Black Americans saw crypto as a path to wealth holding the weight of decline

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Many black Americans have invested in cryptocurrency in recent years. This has left these investors vulnerable amid the decline of crypto over the past year. Closing the wealth gap is one of the reasons some black investors have turned to crypto in the first place. LoadingSomething is being loaded.

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The past few months have been difficult for the cryptocurrency industry as a whole, but black Americans are among the groups that have been particularly hard hit.

As of September 2021, 18% of Black Americans overall had invested in, traded, or used cryptocurrency, compared to 13% of White Americans, according to a Pew Research survey of more than 10,000 American adults.

As for investors, in January a survey by Ariel and Charles Schwab of 2,000 Americans found that 25% of black investors owned cryptocurrency, compared to 15% of white investors. In June, a Kansas City Federal Reserve report found that black Americans were more likely to own cryptocurrency than stocks or mutual funds, while white Americans were more likely to own stocks.

“We saw the same thing happen with the dotcom bubble, when we saw many first-time African-American investors chasing hot internet stocks,” said Ariel Investments founder John W. Rogers. , at The Atlantic. “So many people have made so much money over the last seven or eight years, and it’s natural to fall into the trap of chasing after what worked yesterday.”

Given the exposure of many black Americans to crypto, as well as the fact that many invested late at higher prices than their peers, these investors were particularly hard hit by the decline in crypto over the year. elapsed. Following the fall of Sam Bankman-Fried and FTX in November, cryptocurrency trading volumes fell by 50%. Since last year, the crypto market capitalization has lost nearly three-quarters of its value, with bitcoin and ethereum both down nearly 75% from their November 2021 highs.

While the stock market has also fallen significantly and could fall further, the S&P 500, for example, has a long-term bullish history. The value of cryptocurrency as a long-term investment, however, remains uncertain, meaning it’s less clear whether buying the crypto dip will turn out well for anyone.

Shrinking Wealth Gap and Distrust of Financial Institutions Have Drawn Black Investors to Crypto

Years ago, most black Americans were much less likely to own cryptocurrencies than white Americans, but they have grown in popularity in recent years. A report from the Federal Reserve Bank of Atlanta gave several potential reasons.

First, some black investors may see crypto as a way to close the racial wealth gap. According to the report, the median wealth of black households was around $24,000 in 2019, compared to more than $188,000 for the median white household. The report highlighted a survey in which 27% of black investors said they expected an annual return of 20% or more from cryptocurrencies, only 12% of white investors said the same.

Some investors may trust cryptocurrency more than traditional financial institutions. An April Ariel and Charles Schwab survey found that 28% of black Americans were suspicious of banks, compared to 18% of white Americans.

“If traditional finance has worked for you, you consider crypto to be risky,” former Obama administration appointee Cleve Mesidor previously told Insider. “You see it as speculative. For those of us who have been locked out, traditional finance is risky.”

Others may be attracted by the accessibility of crypto to investors without bank accounts or substantial credit histories. Mentions of various athletes, celebrities, and politicians likely had some influence as well.

The Kansas City Fed report references a Harris poll that found that 58% of survey participants who had heard of cryptocurrency thought industry advertisements were effective in encouraging people to invest in crypto.

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