Retail investors interested in crypto but concerned about volatility: IOSCO
Retail investors are showing a strong interest in cryptocurrencies, despite the speculative and volatile nature of these virtual assets. The finding was highlighted in a report by the board of the International Organization of Securities Commissions (IOSCO). The Madrid, Spain-based body said it surveyed 24 jurisdictions to compile this report titled “Investor Education on Crypto-Assets.” The report, released this week, highlights that the increasing interest of large, capital-equipped investors in crypto should be addressed through a focus on crypto awareness and education.
In his reportthe IOSCO stated that even in 2022, when the crypto sector’s valuation fell below $1 trillion (approximately Rs. 1,67,09,363 crore), retail investors continued to invest in crypto assets. This trend was visible not only among retail investors in advanced economies, but also among investors in emerging markets.
“Since 2020, the crypto asset space has continued to evolve and despite market volatility, which saw a major decline during the ‘crypto winter’ of 2022, retail investors continue to invest in the crypto asset market. are younger and more demographically diverse,” the report said.
The report has revealed that many of these younger retail investors are collecting their investment-related information from unauthorized, random sources. This practice, IOSCO fears, could put them in a situation of financial turmoil.
“These investors often rely on social media for investment information and tend to overestimate their investment knowledge and experience,” the report said.
The financial organization claims that governments should accelerate their efforts to create comprehensive crypto regulations tailored to their respective economies. Furthermore, the report highlights the need for investor education regarding the protections provided by regulatory frameworks and the risks associated with investing in non-compliant crypto assets.
IOSCO also identified several factors contributing to the gap between retail investors’ interest in crypto assets and their reluctance to fully commit. These factors include extreme price volatility, potential losses, system failures, hacking risks, the fear of losing private keys, the spread of fake crypto assets, and the lack of consumer protection.
“Given the widespread lack of compliance in the crypto asset space, fraudulent activity remains widespread and investors still face significant risk of loss. Investors, including those new to investing, may not be as aware of how to avoid or look for fraud when investing in this sector. Being aware and cautious about the continued prevalence of fraud remains an important message that regulators must regularly communicate and reinforce to investors,” the report said.
Following findings from several research agencies and legal institutions, including the FBI, IOSCO has recognized the increasing prevalence of crypto-related fraud in recent years.
The report highlights a significant increase in investment fraud, Ponzi schemes, exit scams, pump-and-dump schemes and market manipulation tactics used by cybercriminals, and urges investors to conduct due diligence before engaging in unknown crypto resources. For younger investors, the report warns that FOMO should not prompt them to rush into investing in these speculative and largely unregulated assets.
IOSCO is currently working on implementing a crypto framework in all member jurisdictions, serving as a forum for national securities regulators claims to have 130 jurisdictions under its umbrella. SEBI, India is also one of the members of the IOSCO board.
