Around 14% of crypto buyers have borrowed money to fund their purchases, according to new data from the Financial Conduct Authority (FCA), which also showed a steady rise in crypto holdings among consumers.
A research paper published by the regulator on Thursday showed that while the profile of cryptocurrency had risen steadily, with 78% of adults saying they have heard of cryptocurrency compared to 73% a year ago, the overall understanding of crypto had declined.
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The FCA estimated that the number of consumers holding crypto has risen to 2.3mln, around 4.4% of all adults from 3.9% previously, while the median crypto holding has increased to £300 from £260.
The report also highlighted that cryptocurrencies “appear to have become more normalised” with 38% of crypto users considering them as a gamble compared to 47% last year while more see them as an alternative or complement to more mainstream investments.
However, while acceptance of crypto in the mainstream may be encouraging, some analysts are sounding alarm bells over the willingness of a large minority of purchasers to borrow money to fund their activities.
“The fact that 14% of crypto buyers have borrowed to invest is simply terrifying. The extreme volatility and uncertain long-term outlook for crypto means holdings can be wiped out, leaving borrowers with nothing but their debt as a memento”, said Laith Khalaf at AJ Bell.
“Around one in five crypto buyers said they were driven by FOMO [Fear Of Missing Out], which is never a good motivation for financial decisions….Buying cryptocurrency is a dangerous financial activity and while many consumers appear to understand the risks, some are carelessly playing with fire. There is no clear path for cryptocurrency to achieve widespread acceptance as a means of exchange between consumers and businesses and the carbon footprint of crypto mining has further dented its credentials as a long-term alternative to the existing monetary system”, the analyst added.
In lunchtime trading in London, Bitcoin was down 0.1% in the last 24 hours at US$39,283, giving it a market cap of US$736bn.