“I’ll either be rich, or wrong.”
This is how Sam, a 29-year-old cryptocurrency enthusiast I interviewed on this week’s Money Clinic podcast, summarised his strategy for investing the last £2,000 of his savings in a hugely volatile and unregulated asset class.
Claiming that he’s not a natural risk taker, Sam has never set foot inside a casino or put money on a horse. “To me, that seems stupid, like you’re throwing money away.”
He has never considered investing in stocks and shares. Being self-employed, he’s never paid into a pension or thought about setting up a self-invested personal pension (Sipp). “No one’s ever given me that kind of information,” he says.
So why is he prepared to risk his spare cash betting on crypto?
Sam found out his younger brother had turned a £3,000 investment into £30,000 within four years — money he now intends to use as a property deposit. “I was very surprised and it made me feel a bit stupid . . . why aren’t I doing this?”
Bitcoin: ‘I’ll either be rich, or wrong’
Claer Barrett and guests on whether you should invest in crypto. Listen here
This is why so many younger investors are prepared to bet the farm on bitcoin. In the world of conventional finance, Sam felt the odds of taking part and winning were stacked against him, yet crypto offered the tantalising possibility of beating the system.
Given the price gyrations of the past week, crypto haters might be feeling slightly smug. But try to imagine how you might feel if you were at the very start of your investment journey.
Nevertheless, young investors “hodling” their spare cash into crypto coins raises questions for regulators, the wider investment industry and policymakers — not to mention parents.
Plenty of my FT colleagues are aware that their older children are trading crypto on their phones.
“I have a 20-year-old son and he texts me every day with a new coin,” says Eva Szalay, the FT’s currencies correspondent.
The latest one to spark his interest is the Shiba Inu — modelled after dogecoin, initially a joke currency based on a meme of a Japanese breed of dog. Both are now seemingly worth billions of dollars. Combined with the high entertainment value, Eva concludes crypto is a “natural space” for young people to be drawn to.
Even so, we agree that endemic fraud, wild pricing swings and the ability to leverage trades makes crypto a dangerous place for unwary first-time investors.
Crypto’s unregulated status hasn’t stopped doomsayers at financial regulators around the world firing warning shots at those convinced they are heading to the moon.
This week in the UK, advertising regulators banned Tube adverts which brazenly stated: “If you’re seeing bitcoin on the Underground, it’s time to buy.”
The risks extend beyond volatility. Many young investors like Sam only hold crypto. Luno, the cryptocurrency exchange behind the banned ads, surveyed its customers last year and found that 55 per cent had no other investments.
Sam, who describes investing in crypto as being “more like informed gambling”, is prepared to run these risks as he feels it’s the only way a young person like him can make serious money.
His portfolio value peaked at £5,300, but even after last week’s crash it is still worth £3,700.
Sam and his brother held on for the ride last week, and are convinced that growing crypto interest from hedge funds, asset managers, and Wall Street banks will work out in their favour — even as Bank of England governor Andrew Bailey warns they should be prepared to lose all of their money.
However, the central banks and their monetary policy decisions hang pretty heavily over all of this. Booming house prices and share prices have made acquiring assets hideously expensive for young people. Should we even be surprised about the rising appeal of crypto and other forms of high risk investments like day trading and spread betting? They are responding as best they can to the challenges that lie ahead of them.
Policymakers must urgently address the fact that young people like Sam feel like they have more of a chance reaching their financial goals in an alternative, unregulated system than the mainstream one.
Pensions and property are a good place to start. Auto-enrolment has “nudged” millions into pension saving but hasn’t benefited self-employed people like Sam.
In the UK, housing initiatives like Help to Buy have stoked demand, not supply. I’d say we could do with “Help to Rent”, incentivising the development of affordable rented homes. It’s less aspirational, perhaps, than owning an overpriced property on a 95 per cent mortgage, but it could be a generational game changer.
While regulators have been quick to disparage the ramping up of crypto and “meme stocks” on social media platforms, in the absence of any formal financial education, this is the investment message that’s getting through to young people.
“I feel like the knowledge [about crypto] is easier to acquire,” Sam tells me. He is naturally sceptical of the “ten times your money” claims made by some crypto-punting YouTubers, but adds: “I’ve never been told anything about regular finance or investing before, and I think this is more on your terms.”
Even if you do profit from crypto, the mainstream financial world can still get its own back in the form of taxes and lending restrictions.
This week, Joe Biden, the US president, proposed that any crypto transfer above $10,000 in value would have to be reported to the US tax authorities. If a crypto ETF is ever launched in the UK, investors could hold this inside an Isa, meaning capital gains tax won’t be a problem.
Sam’s brother, with his plan to use his crypto profits for a property deposit, may find he has trouble getting a mortgage.
To have any chance of finding a lender, you’d have to sell your crypto holdings and produce a document trail of their acquisition and sale, according to Pete Mugleston, founder of the Online Mortgage Advisor website. He says there are currently only seven UK lenders who would consider this, and only if buyers apply via a specialist broker.
While crypto falls outside any regulatory remit, that doesn’t mean you can forget the basic rules of investing. Diversification is the only real safety net that investors have, and professionals limit their crypto exposure to a small overall percentage of their portfolios.
Sam hopes he can double his money again, then de-risk by withdrawing his initial stake, keeping the rest as a long-term investment. I wish him luck.
Those prepared to punt what little money they have might think: “What have I got to lose?” Yet if they have no other savings to fall back on, the answer could well be their financial resilience.
Claer Barrett is the FT’s consumer editor: firstname.lastname@example.org; Twitter @Claerb; Instagram @Claerb