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Although the risks of the use and promotion of cryptocurrencies is often contextualised around adults, children may be just as vulnerable to crypto scams, influencers and market volatility.
The latest report from GoHenry, a children’s money management service, has shown that 13 percent of children in the UK, equivalent to 1.33m children, made money using cryptocurrency in 2021.
Compared with estimates from the Financial Conduct Authority (FCA) in June 2021, which showed approximately 2.3m adults in the UK had invested in crypto-assets with an average of £300 equivalent held, this would mean 36 percent of all people holding crypto in the UK were children.
The figures are even more stark in the United States, with GoHenry estimating 27 percent of children, equivalent to almost 20m children, made money investing in cryptocurrency in 2021.
Unregulated
The consequences of these revelations are potentially significant. GoHenry gives a real story of Woody, a 16 year-old who invested £250 in various crypto coins two years ago after hearing about it on TikTok and Instagram.
These are social media platforms the FCA has already called out for financially promoting cryptocurrency to their millions of followers.
However, as crypto-related activity is unregulated in the UK, firms dealing crypto to children are neither covered by new guidance on fair treatment for vulnerable customers, nor proposals for a duty of care for consumers. Additionally, children such as Woody would not be covered by the Financial Ombudsman, should there be a consumer rights issue.
For now, the FCA is doing what it can. An FCA spokesperson told VIXIO: “Increased hype on social media and in the news is driving investors to take up high-risk investments, including crypto-assets. As unregulated products, people are unlikely to be protected if things go wrong, which is why we repeatedly warn people that if they chose to invest in crypto-assets, they should be prepared to lose all their money.”
Additionally, the FCA is currently consulting on strengthening its financial promotion rules for high-risk investments, including crypto-assets, which “proposes to classify crypto-assets so that consumers would only be able to respond to crypto-asset financial promotions if they are classed as restricted, high net worth or sophisticated investors”.
If adopted, it could go some way to limiting the exposure of crypto to children with new regulatory requirements.
The tip of the iceberg
Coupled with the rise in crypto holding among young people has been the growth of the self-employed youth. GoHenry reported that children using their child banking app, earnt a total of £148m in 2021. Children, such as nine-year old Saira, who Gohenry said has 8,000 followers on Instagram, have been earning money selling goods from jewellery or cupcakes on social media platforms.
Although this raises a number of legal and ethical questions, it highlights the significant challenge regulators face in protecting the next generation of consumers who are increasingly digital and crypto native. Coupled with the very real danger of children being exploited on these platforms, social media, as well as payment service providers that facilitate these transactions, are likely to find more than just the FCA to deal with, whether or not the transaction was in crypto.
