Despite its growing popularity, it seems that relatively few investors know what they are doing when it comes to cryptocurrency speculation.
New research from behavioural finance specialists Oxford Risk has found that 36% of UK retail crypto investors say their understanding of the sector is either non-existent or poor.
Even after owning crypto assets, nearly a quarter of investors still rated their knowledge of the digital currency in the same way.
The study found that around one in 8 adults in the UK has bought cryptocurrencies in the past five years.
Only 21% of these speculators in Bitcoin, Ethereum and other tokens believe their knowledge was good when they were first invested.
That proportion rises to just 33% after people accumulate a little more knowledge after first investing.
Greg B Davies, head of behavioural finance at Oxford Risk, said:
“The concern is that too many people are buying blind without knowing what they’re doing and are being influenced to invest by rising prices and other people encouraging them to have a go.
“That is worrying if people have substantial amounts invested in cryptos and do not understand what they have bought.”
Cryptocurrency investing is often driven by emotional factors, including the fear of missing out (FOMO) or encouragement from friends and family. Even press reports of significant price rises can place emotional pressure on investors to get involved.
However, the unregulated cryptocurrency market is subject to massive price swings with the sort of volatility that would terrify even the most experienced investors.
Crypto asset prices are often influenced by social media posts or regulatory action against exchanges, making it impossible to predict whether prices will rise or plummet.
According to Oxford Risk, a third of UK investors don’t believe there will be future price rises, around half are unsure, and a quarter think prices will rise.
One in 5 UK adults plans to increase their allocation to crypto assets or invest for the first time during the following year.