While cryptocurrencies’
An analysis of nearly 6,000 households found crypto investors are more likely than the overall U.S. population to have an annual income above $96,000 and investable assets of between $100,000 and $500,000. They are five times more likely to consider themselves “very experienced” investors and scored higher on Hearts & Wallets’ financial fluency survey than those who avoid the crypto market.
Still, only 28% of crypto investors achieved a passing grade on the financial fluency survey, and about a third earn less than $60,000 annually, says Hearts & Wallets CEO Laura Varas. She agrees with the strategy of using the technology to reach communities underserved by the traditional financial services industry, but is skeptical that cryptocurrency is accomplishing that goal.
“What I’m seeing with crypto is people without a lot of chips placing a lot on a large bet,” Varas says. “It’s all fun and games until someone loses an eye, and people could lose a lot of money in currency trading.”
Three out of four crypto investors are actively trading digital currencies, and the traders are six times more likely to accept the market’s higher volatility in hopes of higher return, according to Hearts & Wallets data. Bitcoin dropped 30% to around $30,000 last Wednesday before bouncing back to $39,000 on Monday,
“It’s not a risk tolerance, it’s a risk appetite,” Varas says.
However, deciding if someone is overexposed or underexposed to any given asset class is a matter of personal bias and experience, says Adam Blumberg, co-founder of Interaxis, a company that teaches financial advisors about cryptocurrency and how to incorporate it into their practice. Corporations like Amazon and Apple that are considered blue chip stocks today were regarded as risky investments during the dotcom era, Blumberg says.
Bitcoin and other digital assets are just a newer investment for younger people, he says. Indeed, Hearts & Wallets study found half of households who invest in crypto are millennials, while another third are Gen X.
“When you’re younger and have a longer time horizon, you can handle volatility like this until it shakes out,” Blumberg says. “If you understand the technology and understand where it’s going and understand the ethos of it, who’s to say that someone else is over-exposed?”
Some companies are developing ways to mitigate the risk of cryptocurrencies to make them more palatable to professional investors, such as
And while it makes sense that people with more disposable income and investing know-how are drawn to cryptocurrency investing, Blumberg says there is still huge potential for lower income families. Right now, access to Bitcoin requires a bank account, and the currency’s extreme volatility keeps many people from trusting it as a payment system.
The goal of blockchain technology and digital assets is to eventually create a decentralized financial system where people can accept payment from work without needing a bank, Blumberg says.
“The under-banked and unbanked can receive payment for work done and go make payments and if they have some left over, it can earn for them,” Blumberg says.
