Widespread media coverage of Bitcoin and other cryptocurrencies has opened the floodgates, inspiring investors to take a chance to get rich fast through what seems to be an easy investment. The GME stock craze and Elon Musk’s backing of Dogecoin have further encouraged retail investors to consider cryptocurrencies as new ways of generating revenue.
Data indicates that Gen Z is more interested in cryptocurrency than other generations. Blockchain is a big lure for young investors, and it’s been proven that many investors didn’t have any interaction with blockchain before 2021. Newcomers in the blockchain space are not necessarily reckless investors; their adherence to digital technology and their DIY mentality do not make them irresponsible. However, they lack extensive knowledge about a technology that’s been around for more than a decade.
Where Do Crypto Newbies Stand?
Volatility in the crypto space is nothing new. However, the fact that one in three cryptocurrency investors know very little about the technology does raise some serious concerns. Only 16.9% of investors fully understand the market and the applications of blockchain. That leaves a lot of space for some blockchain projects to potentially benefit from investors’ naivety.
Bulletin boards such as Reddit and 4Chan are digital proof that new investors have little to no knowledge of cryptocurrency. NFTs and DeFi have developed to become magnets for investors that hope to cash in on the up-and-coming digital gold. While the market is still unregulated, pump and dumps and similar activities could shatter many newbies’ dreams. Dave Levine has explained that buying into Bitcoin now, with the hope that the crypto bull run just started, could backfire on new investors.
Research on Gen Z indicates that they are most susceptible to adopting new technologies. While millennials were the early adopters in the crypto space, Gen Z is up and coming. However, if they don’t understand the history and previous crashes, they might make the same mistakes. It’s worrying that many newbies in the crypto space haven’t heard about Bitconnect. Those who don’t know history are bound to repeat it.
Are Newbies In 2021 Different From Newbies In 2017?
Three years after the turmoil of 2018, when Bitcoin peaked in volatility, new investors are rushing into the market at a rate reminiscent of the rush of 2017. However, there are significant differences between retail investors in 2021 compared to 2017.
The 2021 market is not as forgiving as in 2017. Still, data suggests uninformed investors are willing to spend from $2,500 to $5,000 on an investment about which they have little to no knowledge. Crypto appeals to people who want maximum gains from a small investment, and while that is not always the case, newbies are drawn by that premise. New investors are buying into the market with hopes of hitting the jackpot.
The newbie investors are DIY learners. They prefer to get their information from YouTube and think they will hit the jackpot. They use bulletin boards for insider information, and they are trading using their phone. This is a shift in behavior that contradicts trading customs which require extensive knowledge of the technology, company, and market movements. Speculation does play a big role in investing, and investors from 2017 have paid their dues to the market while new investors might soon encounter similar experiences.
On the Flipside
- Despite being new to the crypto space, new investors are eager to learn and understand more about the technology they are investing in.
- New investors are more likely to invest long-term than to trade in a technology they don’t fully understand.
- A decrease in NFT market volume might mean new investors will not achieve their desired financial outcomes.
Is The Current Crypto Market Safe?
The hype created around Dogecoin by Elon Musk followed a price pump, and Musk has gone a step further to promote another meme coin, Shiba Inu. Meme coins are substitutes for a Ponzi scheme, according to some Redditors. As DeFi platforms such as UniSwap provide easier access to finance, they are not protected from scams and fraud. And this is one of the reasons why people shy away from crypto.
Additionally, new projects that are less trusted have branded themselves to appeal to the current type of investors who are novices in crypto. Such projects target younger investors with cartoon-like logos and playful characters. Drawn by the promise of generating a high ROI, investors are susceptible to losing their money if they stake it in the wrong projects. And rug pulls – a term recently invented – are becoming common occurrences.