Greater steps are needed to ensure crypto newcomers are aware of investment risks
By Michael Chauliac, president of StableHouse
The world of digital assets is no longer a space reserved for quant traders or blockchain evangelists. It’s a sector with an increasing mainstream appeal, with adoption growing at a tremendous pace.
The market cap of cryptocurrencies grew from $410 billion in October 2020, to almost $2.6 trillion this year. Europe is considered one of the world’s biggest cryptocurrency economies, with the continent receiving over €870 billion in crypto in the past year.
Newcomers are intrigued by the potential for digital assets to unlock instant payments and international remittances; to avoid high fees from banks and other intermediaries; to tokenise and share real world assets with unprecedented efficiency; and, above all, to earn interest on savings and investments in this rising asset class. The success stories of crypto’s riches pique the hopes of many.
As we welcome waves of hopeful adopters, we must ask: Are we making enough effort to bring newcomers into the industry in a safe and inclusive way? At present, there are numerous educational resources for those who are new to the world of crypto. However, these resources often fail to offer transparency to new users who have yet to build up their expertise in digital assets.
A worrying report earlier this year revealed that as many as one-in-three cryptocurrency users know “little to nothing” about what they are investing in. Bloomberg has also revealed that only 14% of those who are aware of cryptocurrencies feel truly familiar with how it works. Greater steps need to be taken to ensure that beginners are aware of investment risks.
Crypto through the eyes of a beginner
Everywhere we look, there’s hype surrounding digital assets – whether it’s coming from the Twitter accounts of celebrities like Elon Musk, Reese Witherspoon, Gwyneth Paltrow, or Kanye West, or whether it’s in the steady stream of news stories about people becoming overnight millionaires through the surging value of Non-Fungible-Tokens (NFTs) or Bitcoin.
Less highlighted by the industry’s experts and celebrity entrants are the huge array of risks associated with buying and selling crypto, such as exchange and wallet hacks, loss of access keys, and market volatility. In some cases, we have seen market volatility wipe $1 trillion off of the crypto market cap, resulting in significant losses for many crypto holders.
For a layperson, there are endless resources offering conflicting advice on the necessary steps that need to be taken to buy and sell cryptocurrencies. How do you actually buy cryptocurrency? How do you determine which platform to use? How do you decide what cryptocurrency to buy? It only takes a quick sweep of crypto Twitter and Reddit to see that many users feel there’s a lack of easy-to-understand information available on how to navigate through the cryptocurrency industry competently.
The resources dedicated to educating newcomers to crypto leave out vital information, including making sure a portfolio is adequately diversified and not simply comprised of the latest trending token. This year, we saw many amateur investors bet big on Dogecoin, having been caught up in the hype, and then lose their money once the token plummeted on the back of Elon Musk’s comments on Saturday Night Live. More recently, we saw retail buyers get in on the hype via the SQUID token, designed after the hit Netflix show ‘Squid Games’, only to be let down with the token plummeting in value, down 99.99%, after a meteoric rise. These losses would have been avoided if more comprehensive information on portfolio diversification was readily available.
The transparency as to how platforms generate returns for users is also severely lacking. A little-known fact is that the majority of crypto platforms will invest their assets under management (AUM) in order to generate user returns. This is largely the reason that initial investments with trading apps are sometimes at risk. Newcomers ought to research the leaders behind their chosen platforms and these people’s risk and wealth management expertise, ensuring that they put their money in the best hands.
Newcomers to crypto are easy prey for resources who don’t prioritise their safety. As an industry, we have the responsibility to ensure the security and education of everyone involved. This will be particularly important as we seek to establish more defined guardrails and legal frameworks in the eyes of global regulators.
The regulatory environment: A help and a hinderance
Also crucial for newcomers to be aware of for their own safety is the current status of regulation in their own jurisdiction. Depending on the region, regulation can either make the crypto world more complicated, or make investing easier, safer, and more transparent. Regulation in crypto-friendly jurisdictions has fostered safer environments for users by ensuring that crypto businesses are held to higher standards. For example, in Bermuda, the 2018 Digital Asset Business Act (the “DABA”) has imposed comprehensive rules, regulations, and codes of practice onto businesses to ensure the security of retail and institutional investors in the space. The overall result delivers a more prosperous and sustainable industry.
In comparison, other regions with less favourable regulations can make accessing cryptocurrencies riskier and more challenging for newcomers. The constant regulatory back and forth in jurisdictions such as China and India, for example, makes for a confusing investment landscape. For some time, it appeared as though the Indian government was set to ban cryptocurrency, but after lengthy debate it looks as though they plan to regulate cryptocurrencies in February 2022. In China, there’s even more uncertainty, with the government having recently declared all cryptocurrency transactions illegal, even though you can technically still hold cryptocurrency at the same time.
The answer lies in working with regulators to communicate the needs of the industry and ensure those needs are met by resulting regulation. Creating a safer crypto environment is in everyone’s best interests, and industry experts and market providers have a strong responsibility to educate not only new retail investors about digital assets, but also to educate policymakers and political representatives so that they can effectively contribute to user protection and opportunities.
At the core of the crypto industry and the ethos of digital assets is inclusivity — the idea that anyone, from any background, and from any region of the world can access the same wealth opportunity and financial gains. Long-hailed as the future of money, our blockchain-based tokens can unlock potential earnings for users of all kinds, in addition to providing more efficient international remittances, increased transparency in the financial process, and vastly less potential for corruption thanks to decentralization. Owning and operating in digital assets will be the cornerstone of a more advanced, egalitarian society.
In order to achieve this inclusivity and to facilitate our own growth, we must prioritize safe, secure, and accessible onboarding of new people and traders. Burning people and turning them against cryptocurrencies in the process will undoubtedly hinder this progress. Those of us managing educational resources and trading platforms must move swiftly and with intent toward a future where unbiased, transparent, and easy-to-grasp information is present for each and every curious mind.
About StableHouse
StableHouse is a regulated and intuitive platform. Its easy-to-use, frictionless digital assets platform empowers everyone from beginners to seasoned crypto experts to save and invest. StableHouse’s mission is to empower everyone to benefit from the new world of finance by building understanding and creating financially rewarding tools. StableHouse is a cryptocurrency platform powered by XBTO. The company is headquartered in Bermuda, and is licensed to conduct digital asset business by the Bermuda Monetary Authority (BMA) under the Digital Asset Business Act 2018.