Opinion: Crypto has been touted as a vehicle for wealth. For many black investors, this has been anything but.

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Editor’s Note: Tonantzin Carmona is a David M. Rubenstein Fellow at the Brookings Institution. His most recent work has focused on the risks and downsides of cryptocurrencies, particularly their impact on Black and Latina communities. The opinions expressed here are his own. Read more opinion on CNN.

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Just a few months ago, venture capitalists, celebrities and even some elected officials were hailing cryptocurrency as the future of personal finance, an investment vehicle that could turn modest nest eggs into massive fortunes.

Among the benefits touted by its proponents was the claim that crypto has the potential to close a pernicious, generations-old racial wealth gap for potential black and Latino investors. Cryptocurrencies, according to the narrative, were poised to democratize finance.

That’s not how things turned out.

If crypto has democratized anything, it is the heavy, even spectacular, financial losses suffered by several thousand investors who have invested their savings in it. The downfall of Sam Bankman-Fried and his crypto exchange FTX has become the most well-known symbol of crypto volatility, wiping out personal financial holdings large and small as it crumbles and burns.

The fallout is particularly felt in communities of color. A study conducted earlier this year by Charles Schwab found that black Americans were much more likely than white Americans to invest in cryptocurrencies. A Pew Research study also found that Blacks, Asians, and Latinos were more likely than White Americans to say they owned or traded cryptocurrencies.

Black Americans have been among the groups hardest hit by the crypto implosion due to their greater financial exposure and subsequent entry into the cryptocurrency market. In the early days of bitcoin and other digital currencies, black investors were hesitant to buy.

Research has shown that black Americans are much less likely than their white counterparts to be invested in stocks. Crypto seems to offer an attractive alternative. But this lack of assets in traditional financial instruments, and in many cases an absence of generational wealth, has made this group of investors particularly vulnerable to steep swings in the value of crypto.

Its proponents had argued that cryptocurrencies allowed members of historically marginalized groups to circumvent institutional barriers to traditional and structural investments such as racism, discrimination and prejudice. There would be no more need for invasive credit checks or inaccessible income requirements; a potential investor would no longer be turned away based on race or ethnicity.

Over time, dozens of crypto-focused clubs and Facebook groups catering to Black and Latino audiences have sprung up, as have events such as the Black Blockchain Summit, an annual conference encouraging investment in cryptocurrencies. by African Americans.

Celebrity endorsements and generally favorable media coverage have also made cryptocurrencies safe and credible. Its proponents have rarely mentioned the volatility of cryptos compared to traditional financial products and services, and few mentions have been made of how cryptocurrencies can be targets of scams, frauds or hacks.

Eventually, many black Americans pinned their hopes on crypto as a relatively accessible vehicle for wealth creation. In a short time, there was a noticeable increase in cryptocurrency adoption by communities of color, which overcame their initial reluctance. According to a 2021 survey by NORC at the University of Chicago, nearly 44% of Americans who owned and traded crypto were people of color.

But for many, crypto hasn’t come close to delivering on its promise of access and opportunity. Far from being a financial paradise, it has proven to be an absolute disaster for many investors of color.

The eventual rush of communities of color to embrace crypto occurred against a backdrop of racial and ethnic wealth gaps reflecting decades of discriminatory practices preventing people of color from accumulating wealth.

Prior to the civil rights movement of the 1960s, white households largely benefited from federal policies aimed at building and maintaining the middle class in America. Black households and many Latino households, however, were excluded.

And while policies like the GI Bill primarily helped white soldiers attend college, start a business, or buy a home, black veterans, and to some extent Latino veterans, were often barred from access to these benefits. Meanwhile, white Americans have accessed new federally backed loans aimed at promoting home ownership, black redlining practices, and many Latino neighborhoods from those same government backed mortgages.

The passage of civil rights legislation in the 1960s outlawed segregation and outlawed employment discrimination and redlining practices. But just when it looked like communities of color could finally be included in society’s wealth-building efforts, a backlash against the expanding government set in, and deregulation, the fight against unions and tax cuts for high earners were in full swing.

This history of explicit exclusion was followed by an era of predatory inclusion: Blacks, Latinos, and other marginalized communities could theoretically access opportunities such as mortgages and credit from which they were historically excluded. But without significant federal investments, this access often came with conditions that undermined its benefits in many cases, reproducing insecurity for those same communities.

For example, access to higher education offered by for-profit colleges came with a higher price and riskier loans. And home ownership has been made more accessible via subprime mortgages heralded as innovations, but which decimated the wealth of blacks and Latinos during the 2008 financial crisis and its aftermath. The crypto experience for many people of color has proven to be a continuation of a predatory inclusive exploitation model.

Today, Bitcoin ATMs notorious for charging high fees are clustering in Latino and low-income neighborhoods, along with payday lenders and check cashing services, targeting vulnerable populations. Meanwhile, many people of color remain excluded from the financial system, even as their need for wealth-building opportunities persists.

Crypto hasn’t come close to delivering on its promise of access and opportunity.

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