Hard teachings from the crypto crash
Hard teachings from the crypto crash
This article is the latest part of the FT’s campaign for financial education and inclusion
We deal with all kinds of financial problems in the Money Clinic Podcast, but after I had spoken to young dealers who had lost their shirt in the $ 40 billion dollar deletion of crypto token Luna, it was difficult for me to offer them solutions.
subbaiiah, 29, came to crypto last year after seeing his friends earned money. The IT employee in Bangalore looked at tutorials from online influencers, started trading with various coins and deserves enough to dream of quitting his job and trading full-time.
Unfortunately, this early success gave him self -confidence to borrow loans on credit cards to boost his trades. Tempted by the prospect of a yield of 20 percent, he laid his entire portfolio of $ 7,000 in Luna-just to see how it was reduced to $ 150 when the case was worth this month.
"I thought I could easily make money," he told me this week in the podcast. "I never thought about the downside that everything could go to zero."
Subbaiiah's money is not only lost, the credit card debts will also remind him that he could not afford this risk.
You may only have limited sympathy for those who were financially ruthless and acted with unregulated and volatile crypto-assets to get rich. In the UK, the supervisory authorities have repeatedly warned: "Prepare to lose all of your money." So why did this come as a surprise?
But take a look at the stories of suffering on Reddit-Threads that are crowned with suicide hotlines, and only those with hearts out of stone will not question what we should do to protect young consumers from financial damage.
The financial supervisory authorities still fight how they should react, but there are also serious questions for platforms (those that enable crypto trade, as well as social media platforms). As the goalkeeper of the crypto kingdom, you benefit from this madness and should better monitor it.
But even the outgoing chairman of the British financial supervisory authority admitted last week that hard warnings would not deter young people. Charles Randell recently attended a school near the FCA headquarters in the east of London and talked to a group of 13- and 14-year-old students about the risks of crypto.
They accepted that it was "like gambling", but still believed that they could make money with it. "They were very capable of students, but the hope of getting rich was stronger than all the facts or rational arguments that I could give them," he said.
"With such different celebrities as Kim Kardashian and Larry David, who are ready to take money to promote speculative crypto, how can we slow down the enthusiasm of the people to do something that could seriously damage their financial life?"
crypto may be risky and unregulated, but it is impossible to avoid it. Even if young investors know the warnings of the FCA, they are more likely to have seen influencer recommendations on social media, crypto advertising alongside buses or to "play to earn" online games such as z axie infinity .
Last year FCA research estimated that 2.3 million British adults had any form of crypto-assets, which is not far from the numbers that invest in stocks and shares of ISAS. Although most crypto owners knew that their investments were not protected, more than one in ten believed something else.
There are more and more indications that some people who have lost money in their crypto investments wrongly believe that they could be entitled to compensation.
The British Financial Services Compensation Scheme (FSCS) tells me that "crypto" is one of the most frequently sought -after terms on its website - but it is not a product that covers it. In response to this, the FSC's educational content created what you should consider before investing in crypto, including the podcast "Protect your money".
This is commendable - but could better financial education really prevent people from taking great risks to quickly get rich? One of Money Clinic's podcast experts, the professional investor Ilan Solot, believes that this is possible.
"We have to prepare young people for a financial world in which they are offered situations with high leverage and say people on YouTube that you can earn 20 percent and there is no risk," he says.
I firmly believe that we have to start doing more in schools. The Financial Literacy and Inclusion Campaign (Flic) The FT has developed a school workshop on the subject of risk that contains a "higher or low" game-similar to the British television show of the 1980s , they play their cards correctly -where we challenge teenagers to predict short-term crypto price movements.
In my role as a Flic faithful man, I often have to pretend to be the late extravagant moderator Bruce Forsyth. A happy student is selected to guess while his classmates "higher!" roar. Or lower! " (They often make a mistake, which is embarrassing, but less expensive than in real life).
once a student thought that the answer was lower, but I influenced him to change his opinion by repeatedly asking: "Are you safe?"
When I found out that the correct price was much lower, he was rightly upset: "But Miss, they said to me that he would increase!"
But here is: How can someone guarantee that you will make money? As I told the students, if I were an influencer on TikTok, I would tell you that you should buy this Coin, what would you have to recourse if you had lost all your money? Correct answer - none - and golden stars.
talking about the realities of the bankruptcy is possibly the strongest teaching material for young investors who are tried to make a barge
There are other regulated activities that older students could legally try out that are risky and financially harmful, such as: B. Spread Betting, Daytrading or Gaming, but there are some protective measures.
The United Kingdom has (finally finally) banned players to play with credit card payments; Spread-Betting websites must contain clear warnings of the high number of customers who lose money, and the FCA has restricted the amount of the leverage effect that can use inexperienced investors. In the meantime, the crypto world remains a free-for all.
The first rule of gambling is never to be more than you can afford to lose, but crypto investors should also consider traditional investment "rules" such as diversification.
Compare Subbaiiah's experience with that of the 34-year-old Money Clinic Podcast listener Dan. He holds crypto, but kept this below 15 percent of his wider portfolio. While he stayed away from Leverage (and Luna), he still saw how the value of his crypto stocks fell by several thousand pounds in the last sale.
He is not happy about it - but it didn't cost him his financial resilience. He is not a forced seller and (to coin a sentence popular with crypto investors), he can "hold on to life" and hope for an upswing.
You may think that you are crazy to invest in crypto, but I am very grateful to our Podcast guests that they courageously share their experiences with the loss of money. With all the hype dealers who promise that they can exchange their way to wealth, the conversation about the reality of the bankrupt
Claer Barrett is the consumer editor of the FT: claer.barrett@ft.com ; Twitter @Clearb ; Instagram @Clearb