Financial literacy and retail investor protection outcomes: moderating role of regulatory awareness in Kenya’s cryptocurrency market

Abstract

Rapid growth in cryptocurrency participation in Kenya has been accompanied by rising cases of fraud, financial losses, and limited enforceable investor protection mechanisms. Despite repeated regulatory cautions, retail investors continue to participate in a decentralized, largely unregulated digital asset market where formal compensation and recovery structures are absent. This situation raises a practical concern regarding the determinants of retail investor protection outcomes within Kenya’s cryptocurrency market. The objective of this study was to examine the effect of financial literacy on retail investor protection outcomes and to assess the moderating role of regulatory awareness among retail cryptocurrency investors in Kenya, while controlling for education level and cryptocurrency trading experience. Investor protection is operationalized at the individual level as exposure to fraud, financial losses, access to recovery mechanisms, and perceived market safety. Financial literacy is measured through financial knowledge, financial awareness, and financial attitude. Grounded in the Theory of Planned Behavior, Information Asymmetry Theory, and Exchange Theory, the study adopted a positivist philosophy and a quantitative cross-sectional explanatory design. Primary data was collected from a final sample of 332 retail cryptocurrency investors out of an estimated target of 400 using structured questionnaires. Hierarchical multiple regression was employed to test direct and moderating effects. The results showed that financial awareness, financial attitude, and trading experience all had positive and significant direct effects on investor protection outcomes, with financial attitude emerging as the strongest predictor. Conversely, formal education level had an insignificant effect on investor protection outcomes. Furthermore, hierarchical regression confirmed that regulatory awareness plays a significant moderating role, meaning the protective benefits of financial literacy dimensions are amplified when investors possess structural knowledge of Kenya’s regulatory environment. The study recommends that the government integrate asset-class specific digital finance education into national financial inclusion frameworks, while regulators such as the CBK and CMA emphasize positive financial discipline and risk mitigation alongside raw concept knowledge. Ultimately, the study is limited by its geographical concentration within Kenya, its cross-sectional timeline, a sample gender skew towards male participants (67%), and the inherent structural boundaries of predefined survey questionnaires.