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Feb. 12, 2021, 4:33 a.m. EST

Most bitcoin investors are inexperienced and volatility-shy. They’re ‘playing Russian roulette,’ says this analyst

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By Jack Denton

Most bitcoin investors don’t have a tax-free savings account or pension, and are far more unwilling to lose money on their investment than the volatility in crypto assets would suggest they should be, according to new research.

Last week, MarketWatch reported on exclusive data from a crypto app showing that young men are wildly overrepresented in bitcoin trading , compared with the demographics of the wider investing world. 

An expert in behavioral finance put this down to young men generally being overconfident traders — and much more likely to rush into speculative trends than women or older investors.

A must read: ‘Overconfidence’: Why it is mostly men under 30 trading bitcoin

On Tuesday, research published by British broker and online investing platform AJ Bell provided more insight on the behavior and outlook of people who flock to bitcoin and other crypto assets.

Based on a survey of 1,134 people carried out in January 2021 by market research agency Find Out Now, 58% of crypto investors don’t have an Individual Savings Account, or ISA, which is the popular tax-free account available to residents of the U.K. 

Just 50% of them had a savings account of any kind, and only 17% had a general investment portfolio. 

“Our research suggests that a generation of investors have leapfrogged traditional savings and investments and jumped straight into the deep end by buying cryptocurrencies,” said Laith Khalaf, an analyst at AJ Bell.

“U.K. consumers seem to be playing Russian roulette with their money on the cryptocurrency markets.”

Bitcoin /zigman2/quotes/31322028/realtime BTCUSD +4.87% , by far the most popular crypto asset, has enjoyed a spectacular rally over the last year. Its price has surged 550% since the beginning of 2020, when it was priced around $7,300, according to CoinDesk

Most recently, the price of bitcoin jumped 25% from Jan. 7 to Jan. 9, breaching the $48,000 barrier. The sudden price move came after electric-vehicle manufacturer Tesla /zigman2/quotes/203558040/composite TSLA -0.99% announced on Jan. 8 that it had purchased $1.5 billion worth of bitcoin and may begin accepting it as payment.

Also read: Bitcoin blows past $45,000 and reaches as high as $48,000, driven by Tesla’s investment

Much has been written about how institutional money has helped propel bitcoin to highs. Payments giant PayPal /zigman2/quotes/208054269/composite PYPL +0.86% started offering bitcoin services and BlackRock /zigman2/quotes/207946232/composite BLK +0.97% , the epitome of institutional money, now gives investors the option of limited exposure to bitcoin futures through two of its funds.

But retail investors form a crucial part of the bitcoin trend. This is the same group targeted by tabloid headlines suggesting that bitcoin will hit $1 million and warned by regulators that they “should be prepared to lose all their money” on crypto investments.

Most — 53% — of the crypto holders surveyed in the AJ Bell research don’t have a pension.

“Not only are many consumers buying cryptocurrencies without having an ISA, pension, or savings account in place, there also seems to be a significant misunderstanding of the risks involved,” Khalaf said.

Plus: Electricity to power bitcoin surges to new heights as price gets Tesla boost

The vast majority are also uncomfortable with losses that may come their way, with 30% of people saying they wouldn’t be comfortable losing any of the money they put into crypto.

“Only one in four cryptocurrency investors would be willing to lose 75% or more of their investment, which isn’t beyond the bounds of possibility, given the volatility of the asset class,” Khalaf said.

As for why they bought crypto in the first place, the AJ Bell research suggests the retail investor frenzy has been driven by a feedback loop of hype: 34% of those surveyed said one of the reasons they bought crypto was to “capitalize on digital trends.”

Some of the core appeals of assets like bitcoin were less popular. 11% said low interest rates on cash were a factor, 5% said they were pushed by inflation worries, and 11% want to make digital payments with crypto assets.

/zigman2/quotes/31322028/realtime
US : CoinDesk
61,197.35
+2,844 +4.87%
Volume: 0.00
April 10, 2021 1:02a
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/zigman2/quotes/203558040/composite
US : U.S.: Nasdaq
$ 677.02
-6.78 -0.99%
Volume: 21.44M
April 9, 2021 4:00p
P/E Ratio
1,077
Dividend Yield
N/A
Market Cap
$656.35 billion
Rev. per Employee
$445,694
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/zigman2/quotes/208054269/composite
US : U.S.: Nasdaq
$ 266.77
+2.27 +0.86%
Volume: 6.69M
April 9, 2021 4:00p
P/E Ratio
75.43
Dividend Yield
N/A
Market Cap
$309.78 billion
Rev. per Employee
$808,830
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/zigman2/quotes/207946232/composite
US : U.S.: NYSE
$ 808.35
+7.75 +0.97%
Volume: 484,164
April 9, 2021 4:00p
P/E Ratio
25.35
Dividend Yield
2.04%
Market Cap
$122.20 billion
Rev. per Employee
$1.03M
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