New research by Scottish Friendly suggests as many as one in 20 UK adults have purchased cryptocurrencies.
They are also being adopted as legal tender by a growing number of countries.
But with this particular market showing considerable volatility – note the recent drop in the value of Bitcoin from £34,700 to less than £31,000 per digital coin – how should investors approach digital currencies.
Neil Lovatt, commercial director at Scottish Friendly, said: “If you’re surprised by this fall in Bitcoin, then you really shouldn’t be investing in crypto whatsoever.
“Investing should be a long-term journey, like a large ship riding the waves over time taking you to your destination.
“Crypto on the other hand is like surfing those waves, skilfully riding them up and down and enjoying the fun.
“It’s great if you know what you are doing but if you don’t, it’s just going to be sore.”
Will the crypto bubble burst?
Mr Lovatt added: “As an industry, we help consumers to save and invest sensibly, and have worked hard to build trust in the products and services we offer.
“What we don’t want to see is this trust disappear overnight due to a cryptocurrency bubble that will eventually burst.
“What’s even more worrying is the number of younger people who are essentially gambling with their finances.”
It’s great if you know what you are doing but if you don’t, it’s just going to be sore.”
But other new research suggests Bitcoin, other cryptocurrencies and NFTs (non-fungible tokens) – blockchain data representing ownership of unique digital files such as photos, videos or audio – are more trusted than stocks to give investors better returns in 2022.
The deVere Group poll, taken by almost 6,000 people on LinkedIn and tracked by more than 146,600 since the start of the new year found 30% of respondents believe a cryptocurrency other than Bitcoin will yield the best results.
A quarter (25%) are backing Bitcoin and NFTs, while 20% believe stocks will outperform crypto.
The head of a Swiss bank, Seba, recently predicted Bitcoin will hit new record highs in 2022, based on his firm’s analysis.
Nigel Green, founder and chief executive of deVere Group, said the poll results were “surprising”.
Mr Green added: “Stocks, which have always traditionally made up the bulk of successful investors’ portfolios, are falling out of favour, it seems, as a way to create and build wealth, with digital assets taking over.
“Also, it’s surprising that it’s believed by investors that ‘other’ cryptocurrencies – and not the headline-grabbing, dominant Bitcoin – will out-run other asset classes this year in terms of returns.”
There could be three key explanations for the findings, deVere’s boss said.
He continued: “First, investors are predicting the markets in 2022 will perform in a similar way to 2021. That’s to say that cryptocurrencies, even despite the slump in December, had a remarkable year.
“Bitcoin ended the year up almost 65%, meanwhile, the S&P500 – the benchmark index of the world’s largest economy – managed around 28%, and gold was down around 7%.
His second explanation for the poll findings relates to inflation, with supply chain bottlenecks and labour shortages pushing up prices and eroding people’s spending power.
Mr Green added: “Bitcoin and other digital currencies are widely regarded as a shield against inflation – mainly because of its limited supply, which is not influenced by its price.”
The third possible reason for the poll result is investors’ growing confidence in digital currencies being the “inevitable future of money”, he said, adding: “In our increasingly tech-driven, globalised world it makes sense to hold digital, borderless, decentralised currencies and/or other digital assets, such as NFTs.”
Meanwhile, a study by KIS Finance has revealed more than two-thirds of cryptocurrency investors borrowed money to make their purchase, rather than using income and/or savings.