The question of risk exposure among crypto investors is drawing renewed scrutiny from regulators and industry experts, as new research and market developments highlight the potential for fraud and other hazards.
According to first-look findings from the FINRA Investor Education Foundation, crypto and meme stock investors are significantly more likely than their peers to fall for offers that display classic signs of investment fraud.
In a national survey previewed for World Investor Week, half of US retail investors said they would invest in a hypothetical opportunity promising a guaranteed, risk-free 25% annual return for five years – a scenario designed to mimic blatantly fraudulent schemes. Among crypto investors, that figure jumped to 65%, compared with 44% for non-crypto investors.
Investors who had purchased meme stocks or viral investments were even more susceptible, with 77% expressing interest in the offer, compared to 45% of those who had not.
The data also revealed younger and less experienced investors are especially at risk. Sixty-four percent of respondents aged 18 to 34 said they would invest in the hypothetical opportunity, versus just 36% of those 55 and older. Similarly, 63% of investors with less than two years of experience were willing to take the bait, compared to 40% of those with a decade or more in the markets.
Income had little bearing on susceptibility, with only a narrow gap between lower- and higher-earning investors.
Social media influence emerged as another marker of vulnerability. Nearly three-quarters of respondents who at least sometimes make investment decisions based on advice from social media personalities indicated they would invest in the fraudulent offer.
“These findings reveal that a concerning number of investors might be vulnerable to investment fraud,” said Gerri Walsh, president of the FINRA Foundation. She urged investors to be wary of “the promise of little to no risk with unusually high returns.”
FINRA's findings come amid a rapid rise in tokenized stocks – blockchain-based assets that track the value of traditional equities – which experts argue introduce additional risks.
The combined value of tokenized public stocks geared toward retail investors has surged to $412 million as of September, up from just a few million dollars a year ago, according to data cited by Reuters. Robinhood, Gemini, and Kraken have already launched tokenized stocks in Europe, with Robinhood and Dinari seeking a regulatory go-ahead for products in the US.
While industry advocates say tokenized shares could make markets more efficient by enabling 24/7 trading and faster settlement, regulatory experts warn that these products often lack the rights, disclosures, and protections of traditional equities.
Many tokenized shares are issued by third parties and may not provide ownership, voting rights, or dividends, instead exposing investors to counterparty risk. The variation in the underlying terms of different offerings creates an additional layer of confusion.
“A lot of the burden gets shifted on you to understand what exactly it is that you’re buying,” Diego Ballon Ossio, a partner at Clifford Chance in London, told Reuters.
The regulatory environment for tokenized stocks remains unsettled, with some firms calling for exemptions or changes to existing rules – including Nasdaq's proposed amendments for tokenized stock trading last month – and others calling for more robust oversight.
“Just because a security is represented on blockchain, that doesn’t change the core investor protections and other provisions that apply to securities,” said Peter Ryan, head of international capital markets at the Securities Industry and Financial Markets Association.
The numbers show a worrying trend – should we be concerned?
Authorities investigate the death of Mohamed Coulibaly weeks after a Barron's report detailed his alleged fraud targeting ex-NFL players.
Also, Kestra welcomes an experienced $240 million Hightower Advisor, while $38 billion indie RIA Oxford Financial adds a managing director to its Grand Rapids, Michigan office.
UBS wins clawback of bonus money from advisor recruited from First Republic.
Abry Partners exits after three years as the wealth manager expands family office and tax advisory services.
Northern Trust’s Ken Lassner shows advisors how to convert volatility into after-tax portfolio gains
Dan Biagini of American Equity says the steady decline of pensions, longer lifespans and a reset in interest rates are rewriting how advisors build retirement income