Over the past few years, there has been a surge of interest in cryptocurrency as an investment, with a growing number of people venturing into this market. In a recently published survey conducted by Financial Industry Regulatory Authority (FINRA) in 2022, it was revealed that a significant proportion of new crypto investors around that period based their decision to invest from the recommendations of friends. Meanwhile, about 10% of respondents claimed that they decided to invest in cryptocurrencies due to FOMO, or the fear of missing out.
Influence from Friends and FOMO
According to the findings of the FINRA study, many new crypto investors were influenced by their friends in their decision to invest in cryptocurrencies. This is in contrast to first-time equities or bond investors, with only 8% being influenced by friends, which may indicate a more social aspect to cryptocurrency investing.
On the other hand, around 10% of new crypto investments were attributed to FOMO, where the fear of missing out on a profitable investment opportunity played a significant role.
Age and Education of New Crypto Investors
The survey covered 465 respondents in the US interviewed between September 9 and 29 last year. The selection was based on random sampling with a margin of error at 6.75%
It found that newer crypto investors were slightly younger on average, with an average age of 37 compared to 43 for stock investors. They were also less college-educated, with only 28.5% completing a four-year degree compared to 46.3% of stock investors.
Popular Sources of Information About Crypto
The survey likewise revealed that friends, family, and colleagues were the primary source of information about the digital asset market for 48% of crypto investors, compared to 35% for stock investors. Social media was the second most popular source of information, with 25% of crypto investors citing it as their primary source.
Lack of Knowledge About Cryptocurrencies
Based on the results, a majority, or 23%, of the new account investors maintained less than $500 in their accounts. Those who held between $500 and $2,000; between $2,000 and $10,000; and at least $25,000 each took a 19% slice of the total participants.
It is worth noting that even though people had invested in cryptocurrencies, their knowledge about the digital assets was not as high as they expected. In a quiz comprising five questions about the issuance, transfer, taxation, and susceptibility to fraud of cryptocurrencies, the digital asset owners scored only 26.6%.
Why Investing in FOMO and Peer Influence Can Greatly Backfire
The fear of missing out, or FOMO, is a kind of panic buying and a powerful force that can drive people to make decisions they may later regret. In the context of investing, FOMO can lead individuals to buy assets simply because everyone else is doing it, rather than based on sound investment principles.
Investing based on FOMO and/or peer influence can backfire in several ways. First, it can cause individuals to overlook important factors, such as the underlying value of an asset, and instead, focus solely on its popularity. This can lead to investments in overvalued assets that may be poised for a sharp correction in the near future.
Second, investing based on FOMO can cause individuals to make impulsive decisions that are not aligned with their long-term financial goals. This can result in a lack of diversification and a failure to properly balance risk and return, which can increase the likelihood of losing money in the long run.
Finally, investing based on FOMO and peer influence can be emotionally draining, as individuals may feel pressured to constantly monitor their investments and make changes based on short-term trends. This can lead to stress, anxiety, and ultimately, burnout.
The FINRA survey provides valuable insights into the motivations and behavioral patterns of new cryptocurrency investors. It shows that influence from friends and FOMO are major factors driving people towards cryptocurrency, highlighting the need for caution when making investment decisions. Furthermore, the survey highlights the importance of education for new investors, as many lack the necessary knowledge to make informed investment decisions. Overall, the survey underscores the need for caution and education when investing in cryptocurrency.
Giancarlo is an economist and researcher by profession. Prior to his addition to Blockzeit’s dynamic team, he was handling several crypto projects for both the government and private sectors as a Project Manager of a consultancy firm.