The crypto community shows alarmingly low levels of financial literacy, study reveals

With crypto developing into a highly popular asset class in recent years, attracting an ever-growing number of users (over 560 million as of 2024), and knocking at the gates of mainstream finance, you’d think that people are becoming more versed on the topic. However, while crypto acceptance and adoption may have increased, reducing barriers to entry, the same cannot be said about people’s crypto literacy, which has fallen to concerningly low levels, according to a study by the cryptocurrency gaming startup PiP World.

While many crypto users know how to buy Bitcoin or other digital assets or how to set up a crypto wallet, when it comes to the minutiae of crypto tech and trading, most of them are rather oblivious to the finer details. In order to navigate the crypto space safely, one needs to be able to identify both risks and opportunities and manage them effectively. That calls for in-depth knowledge of the mechanisms and factors that fuel the crypto machine and the developments that continue to shape this industry, which many in the crypto community seem to lack.

A worrying reality

The report, published by PiP World last November, compiles the responses of 12,045 crypto market participants who have been surveyed from March 2022 to October 2024 via the Coinfessions platform. The purpose of the survey was to measure crypto financial literacy, which PiP World defines this concept as the ability to understand and make informed financial decisions in this area, categorizing results into high and medium levels.

The findings are as surprising as they are concerning. According to the survey, only a quarter of those engaged in crypto-related activities have a high or medium financial literacy level. To put things into perspective, the financial literacy rate in the United States stands at around 50%, showing a huge educational gap in financial matters for those in the crypto community.

While the difference between the crypto financial literacy rate revealed by the study and the global financial literacy rate, estimated at 33%, is only 8%, PiP World’s CEO, Saad Naja, points out that the figure is low enough to raise the alarm. This means that a substantial percentage of market participants are getting into crypto without having a basic understanding of how it functions and, therefore, expose themselves to major risks.

With so many crypto traders and investors being poorly prepared to weather market volatility and manage risks, the sustainability of their endeavors and the crypto market as a whole comes into question.

Crypto financial literacy by investor group

The study also looked at the different segments in the crypto community and their corresponding rates of crypto financial literacy, revealing major discrepancies between them.

Results put crypto whales in the lead with a 96% rate of crypto literacy – the highest of all categories. Whales are entities (usually companies but also wealthy individuals) that hold large quantities of digital assets and whose financial decisions can cause huge waves in the market. Their advanced crypto knowledge is most likely due to them having greater access to information and resources. While data on whales varies from one source to another, it’s generally believed that they represent roughly 5% of the market.

Next come long-term holders, with a crypto literacy ratio of 80% and a market share of 11%. As the name suggests, these types of investors hold on to their crypto assets for extensive periods of time as they trust in their appreciation potential and don’t pay much attention to short-term trends. 

Then, we have speculative traders, a segment that makes up 29% of the market and has a crypto financial literacy rate of 64%. This particular statistic brings attention to the large number of traders who are easily swayed by hype and the famous fear of missing out (FOMO) and enter the market without doing their due diligence.

The crypto literacy rate is even lower among day traders, where only 27% have a high or medium literacy level. The high frequency of trades combined with a lack of knowledge makes this group, which only accounts for 6% of the community, the most vulnerable to volatility risks and, as a result, the most prone to financial losses.  

The case for crypto literacy 

Apart from addressing the issue of financial literacy within the crypto community, the study also provides some insights into the psychological implications of crypto investing. Data shows that even out of ten crypto investors experienced losses, while 76% of them expressed regrets about their investment decisions. Many also confessed to being “reactive” and “impulsive” when managing their crypto investments.

This proves that the unique challenges in the crypto market can take a huge toll on investors’ psychology, causing them to act irrationally and make costly mistakes. Therefore, the report serves as a sobering reminder that being a trader or investor in this space is not a walk in the park.

Crypto is not like any other asset category before it. The industry is not only extremely young but also incredibly complex and continues to evolve and expand at a rapid pace. This makes it all the more challenging for market players to gain a solid grasp of the market and all the risks that exist within it. 

Increasing accessibility to crypto should not be regarded as an encouragement to dive into crypto investing without taking the time to build up adequate knowledge and skills. The risks that come with crypto investing should not be taken lightly, and the mirage of quick gains should not overshadow the need for proper preparation and informed decision-making.

Final thoughts

People are growing more comfortable with crypto but, unfortunately, not more knowledgeable. Just because barriers to entry are lower than ever doesn’t mean that the risks have also diminished. The crypto market remains an intricate and unpredictable terrain where traders and investors have to tread carefully. Therefore, achieving adequate levels of crypto literacy is crucial for anyone looking to get into crypto.