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Bitcoin officially a potentially harmful 'get rich quick' scheme

Mirror logo Mirror 07/03/2019 James Andrews
© Getty

The way people buy Bitcoin and other so-called 'cryptocurrencies' is potentially dangerous, a new report has found.

UK regulator the Financial Conduct Authority found that - whatever the potential for the technology behind it - people were buying Bitcoin thinking it was a quick way to get rich quick.

Worse, they frequently didn't know what they were getting into or how it worked.

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FCA’s Christopher Woolard said: "Cryptoassets are complex, volatile products – consumers investing in them should be prepared to lose all of their money."

But even after all that - the good news from the regulator's perspective is that despite all the hype, news coverage and scammers filling our social media feed promising untold riches, Bitcoin just isn't very important at the moment.

Why Bitcoin is harmful

a close up of a device: Do you know what one is?© Trinity Mirror Shared Services Limited Do you know what one is?

The FCA conducted in-depth research with members of the public to find out what people though about Bitcoin and other crytocurrencies such as Ether and Ripple.

What they found was worrying.

"Many consumers may not fully understand what they are purchasing," the FCA said.

"For example, several of those interviewed talked of wanting to buy a ‘whole’ coin, suggesting they did not realise they could buy part of a cryptoasset."

The reason this is potentially harmful is that even though they didn't understand them, people who bought cryptoassets thought they were investing in a way to ‘get rich quick’.

Gallery: What we can learn from bitcoin's explosive rise and fall in 2018 (GoBankingRates)

It’s been a wild ride for bitcoin in 2018. And if you extend that by a month and include December 2017, the term “wild ride” suddenly starts to feel entirely inadequate to describe the roller coaster ride up to $20,000 apiece and then all the way down to $3,500. So, what lessons can be learned from bitcoin in 2018? Certainly, anyone who bought in at $20,000 — or $10,000, for that matter — probably feels like the only lesson that matters is “don’t buy bitcoin,” but digging deeper does provide some important lessons to be learned from the digital currency’s deep plunge.

When they asked why people bought Bitcoin as a way to get rich, owners said they knew of friends, acquaintances and social media personalities who told them about the opportunity.

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On top of that, both the in depth research the FCA did and its survey of the general population found people who had bought Bitcoin and other cryptocurrencies without doing any research beforehand.

Given Bitcoin has lost 60% of it's value in the past 12 months, no one who has bought in the past 18 months and held on is currently up on money.

Those who bought at the December 2017 peak will have lost 80% of the value of their coins in dollar terms since then.

Laura Suter, personal finance analyst at investment platform AJ Bell, said: “This research shows that investors went into cryptocurrencies for all the wrong reasons, ticking off every single warning sign for investing.

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"Many people said they bought cryptocurrencies without understanding them, because they wanted to ‘get rich quick’, and had seen lots of excitement on social media about them."

She added: “Investing is not a get rich quick scheme, it’s a way to build wealth slowly and with patience – and anything that instils a 'fear or missing out' or requires you to invest before thinking is best to be avoided.”

Harmful, but not that important

a close up of a clock: Does it actually matter?© REUTERS Does it actually matter?

However, despite the general poor understanding of cryptoassets amongst UK consumers, findings from the survey suggest that currently the overall scale of harm may not be very high.

Why? Because two years after the latest round of hype started, barely anyone has them.

In fact, the FCA found 73% of UK consumers surveyed still don’t know what a 'cryptocurrency' is or are unable to define it.

Only 3% of consumers had ever bought cryptoassets, the regulator estimated, and even those who did, didn't spend much.

"Of the small sub-sample of consumers who had bought cryptoassets, around half spent under £200 – a large majority of these said they had financed the purchases through their disposable income," The FCA said.

Men between 20 and 44 were most likely to be aware of cryptocurrencies, while Bitcoin was the favoured token, with 50% of people who'd bought spending money on them. Ether was next most popular at 34% of people who'd invested.

"The results suggest that although cryptoassets may not be well understood by many consumers, the vast majority don’t buy or use them currently," The FCA's Woolrand said.

"Whilst the research suggests some harm to individual cryptoasset users, it does not suggest a large impact on wider society."

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