Dissecting the FCA’s 2020 Cryptoasset Consumer Research Paper (Part 1)

Back in June of this year, the FCA released its Cryptoasset Consumer Research paper: https://www.fca.org.uk/publication/research/research-note-cryptoasset-consumer-research-2020.pdf. At 34 pages it’s a very digestible read and contains some interesting highlights about UK consumer’s cryptoasset interest and awareness.

In this piece I will take a look at some of the key findings and outline what wider supporting or contradictory evidence there may be:

5.35% hold or held cryptocurrencies, up from 3% in 2019.

This is a reported growth of 1.2m since 2019 and unsurprising given the increased media coverage of cryptocurrencies, growth of crypto businesses across the UK as well wider economic instability which may be leading consumers to consider alternative investment classes.

Looking at the search term ‘buy bitcoin’ on google there is a steady uplift in interest from last year and this is supported by reported growth in consumer crypto exchanges such as Coinbase who have already seen 5m new users this year alone, taking their total global user base to 35million.

This is also mirrored by growth in institutional crypto holdings, with Fidelity reporting that 45% of EU respondents in their recent survey had invested in cryptocurrencies, as well as results from investment firm Greyscale who increased their crypto holdings significantly since 2019.

Interestingly, the report also notes that of who did not currently own crypto, nor plan to buy crypto, 29% would consider purchasing in the future if the space was more regulated. As regulation is a trend we’re seeing across the crypto and blockchain space, it may be that this 29% converts in time for next year’s report.

This year 27% had never heard of cryptocurrencies, compared with 58% in our survey last year

This is a very significant change and showcases the increased mainstream media attention on and about cryptocurrencies.

The image on the left illustrates the move away from crypto news being covered by niche tech and blockchain-only media outlets, and now across globally known publications such as the BBC, Forbes and CNBC.

Coupled with mentions across hit TV shows such as Silicon Valley, The Simpsons, Parks and Recreations and even Hollyoaks, as well as a host of other tech and non-tech themed movies.

In addition to this, crypto has even spawned a new genre of bitcoin-infused songs, with titles such as Hodl Gang, Bitcoin Girl and Ode to Satoshi, as well as making it’s way into lyrics of many popular rap songs and one of my personal favourites — a Hamilton inspired rap: https://www.youtube.com/watch?v=JaMJi1_1tkA

The most popular reason for consumers buying cryptocurrencies was as ‘as a gamble that could make or lose money’, acknowledging that prices are volatile.

Anyone who has followed the bitcoin price over a number of years will be accustomed to the rollercoaster ride it provides, therefore it comes as no surprise that this is the most popular reason for buying cryptocurrencies. However away from the sensationalist headlines about bitcoin’s daily price swings, we’ve seen a 15month low and that the numbers are generally pointing towards bitcoin’s decreasing volatility

As such whilst it’s certainly been the case that bitcoin’s price spikes have lead to millionnaires and misery, it may be that a reduction in volatility brings a more diverse use of cryptoassets.

In line with this there has been an increase in the number of businesses and services who accept crypto as a means of payment, and one promising statistic from the report is that 27% of respondents who had bought crypto had used it to purchase goods and services. Plus with recent announcements from Visa and PayPal, the stage looks set for the crypto payment revolution.

Despite this, and looking at the top 5 reasons from the report, it is clear that crypto’s current use as an investment is still the driving factor in the vast majority of cases. Notably just 17% of respondents bought crypto for ideological reasons, therefore hopefully countering an often heard critique that crypto is only held by the basement tech nerds who care about libertarianism.

75% of consumers who own cryptocurrencies hold under £1,000

This is inline with on-chain analysis of global bitcoin holdings where we can see that c70% of addresses own 0.1 BTC or less. However following best practice, it is not advisable to consolidate all holdings into a single address but instead across a number of addresses. As such a person’s crypto wealth is best understood looking at their collection of addresses and therefore looking at the balance across single addresses may be heavily reductionist.

However with the recent growth of retail investors as seen above, and their win-lose mentality of investing, it is a logical conclusion that they would be looking to dip their toes into the crypto waters rather than looking to invest very large sums. This also marries with responses regarding the length of time the respondents expected to hold their cryptocurrencies, with the majority unsure or looking to HODL.

This follows the common mantra of “I’ll just put a little in, leave it and hope I become really rich”.

This concludes part 1 of the the dissection into the FCA’s 2020 Cryptoasset Consumer Research report and part 2 will be published shortly.