If there is a demographic group that has taken up cryptocurrency with a lot of enthusiasm it is the young people. Many turned into instant millionaires overnight. While the older generation looks at the world of crypto with a lot of skepticism, the question that arises is – do young people understand cryptocurrency risks?
Every investment has a level of risk attached to it. Basic economic rules dictate that return and risk operate in opposite directions. Young people find cryptocurrencies easier to invest. You do not require an advanced diploma in security analysis to invest in them, unlike shares or bonds.
Success stories on the internet of how someone made a killing selling cryptocurrencies have contributed to the fad amongst the youth to join the bandwagon. Many are putting their savings and selling possessions while investing the cash in various cryptocurrencies in hopes of doubling or tripling their earnings.
Meanwhile, Wall Street investors have taken a cautious approach when it comes to cryptocurrencies. Some have openly raised their opposition to investing in crypto and have termed the asset class as speculative in nature. Many investors, however, seem to be in the dark on the intricate workings of blockchain technology. Young adults are curious, and they are learning about crypto from friends, YouTube videos, and social media.
Young people have more of an appetite for risk than adults. They have a more extended period to recoup losses, and this contributes to them investing all their savings into cryptocurrencies. But, are young people blind to the risks involved and should they exercise a bit of caution? Seasoned investors have argued that an assets class cannot make a higher return without factoring higher risks. Investment firms worry cryptocurrencies may be a scam.
Some investors have argued that when you receive money easily, you tend to not attach as much value to it. Many young people do not have urgent bills like mortgages or school fees that would lead them to being cautious. Many of them are investing in cryptocurrencies hoping to pay off outstanding debts or to purchase things like clothes and smartphones.
The main concern for many youths is getting out at the right time, as cryptocurrencies have been down from their peaks a few months ago. But even if they lose a few dollars, young people still have a long time to recoup lost money and reinvest later. Still, much should be done to teach the youth about the relationship between return and risk and ways in which they can save for the future. Mentors are required to help them set up long-term investment goals that go all the way to retirement.
Cryptocurrencies are the newest wave of investment. With many of the older generation taking to cryptocurrencies with a pinch of hesitation, the youth have been diving in without checking the depth of the pool. Investor education is needed to educate the general population on the working of blockchain technology, potential risks and how to safely invest in them.