Amid fresh warnings over the rising rates of cryptocurrency scams, investment in digital assets is on the rise in the UK with almost 10% of the population partaking. But how safe is DIY investing and what are the potential pitfalls of this novel investment strategy? Russell Brett explains.

What are the dangers of cryptocurrency? An exploration of DIY digital investing - Matthew Douglas Ltd

Nearly 5 million people in the UK currently hold cryptocurrency assets such as Bitcoin, with interest in digital investing on the rise. However, wannabe investors should be shrewd about where they place their hard-earned assets. 

This is confirmed in a direct warning from Lloyds Bank earlier this month, reporting that cyber crime is up by 23% in 2023 compared to last year, with a rising number of investors being defrauded by scams and fraudulent adverts.

What exactly is cryptocurrency?

Cryptocurrency is a form of currency that only exists digitally and not in the physical world. Unlike recognised currencies, it is monitored only by a decentralised system online and not a central authority. 

Part of the widespread interest in cryptocurrency is because it is a relatively new field, which means that there are few regulations determining what investors can and can’t do. However, it also means that, currently,  no bank, government or regulator manages assets held on these platforms.

Assets can be widely accessed – with no accountability

While fewer regulations may sound appealing, it can create a host of problems for users. A key concern is that trading in cryptocurrency opens up would-be investors to a higher likelihood of being targeted by criminals – such as the $3.8 billion fraudsters stole last year alone. 

As your details are all stored online in what is called ‘the blockchain’ they are in effect accessible at all times to would-be hackers. 

 Having a digital wallet also makes it harder to trace spent or stolen assets and if something were to go wrong, the inherent lack of regulation means that no one is held accountable. 

In fact, because it is a system of peer-to-peer trading, the vast majority of the time it will not be possible to retrieve any lost assets. For example, crypto transactions consist of sending assets directly from one user to another – much in the same way you transfer funds between friends and family – rather than a direct debit or recognised transaction.

Follow the ‘three-year rule’ when it comes to investing

Clearly, I wouldn’t advise anyone to trade with cryptocurrency. At the moment, it’s an unregulated system that opens up users to inherent vulnerabilities that by far outweigh any potential gains.

But more than that, if anyone is looking to see a virtually immediate short-term yield, I would advise them against investing altogether. With investments, it’s important to understand that the value of your assets will invariably fluctuate; its worth will go up, down and hopefully, up again. I would advise anyone looking to secure a viable long-term investment with a sustainable yield that they seek to invest for a minimum of three years.

This will give you sufficient time to start to see patterns emerge as markets shift and your assets mature. 

Investing with expert advice is essential

Ultimately, while I can understand the perceived appeal of this type of investing, the risks associated with it are simply too great. The lack of regulation in crypto means that we are likely to see more cyber crime as criminals abuse a system that most authorities are still in the early stages of comprehending – let alone regulating.

If you are considering growing your money in assets that you can understand, and in an organic and tax-efficient way that minimises fees and maximises your long-term yield, I’d always recommend doing it in real, regulated currency under the guidance of seasoned financial professionals – such as our team of expert investors. 

If you’d like to learn more, get in touch today