Francesco Carta Fotografo | Moment | Getty ImagesWhen it comes to cryptocurrency like bitcoin, new investors are often motivated by friends to take the plunge, according to a new study.But that might hold traps for the unwary, experts warn.”I don’t imagine friends are talking about when they lost money,” said Lee Baker, a certified financial planner and founder of Apex Financial Services in Atlanta. “The sexy sells,” added Baker, a member of CNBC’s Advisor Council. “The upside sells.”But folks don’t talk about the downside,” he added.More from Ask an AdvisorHere are more FA Council perspectives on how to navigate this economy while building wealth.Nearly a third — 31% — of new cryptocurrency investors in 2022 used a friend’s suggestion as their primary reason for buying in, according to a recent joint study published by the Financial Industry Regulatory Authority Investor Education Foundation and NORC at the University of Chicago. Friends’ recommendations were the No. 1 motivating factor for new crypto buyers.That share compares with 8% of new investors in more traditional assets like stocks and bonds.The disparity indicates there is “a social element to cryptocurrency investing not evident in equities or bond investing,” according to the study.This isn’t to say a friend’s recommendation is necessarily a poor reason to buy into the digital assets. But it can be a “double-edged sword,” said Gary Mottola, research director at the FINRA Investor Education Foundation and a co-author of the report.On one hand, crypto can be an on-ramp to more traditional investing — which is generally a good outcome, Mottola said. There’s some evidence of this happening: 36% of new crypto investors said their purchase made them more interested in investing in the stock market, the study found.However, “the friends recommending [crypto], the sources of information on social media, may not be reliable,” Mottola said.Trust but verifyThe fear of missing out can be a powerful driver of investment decisions.Bitcoin and other crypto assets rallied through 2021, a record year for the digital assets. Bitcoin jumped from roughly $10,000 in the summer of 2020 to a peak above $68,000 by November 2021.But the tide turned quickly during a so-called “crypto winter,” when investors lost more than $2 trillion in the year following the market peak.The sexy sells. The upside sells. But folks don’t talk about the downside.Lee BakerCFP and founder of Apex Financial ServicesCelebrities, like actress Lindsay Lohan and the rapper Soulja Boy, were recently fined by the Securities and Exchange C …
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