Interactive Investor

The crypto sell-off: a tough pill to swallow for some

12th May 2022 11:56

Myron Jobson from interactive investor

The crash highlights the importance of nuanced conversations about risk and reward, says our senior personal finance analyst.

Myron Jobson, Senior Personal Finance Analyst, interactive investor, says: “The crypto sell-off has been driven by a culmination of long and short-term factors including worries about regulation, security breaches as well as pressures buffeting traditional markets such as geopolitical uncertainty and US interest rate hikes.

“The spat of crypto scams has also undermined confidence in the asset. Recent news of infamous ‘Cryptoqueen’ Ruja Ignatova being added to Europol's most wanted list, for convincing people she invented a cryptocurrency to rival Bitcoin before disappearing with billions of their cash, reinforces the crypto market’s Wild West reputation.

“Whatever the reason, the crash is a tough pill to swallow for those who made their very first investment in cryptos. Our research* found that 45% of young adults aged between 18 and 29 have made crypto their first investment of choice, with an alarming number funding this through a cocktail of credit cards, student loan, and other loans. The worry is many have been hit with a double whammy of investment loss and a deeper plunge into debt. The debt issue is made worse with rising interest rates.

“It is hard to say whether the crypto sell off is indicative of a long-term decline. Crypto evangelists would argue that we’ve been here before and cryptos not only recovered but skyrocketed in value to hit record highs. But the market environment now is very different - and the jury is out.

“The Bitcoin, and the broader cryptocurrency story, is far from over, but the sell off reflects the high risk and volatile nature of cryptos. While volatility is part of the growing pains of the relatively new crypto market, the tumult in price action has left investors whipsawed.

“Crypto remains a swashbuckling ride for investors which raises the stakes to levels akin to slot machines in a Las Vegas casino. Crypto enthusiasts may view every fall as a buying opportunity, but conviction is going to be tested, and for the average investor it is a timely reminder of the risk involved in investing in such a highly volatile asset.

“We need to be having much more nuanced conversations about risk and reward, exploring the impact of even increasing your contributions a little into mainstream investments, and/or, reassessing your attitude to risk.

“Cryptos remain a high-risk bet because of how much and how quickly their value can change unexpectedly. But, whatever your approach to risk, cryptos should only be a small proportion of a well-diversified portfolio.”

Notes to editors

* The poll of 1,000 UK adults, aged 18 – 29, was conducted by Opinium for interactive investor between 21 – 25 June 2021.

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