The FCA has published market description research on the development of cryptoasset markets in the UK and globally.
The research provides an overview of how the markets operate, including the types of cryptoassets available (including pricing factors and use cases), the roles of key market participants, and the ways retail and institutional consumers interact with products.
Key findings include:
- Cryptoassets are currently primarily used as investments rather than as a means of payment – Retail demand is predominantly drive by expectations of financial returns, with use as a payment mechanism limited despite ongoing developments in stablecoins and tokenisation.
- Cryptoasset markets are characterised by diverse participants and evolving market structures – Supply-side participants include issuers, trading platforms, intermediaries, custodians and service providers such as lending and staking platforms, often with overlapping roles. Retail consumers typically access markets through trading platforms and exhibit strong platform loyalty.
- Cryptoasset prices can be volatile and driven by sentiment – Most cryptoassets do not generate cash flows, and there is no widely accepted framework explaining the price of a particular product at a given time. Evidence suggests that prices are influenced by investor sentiment, expectations of future demand and external shocks, resulting in volatility and strong co-movement across assets.
- Retail consumer behaviour reflects both financial motives and behavioural factors – Financial returns are a key motivator, but consumers also derive value from participation in cryptoasset markets in and of itself. Behavioural factors such as optimism bias and herding play a core role in influencing decision-making and market dynamics.
- Cryptoasset markets present risks to consumers, including exposure to fraud and limited protections – There are varying regulatory protection and information standards in cryptoasset markets, with many consumers reporting exposure to fraud and scams. Reliance on informal information sources may also limit consumers’ ability to make informed decisions.