Demand for cryptocurrencies continues to rise as the barriers to investing in them are reduced. Ordinary investors can now access UK-listed crypto exchange-traded products (ETPs), giving savers another route into the asset class, under an Financial Conduct Authority (FCA) change that took effect on 8 October.
It remains an area in which investors have very little protection, however, while new research highlights an alarming knowledge gap among many people investing in crypto assets. FCA figures show that around 12% of UK adults owned some form of crypto asset as of August 2024 (and the figure has certainly increased since then). But 72% of investors admit to not being knowledgeable about crypto, according to research by Wisdomtree. It said that three in ten investors wouldn’t know what to do if prices fell sharply.
The FCA has previously warned that there remains a distinct lack of investor knowledge about crypto. So, with crypto assets being a key theme in World Investor Week 2025 – from 6 to 12 October – we pick out a few things you need to know in order to protect yourself if you’re planning to invest in crypto.
What are crypto assets?
The FCA defines crypto assets as ‘a cryptographically secured digital representation of value or contractual rights that is powered by forms of distributed ledger technology and can be stored, transferred or traded electronically’.
The best-known cryptocurrency, Bitcoin – which launched in 2009 – is built on a type of database known as a blockchain. A cryptocurrency becomes an asset once it’s tradeable, and Bitcoin is just one option in a market of thousands, with the ever-growing range of crypto assets including exchange tokens, utility tokens, ‘meme’ coins and non-fungible tokens (NFTs).
What are crypto exchanges?
Cryptocurrencies are bought and sold on online platforms called crypto exchanges. Your choice of exchange is important, as some are much more reliable, liquid and secure than others. The larger, better known exchanges available in the UK include Coinbase, Binance and Kraken, which allow you to trade a variety of cryptocurrencies.
When choosing an exchange, it is important to consider factors such as security, fees, and the range of cryptocurrencies available for trading. It is also a good idea to read reviews and do some research to ensure that the exchange you choose is reputable and trustworthy.
You’re not protected in the event of it going wrong
Many people assume that cryptocurrency is regulated in the UK. That’s not the case, however, which means investors don’t have the protection they might expect. The FCA does not regulate most crypto assets, which means the Financial Services Compensation Scheme can’t protect you if a platform that exchanges or holds them goes out of business.
Similarly, you won’t have recourse to the Financial Ombudsman Service (FOS) if you want to make a complaint about a provider or exchange. More broadly, the relative lack of regulatory oversight makes cryptocurrencies particularly vulnerable to hacking, fraud and other risks.
Do your research
One in ten crypto investors didn’t do any research before diving in and 40% admitted to not having a good understanding of how the underlying technology works, according to FCA research. Yet this is a rapidly evolving market, and it can be very difficult to keep on top of the different exchanges and cryptocurrencies available. You risk being caught out by the hype unless you don’t have a decent understanding of how crypto works and what you’re investing in.
There’s a growing range of credible resources available online to help you understand the ins and outs of cryptocurrency, including articles, videos, and online courses. It is important to take the time to research and understand the market before making any investment decisions.
Create a secure wallet
After choosing an exchange, it is important to create a secure wallet to store your cryptocurrency. A wallet is a digital tool that allows you to store, send, and receive your digital assets securely. There are several types of wallets available, including hardware wallets, software wallets and online wallets. It is important to choose a wallet that offers a high level of security to protect your investment from hackers and other threats. It is also a good idea to use a wallet that allows you to control your private keys, as this gives you full control over your cryptocurrency.
If it’s too good to be true…
…it almost certainly is. As crypto investments become more popular, fraudulent crypto schemes become more commonplace. More than USD$9bn was lost to crypto scams in 2024, according to the FBI, and with many losses still unreported the real total is likely much higher. Cryptocurrency cases accounted for two thirds of the investment fraud cases that cost UK victims some £649m in 2024.
Crypto promotions are rife with promises of huge investment gains and guaranteed profits, while some also purport to be risk-free. Any firm that makes such claims is probably best avoided. Similarly, take a cautious approach to the introductory rewards and referral codes that many new crypto exchanges offer. They’re not necessarily scams, but it’s best to deal only with well-known exchanges to avoid being caught out.
Be wary of social media promotions
The FCA has taken action to curb the impact of so-called finfluencers – celebrities that have used Instagram, Tik Tok and other social media platforms to recommend high risk investments (including cryptocurrencies) without being authorised to do so. A number of scams also use images of famous people without their permission, falsely claiming that they have endorsed their investment or cryptocurrency scheme. Be wary of finfluencers sharing false information too.
The FCA has warned that ‘poor quality financial promotions on social media can lead to significant consumer harm due to their wide reach and the complex nature of many financial products and services’. The same caution should extend to the advice offered by strangers on platforms such as Reddit. Read more about avoiding social media investment scams.
Expect a lot of price volatility
Price movements in stock market-based investments are driven by macro factors (such as inflation and interest rates) and micro factors (i.e. a company’s results and management), which means you can build a picture of the value and risk level of an investment. But cryptocurrencies don’t produce anything of inherent value, which prices are especially fickle and dictated entirely by sentiment and demand.
This means prices can fluctuate dramatically in a short space of time – so never invest money you can’t afford to lose. Cryptocurrencies should represent just a very small slice of a diversified investment portfolio that also includes equities, bonds and other assets. To make sure you’re getting the best out of your investments, use our free comparison tools to find the right investment platform for you, and browse through the many articles on our website that can help you on your investing journey.
Image by Eivind Pedersen from Pixabay
