Despite the litany of frauds, scams and failures that have dogged the crypto sector, investor interest has only grown, according to a new report from the International Organization of Securities Commissions (IOSCO).
The umbrella group of global regulators issued a report that detailed the results of the latest survey of regulators — namely the members of IOSCO’s Committee for Retail Investors. The report represented an update to its last crypto survey in 2020, when crypto was identified as a priority by IOSCO’s board.
“Since 2020, the cryptoasset space has continued to evolve and, despite volatility in the market, which experienced a major downturn during the 2022 ‘crypto winter,’ retail investors in both advanced economies and emerging market jurisdictions continue to invest in the crypto-asset market,” the report said.
Indeed, despite events that caused massive retail investor losses — including the collapse of stablecoin TerraUSD, the bankruptcies of major players Celsius Network, Voyager Digital, and FTX — along with an unrelenting march of hacks and scams that have hit small investors, retail investor interest in cryptoassets has only grown.
“Based on internal or third-party data, 15 of the 24 jurisdictions reported 6% to 10% or more of the investors in their jurisdiction owned crypto-assets. Of these, six jurisdictions reported 10% to 30% or more of their investors owned crypto-assets. This is a steep increase from the information in the 2020 report where half of respondents to the survey estimated that 1% to 5% or less of their investors owned crypto-assets,” the report said.
At the same time, the regulators’ concerns about the asset class remain undiminished, it noted.
“Retail investors in crypto-assets continue to be subject to certain unique risks. Recent market events have shown that the industry is at a high risk for volatility, failures and bad actors causing harm to investors and the markets,” it said.
Given these ongoing concerns — along with efforts to bring the crypto sector within the regulatory perimeter and to introduce certain investor protections. — the report stressed the need for enhanced investor education. The need is especially acute “for new or unsophisticated retail investors who may behave in a way that increases their exposure to the risks of crypto-assets, or who may have limited investment experience and investment knowledge generally.”
The report noted that investor interest continues to be driven by a “fear of missing out” and is often informed by social media, as well as friends and family who similarly get their advice from social media.
“Persistent messaging about crypto-assets across social media platforms by influencers and targeted advertising, as well as general news, generates buzz and a fear of missing out that becomes difficult for investors to ignore and navigate,” it said.
This needs to be countered by targeted investor education, the report suggested — adding that most of the crypto activity remains outside the regulatory framework.
“As new and younger investors seem more drawn into investing in crypto-assets than traditional investments and the recent crypto-asset upsurge will prove compelling to new investors, these investors need support from investor education initiatives. Messaging that may be familiar to more experienced investors will need to be tailored specifically to crypto-assets issues and targeted to new and younger investors,” it said.
“With such growing widespread interest in crypto-assets, retail investors are subject to unique risks. Market events have shown that the industry carries high levels of volatility, failures, and bad actors causing harm to investors and the markets. It is not surprising, therefore, that crypto-asset education is one of IOSCO’s top priorities,” said Jean-Paul Servais, chair of IOSCO, in a statement.
“Financial education is a complementary tool to regulation and supervision to enhance investors’ awareness, critical sense and rational behaviour. Financial literacy must go hand-in-hand with appropriate investor protection measures, fair advice, supervision and enforcement of rules,” he added.