Crypto speculation leading to UK personal insolvencies

One problem that is believed to be exacerbating this issue is amateur trading

A man holding out empty pockets in front of a trading chart                                 
This is a relatively new issue, according to international auditing firm Mazars – Photo:Alamy
                                

The losses brought on by cryptocurrency speculation are now leading to personal insolvencies in the UK.

This is what Mazars, the international audit, tax, and advisory firm has found, claiming it has witnessed a “steep rise” in crypto losses being the primary reason for personal insolvency, noted down on reports being sent to creditors.

Mazars believes one exacerbating factor is amateur trading. In addition, if a person already has a weak financial position, then it does not take a large crypto loss to make the individual insolvent.

Lockdowns to blame?

Mazars believes the various lockdowns brought on by the pandemic may have given people more free time to speculate on the price of crypto, as well as seeing it as a form of gambling-like entertainment.

However, just like traditional gambling, Mazars states crypto “losses may quickly spiral out of control”.  People may then continue to make larger bets as they attempt to win back their previous loss which can then result in debt and eventually insolvency.

According to the Financial Conduct Authority (FCA), 2.5 million people have purchased crypto assets. Mazars also believes that trading apps, which allow people to invest in cryptos with “ease”, can lead to “more traders to join the market which can drive the price up until there is a market correction”.   

A new trend

Mazars partner Paul Rouse said: “Amateur traders can be caught out by the volatility of cryptocurrencies and in some cases, they are losing more than they can afford to.”

“Cryptocurrency trading in the UK is now widespread enough that we are beginning to notice it in the files that we are receiving on individual insolvencies. Six months ago we hadn’t seen any.

“It often follows a pattern where the amateur trader is successful in their initial small trades and then starts betting bigger and bigger positions until they are caught out.

“Unfortunately, many people don’t have much of cushion built into their personal finances. So, if they lose one or two months’ pay cheques on gambling it can cause them major problems.”

Further reading

The material provided on this website is for information purposes only and should not be regarded as investment research or investment advice. Any opinion that may be provided on this page is a subjective point of view of the author and does not constitute a recommendation by Currency Com Bel LLC or its partners. We do not make any endorsements or warranty on the accuracy or completeness of the information that is provided on this page. By relying on the information on this page, you acknowledge that you are acting knowingly and independently and that you accept all the risks involved.
iPhone Image
Trade the world’s top tokenised stocks, indices, commodities and currencies with the help of crypto or fiat
iMac Image
Trade the world’s top tokenised stocks, indices, commodities and currencies with the help of crypto or fiat
iMac Image