in the markets has asked for  your opinion on buying crypto. 

Definitely, I get a lot of  people asking me, 'Finn, what should I buy?'

'What's the next thing  that's going to go up?'

It's not just you. A survey of 1,000 adults in  the United Kingdom revealed that nearly half  

of people aged between 18 and 29 made their  first ever investment in cryptocurrencies.  

The risk is a lot of people making their  first investment and then getting burnt. 

Now even the International Monetary  Fund is sounding the alarm, saying the crypto  

boom could threaten financial stability.    

The cryptocurrency market is worth trillions. In  November 2021, its total market cap reached  

$3 trillion for the first time. It's no wonder  it's capturing so many people's attention. 

So, what should you know before you get  involved? And why is the IMF so worried? 

My name is Finn Juddell. I am 22 years old. I actually work as an investment banker and  

lead the crypto division at a small, little  boutique investment bank. I also manage a small  

funds management business called FJ Syndicates.    

I have a funny story for you actually – I got  into Bitcoin, that was all fun, I had a bit in my wallet.

It went up in value. I was like, 'This is pretty cool.'

My first stint into doing research and  finding crypto was actually a scam, so I learned  

the hard way pretty quickly of what to look for  and what not to look for in a crypto project. 

Finn's experience is a common one. While more  

than 16,000 tokens have been listed on various  exchanges, only around 9,000 remain today. 

What happened to the other 7,000 or  so? Well, some developers have walked away.  

Some tokens just aren't getting traded.  And, the IMF says, some were set up  

purely for speculative purposes – or like  Finn encountered – were just an outright scam.

Not a lot of young people, I believe, understand the  risk of cryptocurrency investments.

It is simply too volatile for many people.

Myron Jobson was a part of the team  at investment platform Interactive Investor

that published the survey we  mentioned at the beginning of this video:  

the one about 45% of young people making  their first investment in cryptocurrencies.  

  They also found that a number of  

these transactions were made using credit cards,  student loans and other means of borrowing.

  For example, 56% of respondents who  

invested in either bitcoin or dogecoin turned  to debt to fund their investments.

You can't get away from cryptocurrency,  you really can't. You can go on the  

London underground and see adverts about  cryptocurrency — missed out on Bitcoin,  

well, invest in this space of cryptocurrency  — which I think is wholly irresponsible.

And also on social media there is an association  with the high life, living the grand lifestyle  

that a lot of influencers put out there because  cryptocurrencies are often advertised next to  

these posts exploring this glamourous lifestyle.  I think that association is very dangerous.

This is a concern shared by the U.K.'s financial  watchdog, the Financial Conduct Authority or FCA.  

Its survey of 1,000 young investors in high-risk  products (aged between 18 and 40) found that they  

are driven by competition and influenced by hype.    

In fact, 58% of respondents said that constantly  hearing about a certain investment on the news,

on social media and from other people encouraged  them to purchase specific investments.

I don't think it is right to say that people  can make money or if you missed out on bitcoin,  

this is the next big thing, I don't think that's responsible advertising.

So I think policy  makers should definitely have looked at that.

Yes, you could make money from investing  

in cryptocurrencies, but the  volatility of cryptocurrency  

it just doesn't work for many everyday investors  and that needs to be made clearer. 

The IMF is calling for tougher regulations as  well. In a recent paper, its authors touted  

the “new world of opportunities” a  flourishing crypto ecosystem opens up.

But it's the fact that crypto  assets are becoming so mainstream  

that could put the financial stability at risk. 

The crypto ecosystem has grown significantly, it  keeps growing very quickly in the last few years.  

The process shows remarkable resilience  but there have also been some interesting  

stress tests.    

Evan Papageorgiou, one of the paper's  authors, walked me through some of them.  

  First, there's the rollercoaster ride  

these assets have been on. Sure, you could make a  lot of money, but you can also lose it all.

There are the customers who had their funds stolen by  hackers. The lack of oversight also creates data  

gaps, which can open doors for tax evasion, money  laundering and even terrorist financing. 

There has to be a trade off with the  innovation associated with crypto  

and potential risks. It is not  just young people, there's a  

broader segment of the population that is  involved more and more, with different motivations

As more people begin to use crypto assets  instead of their local currency  

– a process the IMF described as cryptoization – this can undermine

the effectiveness of central bank policies.    

This is especially true in emerging  and developing economies,  

the same countries the IMF says are leading the  way in cryptocurrency adoption. 

 

Digital currencies appear to be here to stay  – so if you do want to get involved,  

what do you need to know before  you part with your money? 

It is really important to look for strong  development communities in a crypto project,  

because that really is where the heart of it lies.  So really looking into fundamentals of what are  

they building, where is the value they are adding  to the world and where is the market for that. 

So you are suggesting that  people should do some research  

before putting their money  into cryptocurrencies?  

Definitely. Before you make  any financial decisions,

make sure you understand what you are investing  in – that's definitely the number one rule. 

Finn recommends asking yourself three questions:  

Does the founding team hold a large proportion of the tokens,

and are they barred from selling them all at once?

Is the project trying to raise too much money  by overestimating the value of its tokens?

What does the project do? Does  it add any real-world value? 

Don't invest it all on cryptocurrency. Yes  it's okay to dabble. If you want to do it,  

make sure it is a very, very  tiny fraction of your overall

portfolio, your investment  portfolio should be diverse.

Like many young people that want  to get on the housing ladder,  

you have to consider how your investments  could help you get on the property ladder.  

Cryptocurrency investments is simply too volatile.