It’s clear that cryptocurrency is not just a passing trend, despite the legal troubles faced by entrepreneurs like Sam Bankman-Fried and the regulatory challenges encountered by companies like Binance. People continue to buy cryptocurrency, even as the price of Bitcoin has experienced significant volatility.
According to a National Bureau of Economic Research working paper, the percentage of people in the United States who own crypto has grown from 3 percent to 11 percent in just a year. It now stands at 12 percent, and Bitcoin’s price has risen by over 75 percent from its 2022 low.
Having conviction or curiosity about crypto is not something that should be belittled by those who are skeptical about personal finance. To understand why you find crypto alluring, it’s important to ask yourself a few questions about your own motivations and identity.
Research from the N.B.E.R. shows that younger adults are more open to investing in crypto compared to those over 60. Additionally, there is a notable gender split, with 41 percent of men aged 18 to 29 reporting ownership or use of cryptocurrency, compared to just 16 percent of women in that age range.
Furthermore, data from Pew Research Center reveals that there is a disparity in crypto ownership based on race. While 14 percent of white adults own crypto, the figures rise to 21 percent for Black or Hispanic adults and 24 percent for Asian American adults. This highlights the ongoing racial wealth gap, as young adults who encounter this disparity often aspire to break the cycle. However, it’s important to approach investments wisely and not fall for dubious schemes promoted by influencers or celebrities.
The desire to catch up when it comes to wealth accumulation in America is a driving factor for many individuals, particularly young people. Crypto is often seen as an opportunity to achieve high returns. However, it’s crucial to recognize that experiences like the tenfold payback on early Bitcoin investments are rare and may not occur again. Timing the market effectively requires exceptional skill or luck.
While it’s not recommended to invest all savings into crypto, there are valuable lessons to be learned from the experience. Aadi Gujral, the 17-year-old founder of the Foundation for Financial Literacy, discovered the world of crypto during the early days of the pandemic and gained insights from his own rollercoaster journey. Despite the volatility, he acknowledges that investing in a stock index fund may have been a safer option for his money. However, he believes he has learned valuable lessons about risk tolerance and believes that investing in stocks would not have provided the same educational journey.
Yanely Espinal, director of educational outreach at Next Gen Personal Finance, emphasizes the importance of understanding the risks associated with crypto so that teenagers don’t lose everything and become discouraged from investing in the future. Many young adults were frightened away from stocks after witnessing their parents’ retirement accounts suffer losses during the 2008 economic crisis, which turned out to be a missed opportunity as the market rebounded.
Currently, a small percentage of crypto owners report that their activities have significantly harmed their finances. However, this could change suddenly and unexpectedly. Therefore, it’s crucial to only invest an amount in crypto that you can afford to lose.
According to William Bernstein, a retired neurologist and author, crypto ownership should not be regarded as true investing. Unlike traditional investments, crypto does not generate earnings or income unless it is sold for a gain. Therefore, it can be likened to hours spent at a theater or concert, where one must consider the value of enlightenment or pleasure before spending too much.
While it’s important to consider the perspectives of skeptics like Bernstein, it’s worth noting that older individuals are not refraining from investing in crypto solely because they are out of touch. They have witnessed similar investment trends in the past and recognize the potential risks involved.
In conclusion, the growing popularity of cryptocurrency indicates that it is not just a passing fad. However, it’s crucial to approach investments in crypto wisely, considering one’s risk tolerance and financial goals. It’s also important to learn from the experiences of others and to be aware of potential risks and scams associated with the crypto market.