Top buying motivations was the urge to “get rich quick” and FOMO – “fear of missing out”.
Only a small percentage of the UK population has bought bitcoin or any of the other cryptocurrencies, according to the Financial Conduct Authority.
Even among the 3% of consumers who have bought a cryptocurrency, there is a high degree of ignorance about what they are and how they work.
The two consumer surveys look at the attitudes and motivations of consumers towards digital currencies.
Not surprisingly, given the relatively small number who have actually bought a so-called cryptoasset, it is estimated that 73% of consumers have no idea what a cryptocurrency is or are unable to define one.
Additionally, the FCA found, in line with other surveys, that the profile of buyers and those with most knowledge of crypto, tend to be relatively young and male – with the most aware being men between the ages of 20 and 44.
The first survey was an in-depth study of 31 consumers who have bought a cryptocurrency.
It found that top among their buying motivations was the urge to “get rich quick” and FOMO – “fear of missing out”.
The second, larger, survey was conducted by Kantar TNS and involved 2,132 face-to-face interviews.
In a sign that last year’s bubble has well and truly deflated, the second survey reveals that only 7% of those who haven’t bought a cryptocurrency would consider doing so in the future.
Among the 31 buyers comprising the sample for the first report was Ashton, 26, a musician in a wedding band who lives in a small village in the Midlands. He told the researchers: “I guess I didn’t have the career that my parents wanted, but I’m lazy. My priority is enjoying life. I just want to get rich and retire.”
Another buyer, Karina, 31, a police officer in London, fell for the FOMO: “I remember reading media online which was basically saying: jump on the boat now, or you won’t be jumping on it at all.”
She bought £1,500 worth of Bitcoin, Ethereum and Litecoin in August 2017, blaming the media messaging of “get on the boat now or you won’t be getting on it at all”.
Bitcoin, the oldest and most valuable of the virtual currencies, was the most popular purchase, followed by the Ethereum blockchain platform’s Ether token.
A majority of crypto owners had made the purchase out of their disposable income.
The FCA studies discovered that the level of understanding of crypto was low, even among those who had purchased.
Given that information, the regulator thought that the level of the damage done to individuals’ finances when the bubble popped may have been overstated. Those maxing out credit cards to buy crypto thankfully appear to have been in the minority.
Other survey findings showed that just 8% of buyers has carried out “deep research” before buying and 16% had conducted none whatsoever.
Incredibly perhaps, one-in-three buyers said they had not checked on the valuation of their holding since purchase.
There are a high proportion of what are known as “hodlers” in the crypto world. These are the buyers who see crypto as a long-term investment. 40% of crypto owners plan to hold their coins for at least three years.
Christopher Woolard, the FCA’s executive director of strategy and competition, in a statement about the research, said: “The results suggest that although cryptoassets may not be well understood by many consumers, the vast majority don’t buy or use them currently.
"Whilst the research suggests some harm to individual cryptoasset users, it does not suggest a large impact on wider society.”
Among buyers, 23% got their information from online media%, with traditional media on 22%, friends and family 16%, social media 15%, online ads 10%.
Interestingly, and perhaps expected, for those aged 16 to 24 social media was the most influential source of information.
Lack of knowledge and the absence of regulation means consumers can fall prey to scammers. An online ad purporting to be from the Dragon’s Den team inviting investment in a fictitious cryptocurrency is one notorious example.
However, with the price of cryptos falling 80% and more from their all-time highs, interest among consumers has waned, even as the likes of Facebook and investment bank JPMorgan reportedly create their own cryptocurrencies.
The FCA, the Bank of England and HM Revenue & Customs formed the UK Cryptoassets Taskforce last year which reported October with a view to the FCA taking responsibility for regulating the nascent sector. The FCA is currently conducting a consultative process, which closes for submissions from consumers and industry on 5 April.
The FCA has warned consumers that cryptocurrencies are unregulated, highly volatile and risky and investing in so-called initial coin offerings where blockchain projects sell tokens to raise funds are even riskier.
Bitcoin has fallen from nearly $20,000 in December 2017 to trade at $3,887 (£2,967) at the time of writing, according to data site cryptocompare.com.
This article was originally written by our sister publication Moneywise.