The growing popularity of volatile investments, such as cryptocurrencies like Bitcoin, may be exposing young investors to increased risk.

According to a survey from the Financial Conduct Authority (FCA), 76% of investors under 40 say they feel competitive when investing in high-risk products.

They noted that they invested in high-risk products, like cryptocurrencies, due to a sense of competition with friends and family. 68% likened their investments to gambling.

In addition, 58% said that hype on social media and in the news also drove their investment decisions.

Just 21% said that they were considering holding their most recent investment for more than a year, and 8% for more than five years, suggesting that few people are investing their money for the long term.

This is despite 60% of those surveyed saying that they prefer more stable returns than investments that rise and fall dramatically.

With over one million UK investors having either increased their holdings or bought a high-risk investment during the pandemic, the FCA is concerned that new investors are increasingly accessing higher-risk investments which may not be right for them or reflect their risk tolerance.

The research found that 69% of crypto investors incorrectly believe the sector is regulated by the FCA.

To help counter this, the FCA is launching its £11 million InvestSmart campaign to help people make better informed investment decisions. It aims to help new investors to consider their appetite for risk and make better-informed decisions.

In particular, it suggests potential investors to ask themselves five questions before investing:

• Am I comfortable with the level of risk?
• Do I understand the investment being offered to me?
• Are my investments regulated?
• Am I protected if the investment provider or my adviser goes out of business?
• Should I get financial advice?

Sarah Pritchard, Executive Director of Markets at the FCA, said: “We are seeing more people chasing high returns. But high returns can mean higher risks. We want to give consumers greater confidence to invest and help them to do so safely, understanding the level of risk involved.

“With our InvestSmart campaign we’re taking an innovative approach to reaching those tempted by high-risk products so that they can better understand the risks and where to get advice. We will be targeting people online and through social media, helping ensure inexperienced investors don’t get played.

“Together with a more assertive approach to finding and taking action against scammers, we hope InvestSmart will help people invest confidently.”

Recommended

• iland’s Marc Beder on digital transformation and the cloud
• Small firms make up 50% of UK business emissions
• Scottish space firm reveals “world’s most environmentally friendly” rocket

The move comes as Bitcoin hit a new record value, around $66,900 (£48,400). While it has since dipped, it is still trending above previous highs.

Ethereum, another popular cryptocurrency, saw a similar price rise, passing the $3,000 mark.

This year has seen Bitcoin, along with other cryptocurrencies, hitting new records, buoyed by increased institutional demand from major investors.

Prices grew off the back of news that a Bitcoin futures exchange-traded fund will soon be launched on the New York Stock Exchange. This will help people invest in the cryptocurrency without having to buy and sell the tokens directly.

As such, its proponents hope it will bring new investors into the cryptocurrency market.

This isn’t the first time Bitcoin, along with other cryptocurrencies, has come in the firing line. The FCA warned investors of the dangers of buying cryptocurrencies back in January this year, citing their volatile nature and lack of regulatory oversight.

And a month ago, China, where most of the tokens are mined, banned all transactions involving cryptocurrencies. The news knocked $2,000 off Bitcoin’s value.

Meanwhile, one of the biggest experiments in favour of Bitcoin, its adoption by El Salvador as a national currency, ended in disaster as servers couldn’t keep up and the price of Bitcoin took a hit.

Get the latest news from DIGIT direct to your inbox

Our newsletter covers the latest technology and IT news from Scotland and beyond, as well as in-depth features and exclusive interviews with leading figures and rising stars.

We will keep you up to date on the pivotal issues impacting the sector and let you know about key upcoming events to ensure that you don’t miss out on what’s going on across the Scottish tech community.

Click here to subscribe.