Bitcoin has seen an incredible run over the last year or so, rising from around $7,000 (£5,033.45) in January 2020 to over $50,000 (£35,953.25) today. However, Bitcoin’s price took an abrupt drop recently and following this, investors have been urged to remember crypto investing is a volatile endeavour and Bitcoin has been known to crash in the past.
“DeFi (decentralized finance) is quite literally ‘interes’-ing, paying crypto enthusiasts and investors both for lending AND for borrowing assets, as Aave protocol launches liquidity farming.
“DEXes (decentralised exchanges) are the only way to obtain some of those digital assets used in DeFi.
“Everyone and their Mum in the creative industry is looking to mint NFTs (non-fungible tokens) and self-monetize their products. This is all creating a multi-factor and long term use case for its cryptocurrency.
“However, Ethereum isn’t the only blockchain capable of supporting a smart contract ecosystem. DeFi and NFTs will be and are starting to exist on other platforms. And even when we see BTC price improvement, it may no longer be the controlling interest.”
These changes are set to impact young investors in the UK specifically as recent research from Charles Schwab found that young people are “increasingly likely to trade in speculative assets such as cryptocurrencies compared with traditional investments such as equities or bonds.”
Charles Schwab conducted a survey of 1,000 UK respondents, all of whom were aged 18 or over and captured a natural spread of demographics across age, region, gender, working status, income and total value of savings and investments.
The results from this survey found that more than half of millennial and Gen Z investors (51 percent ) trade in cryptocurrencies, a large increase from when this research was last undertaken in May 2020, where 44 percent of young investors traded cryptocurrencies.
The rise in popularity of these products means the 18-37 years demographic are now more likely to trade cryptocurrencies than equities (25 percent ) and by contrast, only eight percent of investors aged 55 or over trade cryptocurrencies.
Additionally, appetites for riskier products appear to be on the rise among younger investors as 70 percent now view cryptocurrencies as a good investment option and spread betting interest has risen.
The same research detailed more than six in ten (61 percent) millennial and Gen-Z investors think CFDs (contracts for difference) are an attractive option, with almost one in four (23 percent) having increased their purchases of CFDs over the past three months.
As more young people invest in speculative products, there is a fear that these investors are not diversifying their portfolios enough to mitigate risks in case cryptocurrency markets decline.
More than seven in 10 (71 percent) of young investors admit they’re unsure of how to adapt their strategies to protect against losses in the current financial climate and Richard Flynn, the UK Managing Director at Charles Schwab, issued a warning on this.
He said: “Digital platforms and the sheer volume of financial information available today has made it much easier for young investors to trade and cryptocurrencies seem to be the flavour of the month. It is important to remember that these are speculative assets that don’t fit within traditional asset allocation models, as they are neither a traditional commodity, such as gold, nor a traditional currency. While the prospective returns are tempting, investors should be aware that it is just as susceptible to supply and demand, but will not necessarily have the inherent value behind it.
“Like any trades, some people will make money on cryptocurrencies and contracts for difference. If young investors are looking to adapt their strategies to protect against losses, a diversified portfolio, balanced across asset classes and sectors is a more sensible, time-tested approach. We would encourage any new, inexperienced investors to learn as much as possible about different assets prior to making any investment, especially if they find it difficult to make investment decisions.”
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