The Bitcoin (BTC) mania isn’t just limited to institutional and seasoned investors, a new survey from U.K. investment firm AJ Bell suggests. It found that young investors are more inclined towards investing in cryptocurrencies over traditional stocks and shares-based investments.
Over the last year, there has been a substantial growth in crypto trading volume and an influx of crypto offerings from fintech companies, all pointing to a general increase in investor appetite for digital currencies.
“When more people are buying cryptocurrency than investing in a stock market, you have to conclude the world’s gone crypto crazy,” Laith Khalaf, financial analyst at AJ Bell, said.
More Brits bought cryptocurrencies than stocks last year
According to AJ Bell’s survey, which polled 1,269 respondents, 7% of British adults invested in the crypto market last year, while 5% of the respondents invested in stocks and shares ISAs. These numbers are stunning considering that the crypto market is still struggling to navigate regulatory factors and broaden its reach.
The survey also found that most crypto investors are young and male, and that the loss-making ratio was significantly low. 71% of these young respondents said that they made a profit from their investments, and only 12% said they lost money in the crypto market.
Despite crypto’s growing popularity, stocks and shares ISA are still heavily sought after by investors who want to earn higher returns without paying tax on income or capital gains. Stocks and shares ISA allow investors to put their money into different investments, including individual shares, investment trusts, investment funds, as well as bonds and gilts.
Young U.S. investors are also flooding into the crypto markets
U.S. investors made $4 billion in profits from bitcoin investments last year, topping other regions, according to estimates from a blockchain analysis company called Chainalysis. The new group of young investors played a big role in reaching the new height.
In general, older investors were curious about gold during the pandemic year, while young investors were more interested in bitcoin, a JP Morgan research team led by Nikolaos Panigirtzoglou said.
“The two cohorts show divergence in their preference for alternative currencies,” Panigirtzoglou said. “The older cohorts prefer gold while the younger cohorts prefer bitcoin.”
To understand why the younger generation is more inclined towards crypto and other risky investments, the Financial Conduct Authority put out a research report saying that so-called self-directed investors are inspired by social media campaigns along with the thrill of playing with volatile markets. The report further found that young investors are learning investing tips from YouTube videos and other social media sites instead of traditional platforms.
Additionally, some market analysts believe that the 2008 financial crisis, as well as currency depreciation over the years are backing young investors’ interest in the crypto markets.
“I think it also may be distrust of the centralized financial system by a lot of young investors after 2008,” Zev Fima, research analyst with Action Alerts PLUS, said recently. “We’re constantly printing money, and bitcoin came about after 2008 when people started questioning how we protect the value of the funds we save amid devaluation of printed money.”
Diversification is key
Despite the win rate being significantly higher for young thrill-seeking investors last year, AJ Bell’s Financial Analyst Laith Khalaf recommends investors to remain cautious when investing in crypto markets and to focus on diversifying their portfolios.
“The youthful profile of crypto buyers suggests they may have accumulated few assets so far and could find their finances seriously damaged if crypto markets take a turn for the worse,” Khalaf said.
In general, diversification is the key to success when it comes to investing in a volatile market environment. Investing in different areas maximizes returns and minimizes risks because each asset class reacts differently to the changing market environment.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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Author: Portfolio Insider