Investors in cryptocurrencies demand clearer advisories regarding potential dangers - Central Bank's Statement
The Central Bank of Ireland has conducted a study that suggests behaviorally informed warnings about the risks associated with crypto assets can improve risk comprehension and perception among at-risk investors.
According to the research, published by Central Bank economist Danish Us-Salam on Tuesday, these warnings, crafted with behavioral insights, help investors better understand potential downsides and make more informed decisions by clarifying the nature of the risks and possibly incorporating price volatility information alongside risk disclosures.
The study, which was based on an online experiment, found that risk perception significantly increased among subjects given more behaviorally specific, detailed warnings about risky investments. This approach contrasts with generic warnings and is shown to significantly enhance how well at-risk investors grasp the complexities and dangers of crypto assets, likely reducing impulsive or uninformed investment decisions.
Inexperienced investors, particularly younger individuals with less investment experience, are most at risk of falling prey to bad information about crypto products, according to Mr. Us-Salam. He emphasized the importance of policymakers designing and implementing risk communication strategies that are both informative and behaviorally cognizant.
Central Bank governor Gabriel Makhouf has a sceptical view of crypto assets, stating that they might be more accurately described as "Ponzi schemes" rather than investments. The Central Bank continues to warn potential investors that crypto assets are not regulated financial products and that consumers face the possibility of losing all their money if they buy crypto.
In a related development, Kraken, a crypto trading exchange, has secured an EU-wide license from the Central Bank of Ireland. However, this license does not necessarily imply an endorsement of crypto assets by the Central Bank.
The new findings support the mandate of policymakers to create risk communication strategies that are both informative and behaviorally aware. By doing so, they can safeguard individuals at risk of investments in crypto assets and help foster a more informed and responsible crypto investment landscape.
- As the Central Bank of Ireland continues to issue warnings about the risks of investing in crypto assets, it is crucial for behaviorally informed strategies to be used in communication, especially for inexperienced investors who may be vulnerable to poor information about crypto products.
- Given the volatile nature of the crypto market, investors should consider incorporating technology that provides up-to-date information on investment risks and price volatility, in addition to general news, to make more informed decisions and better understand potential downsides.
