Supporting students with: Cryptocurrency

With new headlines and hashtags on a pretty much daily basis, it can feel like crypto is everywhere! And there’s no denying that its popularity is on the rise. In fact, a quarter of UK students already own cryptocurrency and a further 1 in 3 intend to buy.

Yet what’s worrying is that 72% of students feel they lack knowledge about cryptocurrency.* Since there’s financial risk associated with trading crypto, it’s essential that university and college support staff feel they understand, keep up to date with crypto news and are equipped to have conversations with students about it.

So here’s everything support staff need to know, starting with the basics of what crypto is and how it can be bought, as well as: 

• Why young people are attracted to cryptocurrency
• How students are trying to make money from crypto
• The dangers for students
• How staff can spot crypto trading in a bank statement
• How to try and make sure students who choose to use cryptocurrency do so safely

What is cryptocurrency?

At a very basic level, cryptocurrency is an internet-based medium of exchange. In other words, it’s a type of digital currency that can be bought and sold.

It’s decentralised, which means it’s not run by a central authority (like a bank or government). Instead it operates on a peer-to-peer network, whereby records of cryptocurrency ownership and transactions sit on a public ledger, supported by blockchain technology.

As well as being decentralised and secure, cryptocurrency is private – all transactions are publicly recorded but the traders themselves are not and remain anonymous.

The language of cryptocurrency

Getting to grips with all the lingo can be one of the biggest challenges in understanding cryptocurrency! 

In a nutshell, ‘cryptocurrency’ is the overarching term for all cryptocurrencies. There are then lots of different names for the many types of cryptocurrencies – like Bitcoin, Dogecoin and Ethereum.

To compare it to something we can all understand, ‘cryptocurrency’ is like ‘mobile phone’, while Bitcoin, Dogecoin and Ethereum are like Apple, Samsung and Google – they’re different types of mobile phones.

Types of cryptocurrency

There are thousands of different types of cryptocurrencies. Here are the top 10 by total market value, which account for approx 85% of crypto between them:

• Bitcoin
• Ethereum
• Binance Coin
• Cardano
• Solana
• XRP (Ripple)
• Polkadot
• Dodgecoin
• Shiba Inu
• Terra

This is excluding ‘stablecoins’ (types of cryptocurrency whose value is tied to an outside asset, such as the US dollar).

How can you get cryptocurrency?

There are two ways to get crypto:

1. You can buy/sell and trade crypto, just like other assets (how most students are likely to get involved)
2. You can ‘mine’ it – by solving complex mathematical equations, earning a coin/portion of a coin if the answer is correct. These equations require an inordinate amount of computer power and electricity!

Using Bitcoin as an example, it cannot simply be created – it must be ‘mined’ via computational means. There’s only a total of 21m Bitcoins that will ever be in circulation and as of February 24th 2021, 18.639m Bitcoins have already been mined. So there are 2.362m yet to be introduced into circulation.

This is significant because it means Bitcoin won’t be affected by inflation; since there’s a limited supply it will hold its value. It’s for this reason that many believe cryptocurrency has a future and the potential to revolutionise finance.

Why does crypto attract young people?

Crypto is the 2nd most popular way to make ‘quick cash’ among adults in the UK and 24% of students already own cryptocurrency, with a further 1 in 3 intending to buy within the next 3 months. See more stats on cryptocurrency usage amongst young people here.

When we asked our staff community whether they’ve seen an increase of crypto presence in students’ bank statements during fund application, 72% said yes.

We’ve also seen a high number of cryptocurrency-related entries from students to our monthly Money Confessions campaign. Including:

• “I spend 80% of my wages on crypto every week.”
• “I spent all of my money on Crypto.”
• “I invested in coinbase when it IPO-ed and the share price tanked.”
• “I’ve lost money on crypto.”
• “I couldn’t understand crypto any less if I tried.”

So there’s no doubt that cryptocurrency is increasing in popularity among students, but why are they so keen?

Traditional assets feel unattainable

Acquiring traditional assets feels out of reach for many young people. The dream of owning their own house feels like just that – a dream, and something that’s unachievable thanks to rapidly growing house prices and high rent costs making it difficult to save a deposit. 

For those who feel this way, it can be tempting to look to other ways to make money – like crypto.

It’s seen as a way to ‘beat the system’

For some young people, cryptocurrency can be seen as a way to beat the system, feeding into a lack of faith in existing financial paradigms. If the system isn’t working for them, why should they bother sticking to it? Crypto is considered a rebellious way to make money.

In fact, 27% of those aged 18-34 prefer Bitcoin over stocks.

FOMO, thrill and status

Oftentimes, FOMO (fear of missing out) can drive young people to get involved with cryptocurrency. So too can chasing ‘thrill’ and ‘status’, says the Financial Conduct Authority.

This is fuelled by tales of others making money through crypto, plus the rise of online and social media ‘finfluencers‘.

It’s easily accessible

It can take just a matter of minutes to sign up for an account and start buying and selling cryptocurrency. 

So it’s not surprising that more and more students have been attracted to crypto recently – sitting at home during lockdown, with not much to do, few part-time jobs available and instant access to cryptocurrency.

How are students trying to make money from cryptocurrency?

Cryptocurrency is an ‘asset’ and just like any other asset, it’s listed on exchanges according to supply and demand. It can be bought and sold.

There are three main ways students try to make money from crypto:

• Buy and hold – cryptocurrency is bought at a price and held (riding the rollercoaster) until prices have risen enough to make a good return, it’s then sold and the student cashes out
• Shorting – investing so profit will be made if the price falls, which is particularly risky because if the price goes up instead of down, you can lose more than you invested (think back to what happened with Reddit and GameStop in January 2021!)
• Fast trading – frequently trading to take advantage of short-term price movements

What are the dangers of cryptocurrency for students?

Volatility and the potential to lose big

The first major financial risk around cryptocurrency is volatility. Digital currencies are highly speculative, very high-risk investments, since you can easily lose all of your money. 

This is because crypto has no intrinsic value; it holds no actual value itself, relying entirely on supply and demand and the mood of those who want to hold it.

This graph from the Bank of England shows just how volatile the value of cryptocurrency is. Watch the recording from our ‘Supporting students with cryptocurrency’ staff webinar to see a live cryptocurrency exchange in action. 

What’s worrying is that 59% of those investing admit they may not have the means to withstand a significant financial loss. “I’ll either be rich, or wrong,” was the answer of one young person when he was asked by the Financial Times why he’s putting all his money into Bitcoin.

This is what can make cryptocurrency particularly risky for students. We’ve heard from some about how they’ve spent the majority of their student loan on cryptocurrency. The value has then fallen and they’ve been unable to afford to support themselves for the rest of the term, with no means of regular income.

Lack of regulation and protection

The cryptocurrency sector is unregulated. The only exception is for money laundering purposes in the UK, but there’s no regulation around how crypto is run, sold and exchanged.

So if something goes wrong – say a student invests in cryptocurrency that turns out to be a scam (and those a rife!), it’s unlikely the FSCS will be able to help.

Cryptocurrency has been banned by governments around the world and regulatory bodies like the FCA have also made it clear they’re not fans. Since it’s unregulated, there’s no way of knowing what would happen to individuals’ investments if crypto was banned in the UK tomorrow.

Market manipulation, fake endorsements and scams

Another issue with cryptocurrency is that its prices are extremely vulnerable to market manipulation and those trying to artificially influence the cost.

You’ve probably heard of Elon Musk doing just this – one tweet from Elon about Bitcoin or Dogecoin can send costs climbing or falling by 20-30%! In other industries, this would be deemed ‘market manipulation’, which is illegal. But not in the world of crypto.

There have also been fake celebrity endorsements for crypto on social media, plus many bogus exchanges and instances of people who have fallen victim to scams, including scams designed to steal the keys to cryptocurrency digital wallets.

Hard to spend

Very few sellers will accept cryptocurrency as payment and those that do can change their mind overnight. The volatility of its value also makes it risky to purchase real life goods with cryptocurrency – for example, one of the first miners of Bitcoin bought a pizza for 10,000 Bitcoins… which would today be worth around $200 million. That’s one expensive meal!

One rising trend to look out for is cryptocurrency being spent on NFTs – more on NFTs (non-fungible tokens) here.

Environmental impact

Not so much a danger for students but another problem with cryptocurrency is that it is awful for the environment. Mining cryptocurrency uses an extremely high volume of energy, giving it an enormous carbon footprint.

Spotting crypto trading in a bank statement

16% of staff in our community said they would be unsure how to identify crypto presence in students’ bank statements during fund application.

Like all trading and most investment activity, cryptocurrency is bought and sold through an app or website – to which funds need to be transferred.

The most common cryptocurrency trading apps (also called ‘exchanges’), and therefore the names that could appear on a bank statement, are:

• Coinbase
• Binance
• Robinhood
• Ziglu
• eToro
• Gemini
• Coinjar
• Bitpanda
• CoinCorner
• QuickBitcoin
• Revolut

It’s also important to know that there will almost always be fees involved with buying and selling crypto. These are usually a percentage of the total transaction value and types of fees include:

• Transaction fees
• Deposit fees
• Withdrawal fees
• Trading fees
• Escrow fees

What can staff do to make sure students who use cryptocurrency are doing so safely?

It’s really the blurred line between gambling and investing that makes cryptocurrency so confounding. It’s still hard at this stage to understand whether people are investing or gambling. 

But what is clear is that cryptocurrency is here to stay and it’s unlikely young people will stop using it, so it’s important staff know how to support students to do so safely.

In conversations about crypto, it’s a good idea for staff to suggest that students: 

• Research! Making sure to understand how it all works before spending any money and take care to use a reputable exchange
• Learn how to store digital currency safely and recognise a scammer
• Are aware of additional fees
• Diversify their investments to spread the risk – so not spending all their money on cryptocurrency, perhaps also putting some in a stocks and shares ISA (for example)
• Understand their risk tolerance and not getting involved if they are risk averse
• Prepare for volatility and make sure they can withstand a loss
• Be wary of shorting and fast trading (and ideally avoid doing either of these)
• Sign up for a free Blackbullion account to access our cryptocurrency-focused learning content and resources

Where can students go for help?

As well as your organisation’s student support services, if students do find themselves with financial issues after investing in crypto, they can go to StepChange for help with debt.

Final word

Cryptocurrency is hugely volatile, unregulated and super risky.

There are also a lot of people (seemingly) making a lot of money so FOMO is high, especially among young people, and crypto is not going away.

The best thing we can do to support students is to help them understand the risks, the dangers and the downside so that they can make an informed decision.

Further resources for university and college staff

Watch the recordings from our two staff webinars about all things cryptocurrency:

Vivi’s webinar slides are also available here.

If you have any questions or comments for Vivi, you can contact her directly on Twitter and LinkedIn or email us.

Learn about five other financial risks students are facing right now and how support staff can help.

And don’t forget to sign up to our staff email newsletter to be first to find out about upcoming staff webinars and get free financial wellbeing resources to share with students.

*72% of students feel they lack knowledge about cryptocurrency – learn more here.