Barriers to mass adoption: How can the crypto industry attract retail investors?

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Since March 2020, the global crypto market has skyrocketed by a phenomenal 900%, with no sign of slowing down anytime soon. When looking at the current UK economy and trajectory for 2022, it’s easy to understand the industry’s appeal for experienced and more novice retail investors alike.

Achieving meaningful returns from savings is far from a reality in the current climate. The Bank of England recently opted to keep interest rates at 0.1%, and interest rates in Europe are actually below zero.

As a result, diversifying portfolios and taking on more risk is the only way to achieve returns –a balanced portfolio is now recognised as 5% in higher risk, higher reward assets like cryptocurrencies, even for low-risk portfolios.

With so little opportunity for reward elsewhere, investors who would have previously been horrified at the thought of watching their portfolio swing up and down by over 30% can now appreciate the unique benefits that this market can offer.

Crypto confidence

In fact, a recent survey found that around 97% of people are now confident in cryptocurrency as an investment vehicle, and 55% consider it to be a long-term wealth-building strategy.

Of course, this steep upsurge in the crypto market is by no means down to retail investors alone. A survey conducted by London-based crypto fund Nickel Digital Asset Management revealed that 82% of the 100 investors and wealth managers expect to increase their exposure to digital assets between now and 2023.

The primary reason for investing more in digital assets is the long-term capital growth prospects, according to 58% of the respondents. Many are naturally concerned about the risks this poses for retail investors. Crypto was designed to open up investment opportunities to everyone, challenging a financial system where only the rich can get richer.

Exclusionary practices are creeping in

Take launchpads, for example – these are designed to allow investors to access a project in the early stages of investment. Still, some of these require investors to hold thousands of dollars to participate. Unless we prioritise equal participation opportunities, we risk creating another financial system that faces the same issues as its predecessor.

Other experts in the trade, however, have an entirely different view. For one, while a lot of the industry expressed concerns that Bitcoin liquidity may soon become an issue due to institutional investors’ participation, this isn’t something that we have seen come to fruition. Institutional investors can “anchor” the current market whales. In contrast to individuals, financial institutions are mainly limited in their ability to manipulate the markets on any significant scale, so their active involvement may actually contribute to more secure prices.

Many institutional investors work very closely with the regulating bodies to develop clear policies and guidelines. With over 8,000 cryptocurrency scams in the US in 2020 alone, this can only be a development set to benefit retail investors.

Governments are waking up

Outside of the work being done by institutional investors entering the market, governments and regulators around the world are clamping down considerably on the industry in a bid to protect the interests of individual investors.

The Central Bank of Singapore has issued new guidelines to restrict manipulative trade practices by crypto trading service providers in the island nation. The aim, of course, is to protect the interests of retail investors who may not entirely appreciate the potential risks involved in crypto trading.

The Biden administration also released a report that includes specific proposed legislation to bring new regulation to stablecoins. The proposed bill would essentially classify stablecoin issuers as banks, subjecting them to similar oversight aimed at protecting consumers.

Regulation = bad?

For some, there is a significant lack of trust in the abilities of official bodies to regulate the crypto market properly. However, a recent survey found that nearly 30% of investors believe crypto regulations will increase its value, reduce volatility, and curb the risk of scams.

Ultimately, it is clear that the key to mass adoption of cryptocurrency is more education around potential risks, rewards, and regulations. Crypto exchanges can be a great support when it comes to retail investors. The current user base of digital assets is dominated by millennials who grew up in the internet age.

By creating more straightforward and transparent exchange platforms, the crypto industry is opened up to a whole new demographic of investors. A good exchange platform will also offer more novice crypto investors better protection against scams and added wallet security.

Whilst crypto may remain a more volatile and high-risk market, that alone should not deter retail investors from dipping a toe into the industry. The future impact of institutional investors and new regulations remains unknown, but with the right knowledge and support, crypto can be a hugely beneficial addition to an independent investor’s portfolio.

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