Do we know the main features of the crypto market?

Published on 5 October 2022

Since the emergence of Bitcoin, the first cryptocurrency, in 2009, the crypto market has seen great rise and spread, so nowadays there are more than 20 thousand various types of active cryptocurrencies. While any investment in either traditional or crypto markets carries some risks, the risks of investment in the crypto market are nonetheless higher and we should be aware of them. The key features of the crypto market are high volatility and speculation, as confirmed by recent events in the crypto market: in May 2022 the crypto market lost more than USD 600 billion in value, and the two most famous cryptocurrencies, Bitcoin and Ethereum, lost more than 70% of their value. Croatian crypto exchanges also recorded a decline in trade volume; in the first 6 months of 2022, the volume of trading was around HRK 700 million, 27% less compared to the same period last year.

Young people are more prone to investing in the crypto market than in traditional financial markets

Nevertheless, a growing number of young people still choose to invest in the crypto market. According to a survey conducted by the Croatian Financial Services Supervisory Agency (Hanfa), young people aged 20 to 35 are more prone to investing in the crypto market than investing in traditional financial markets; 26% of them invest or plan to invest in the crypto market, while only 10% invest in shares, bonds and/or investment funds. Investing in the crypto market, in line with high risk, can generate high gains but also high losses, therefore, the awareness of market risks and knowledge of the system are important when investing in the crypto market. As many as a quarter of young people who have traded in crypto assets believe that cryptocurrencies are issued or supervised by central banks, and more than 50% believe that there is a consumer protection system, same as with trading in financial instruments. This indicates a very poor knowledge of the market, and what is particularly worrying is that as many as 11% of those who have traded or trade in crypto assets consider them not to be highly risky or speculative.

European crypto market regulation is currently in preparation

At the EU level, a regulation to govern the crypto market is being prepared. This is a cryptomarket regulatory framework (Proposal for the Markets in Crypto-assets Regulation), that should regulate entities providing services related to cryptoassets, such as the custody and management of cryptoassets for the account of third parties and provision of cryptoasset advice. Pursuant to the Regulation, crypto services should be allowed to be provided only by legal persons with a registered office in an EU Member State that have received authorisation for the provision of such services from the competent authority, as is the case with investment firms at the moment. The Regulation should also govern cryptoasset issuers intending to offer cryptoassets or seeking an admission to trading on a trading platform for cryptoassets in the EU. While the Regulation has not yet entered into force, as many as 49% of respondents trading in cryptoassets believe that the crypto market is regulated, i.e. that there are regulations and laws that govern trading in cryptoassets.

Before you start trading in cryptoassets, pay attention to the following:

While the market in cryptoassets is popular among young people, and they choose to trade despite the risks, their knowledge of the market itself is very poor. Therefore, being unfamiliar with the market, coupled with high volatility and market risk, may lead to negative financial consequences for young people who are at the beginning of their professional and investment careers. Before you start trading in cryptoassets, it is necessary to educate and inform yourself about all the risks associated with them. More information on trading in cryptoassets can be found on Hanfa’s website and in the educational leaflet Crypto market.