’t mean you can forget the basic rules of investing. Diversification is the only real safety net investors have, and professionals limit their exposure to crypto to a small overall percentage of their portfolios.
Sam hopes that he can double his money again, and then reduce the risk by withdrawing his initial stake, keeping the rest as a long-term investment. I wish him good luck.
Those who are willing to pay what little money they have might think, “What have I got to lose?” Yet if they have no other savings to fall back on, the answer may well be their financial resilience.