Young British crypto investors relying on 'cocktail of debt'

·3 min read
Representation of cryptocurrencies are seen in this illustration photo taken in Krakow, Poland on June 29, 2021 (Photo Illustration by Jakub Porzycki/NurPhoto via Getty Images)
Representation of cryptocurrencies are seen in this illustration photo taken in Krakow, Poland on June 29, 2021 (Photo Illustration by Jakub Porzycki/NurPhoto via Getty Images)

Young UK investors are funding investments in cryptocurrencies through a "cocktail" of credit cards, student loans and other borrowing, new research suggests.

Interactive Investor, the UK’s second largest direct to consumer investment platform, said a poll of 1,000 adults aged between 18 and 29 found a fifth had invested in Bitcoin (BTC-USD) and half had turning to debt to fund their investments. 23% used a credit card, 17% used a student loan and 16% used another type of loan.

27% of respondents admitted to using their credit card to invest in Dogecoin (DOGE-USD), 17% said they used their student loan and 12% cited another type of loan.

Read more: Binance beefs up its compliance strategy amid UK regulatory crackdown

“Young adults using credit cards, student loans and other forms of debt to invest is a worrying trend," said Myron Jobson, a personal finance campaigner at Interactive Investor. "We would never recommend using a credit card to fund investing."

Interactive Investor's poll didn't give any data on whether young people were struggling with crypto-linked debts but big swings in the market suggests at least some may be. 

Bitcoin hit a peak of more than $64,000 in April before halving. Dogecoin went from being worth less than a cent at the start of the year to a peak of more than $0.70 but has since fallen back to trade near $0.23. Any investor who borrowed money to buy near the peak is likely now struggling.

"There is the possibility of damage to your credit score if repayments aren’t met which can seriously hinder your ability to get a mortgage and access other forms of credit in future," Jobson said. "It simply isn’t worth it.”

Interactive Investors poll found almost half of Gen Z and late millennial investors were getting their first taste of investing via crypto. Almost half (45%) of 18–to-29-year-old said their first investment was cryptocurrency. That was more than twice the proportion who first invested via funds (23%) and the proportion whose maiden investment was in listed company shares (18%).

Watch: What are the risks of investing in cryptocurrency?

Last month the UK's financial watchdog found that adoption of cryptocurrencies was snowballing despite big risks. The Financial Conduct Authority estimated that 2.3 million adults now hold cryptoassets, up from 1.9 million last year.

By contrast, the level of overall understanding of cryptocurrencies is declining. Only 71% correctly identifying the definition of cryptocurrency from a list of statements.

Read more: Bitcoin: What is crypto-mining and can anyone do it?

"If consumers invest in these types of products, they should be prepared to lose all their money," Sheldon Mills, the FCA’s executive director for consumers and competition, said at the time.

One in 10 who had heard of cryptocurrency said they are aware of consumer warnings on the FCA website. Of these, 43% said they were discouraged from buying crypto.

In a separate survey, FCA regulated fintech Ziglu found 24% of UK crypto investors had spent £100 ($138.37) or less on their investment. 28% spent between £100 and £500, while 23% spent £1,000 or more buying crypto. 5% have spent over £10,000.

Watch: What is bitcoin?

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