Small investors show great interest in cryptocurrencies despite the speculative and volatile nature of these virtual assets. The finding was highlighted in a report published by 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 Cryptoassets.” The report, which was published this week, emphasizes that the growing interest of large capital-equipped investors in crypto should be channeled through a focus on crypto awareness and education.
In its report, IOSCO stated that even in 2022, when the valuation of the crypto sector fell below $1 trillion (roughly Rs. 1,67,09,363 crore), retail investors continued to invest in crypto assets. This trend was not only evident among retail investors in advanced economies, but also among those in emerging markets.
“Since 2020, the crypto asset space has continued to evolve and, despite the volatility of the market, which experienced a major downturn during the ‘crypto winter’ of 2022, small investors continue to invest in the crypto asset market, these investors tend to be younger and more demographically diverse,” it says in the report.
The report revealed that many of these younger retail investors are gathering their investment information from unauthorized, random sources. This practice, they fear in IOSCO, can lead them to 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 argues that governments must accelerate efforts to create comprehensive crypto regulations tailored to their economies. In addition, the report highlights the need to educate investors about the protections offered 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 engage. These factors include extreme price volatility, potential losses, system failures, hacking risks, fears of losing private keys, proliferation of fake crypto assets, and lack of consumer protection.
“Given the widespread lack of compliance in the crypto asset space, fraudulent activity remains prevalent and investors remain at significant risk of loss. Investors, including those new to investing, may not be as aware of how to avoid or watch out for fraud when investing in this space. Being aware and vigilant about the continued prevalence of fraud remains an important message for regulators to regularly communicate to and support investors,” the report said.
Echoing the findings of various research firms and legal institutions, including the FBI, IOSCO recognized the increasing prevalence of crypto-related fraud over the past few years.
The report highlights a significant increase in investment scams, Ponzi schemes, exit scams, pump-and-dump schemes and market manipulation tactics used by cybercriminals, urging investors to conduct due diligence before engaging with unknown crypto resources. For younger investors, the report cautions that FOMO should not make them rush to invest in this speculative and largely unregulated asset.
IOSCO is currently working to implement the crypto framework in all of its member jurisdictions, serving as a forum for national securities regulators and claiming to have 130 jurisdictions under its umbrella. SEBI, India is also one of the members of the IOSCO Board.