The FCA’s on-going consumer research into cryptocurrencies is to be applauded and welcomed. Despite the FCA not regulating this fast-growing asset class (according to the FCA, the number of owners of cryptos has increased in the last year by 21%), the FCA is clearly keeping a close eye on this sector.Main reason for buying cryptocurrencies
Gambling and portfolio diversification are the key reasons why UK investors are buying cryptos. It would be tremendous if we could see similar research being carried out by other regulators in other jurisdictions. FCA - please keep going with the research so we can all gain insight and learn. This asset class is certainly not set to decamp, so we do need to embrace, not dismiss, what could prove to be a great asset class for diversification and/or be used for regular savings as investors smooth out the volatility by ‘pound cost averaging’ their exposure to Bitcoin and the like. In the graph below, you can see the result of investing just $10 a week:
Regular savings into Bitcoin v Dow Jones Index over the last five years
Source:Dcabtc.com
Over three years, the savings would surmount to $1,570 in total and, assuming there were no transaction fees, the same $10 every week invested in the Dow Jones Index would be worth $1,997 - but that $10 each week placed into Bitcoin would now be worth $7,927!
Given that approximately 37% of people surveyed for the FCA report said they had bought cryptocurrencies as a gamble, this figure had us wondering how big the gambling market is. In the UK it is claimed that over 32% of the adults gamble each year - a staggering £14.22billion - and globally, the gambling industry is worth over $465billion! Whilst the gambling industry is regulated (and undoubtably most gamblers lose their bets) it does not seem to attract the same ire and passion from governments that cryptocurrencies do. Could this be due to such governments taxing gambling? In the UK alone, gambling taxes generated for the government £2.83 billion. Meanwhile in the US, the Federal tax on winnings is 24% and more states in America are looking to legalise sports betting as a way, according to the FT, “ for online gambling to plug their budgets created by the covid-19 pandemic”. Maybe governments need to have better monitoring of crypto profits, perhaps by simply introducing a withholding tax on exchanges to tax crypto profits, as opposed to the ‘nanny state-style’ of government we seem to be currently falling into currently with its bans and restrictions? Afterall, if people wish to treat their crypto holdings as a gamble, why not let them?
