Black and Hispanic investors find it hard to believe in crypto

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NEW YORK (AP) A software developer invested his life savings twice in cryptocurrency, only to lose it all. But he still promotes it to the black community and would like to come back to himself.

A recent college graduate and single mother are getting into bitcoin with hope after attending a crypto workshop sponsored by rapper Jay-Z at the public housing complex where the hip-hop star grew up.

But a former executive at a cryptocurrency exchange feels disillusioned by the false promise of crypto helping his family in Ethiopia’s war-torn Tigray region.

All were drawn to the idea of ​​crypto as a pathway to wealth creation outside of traditional financial systems with a long history of racial discrimination and indifference to the needs of low-income communities. But crypto’s collapse over the past year has dealt a blow to that narrative, fueling a debate between those who continue to believe in its future and skeptics who say misleading advertising and celebrity-fueled hype attracted vulnerable people to a risky and unproven asset class.

The collapse of two crypto-friendly banks this month, Silvergate Capital Corp. and Signature Bank, complicates the situation. Their failure was a setback for crypto companies that relied on banks to convert digital currencies into US dollars. Yet the crisis has bolstered Bitcoin, the oldest and most popular digital currency, by reinforcing a mistrust of the banking system that helped give birth to cryptocurrencies in the first place.

Mariela Regalado, 33, and Jimmy Bario, 22, neighbors at the Marcy Houses complex in Brooklyn, started putting $20 or $30 into bitcoin every two weeks or so after attending Bitcoin Academy, a workshop sponsored by the last summer by Jay-Z and Jack Dorsey, co-founder of Block Inc., the parent company of the Cash App mobile payment system.

I don’t see it as something that’s going to, you know, get me out of Brooklyn and buy me a $2 million mansion in Texas, said Regalado, an educational consultant and mother of a toddler. But if it happens, I’m all for it.

Only a small minority of the US population owns cryptocurrency, but adoption has increased during the COVID-19 pandemic as low interest rates have made borrowing money and investing in assets more attractive risks. Prices peaked in 2021, and a constellation of apps, exchanges, and even ATM-like crypto machines made it easy to buy digital coins.

But the downsides of crypto played out dramatically after prices crashed in 2022, wiping out millions of investments and leading to a cascade of bankruptcies and layoffs at crypto exchanges, lenders and other businesses. Besides its volatility, crypto lacks protections such as deposit insurance, as it is not controlled by any institution. Largely unregulated, the industry is vulnerable to scams, hacks and fraud.

Cryptocurrencies are built on decentralized ledgers, usually a blockchain allowing peer-to-peer transactions without an intermediary like a bank or government. This continues to appeal to many people who face barriers to traditional avenues of wealth creation such as home ownership, college education or the stock market, said Reserve Payments Specialist Terri Bradford. Kansas City Federal, who has studied the popularity of cryptos among many black people. investors.

It doesn’t seem like a lot of people are being deterred from crypto even though we’ve watched what happened, Bradford said.

According to Pew Research Center polls in 2021 and 2022, about 20% of Black, Hispanic, and Asian American adults bought, traded, or used cryptocurrency, compared to 13% of white adults. Bradfords’ research, which looked at data from the Pew Research Center and the Board of Governors of the Federal Reserve System, found that black investors are more likely to own crypto than stocks or mutual funds, while the reverse is true for white investors.

Black and Latino crypto enthusiasts have formed social media groups, written books, and hosted summits to promote minority developers in the space and champion the potential of blockchain technologies to create fairer systems in finance and beyond. of the.

But crypto companies have also sought to capture a broader market of retail investors through lucrative endorsement deals with celebrities and sports teams, many of which have directly targeted black and Hispanic consumers by touting crypto as an equalizer. economic.

Coin Cloud, a company that makes cryptocurrency ATMs that has filed for bankruptcy, launched an ad featuring director Spike Lee ridiculing old money as exploitative, oppressive and white, and crypto as positive and inclusive.

Tonantzin Carmona, a Brookings Institute fellow who studies the impact of cryptos on minority communities, said that for inexperienced investors, this kind of high profile hype easily obscures the downsides of cryptos.

Carmona sees crypto marketing to racial minorities as part of a legacy of predatory inclusion in the tradition of payday lending and risky subprime mortgage services that promise access to funding that would otherwise be out of reach. .

You will have a marginalized group, a community that has historically been excluded from access to products, services, opportunities, and all of a sudden they are being told that they may have access to some type of alternative, a Carmona said. But this access is often accompanied by conditions that undermine the benefits or which will reproduce insecurity for these same communities.

Rahwa Berhe started investing in crypto while studying alternative financial products as part of a master’s program at the University of Washington in Seattle. Berhe, who was born in Chicago and raised in Seattle, tried to forge a career in crypto, leading a team listing digital assets on an exchange for four years, only to feel isolated as a woman. black.

It’s like taking all the tech bros and the finance bros and putting them together. I didn’t know where I belonged, said Berhe.

His disillusionment was compounded when crypto was unable to help his family in Tigray during the 2020-2022 conflict as lack of infrastructure and access to electricity made transfers impossible. When she attempted to point out these realities to some in the crypto community, she was dismissed as negative by social media posters casually celebrating that the hashtag #eth, for Ethiopia, introduced people to the digital coin Ether. .

Berhe is now working with a research lab founded by Stanford University and the USC Shoah Foundation, exploring how decentralized web tools can be applied to archiving Africana artifacts. As for the cryptocurrency, it is over for now.

It was great until it wasn’t anymore, Berhe said.

Crypto advocates argue that minority communities deserve access to a potentially lucrative asset class that is not going away. Many believe another boom is inevitable and compare last year’s crash to the dotcom bust of the 2000s, which, far from dooming the tech industry, only weeded out bad actors and strengthen winners like Amazon.

Andre Mego, Bitcoin Academys program manager, said crypto is an accessible way to teach financial literacy to a community where many find concepts like investing in wealth creation abstract and out of reach. At the end of the summer workshop, attendees each received $1,000 in bitcoins, mostly through Cash App, which pioneered bitcoin trading in 2018.

When we talk about accessibility, it gives motivation. Because for anyone thinking about investing, they might think is a great thing in the future. It’s something I have to save a lot of money for. I don’t know if I have the right to do this. Am I even part of this conversation? said Mego.

Bario said the Bitcoin Academys workshop at the Marcy Houses complex was his first meaningful introduction to personal finance, despite graduating with a degree in economics from Lafayette University last spring. Growing up, he said, investing was not a realistic possibility in his family, which depended on the income of his father, who worked as a taxi driver in Honduras.

I always thought as soon as you got your money, it was time to spend it as soon as you got that Friday paycheck, said Bario, who now works as a soccer coach.

Omid Malekan, who teaches a course on blockchain and cryptocurrency at Columbia Business School, said he hopes the latest crash disabuses people of the idea that crypto is a reliable way to get rich quick. . But Malekan said the crypto industry needs more diversity, not less, and that young black and Hispanic people should be encouraged to pursue careers developing technology that he says will be the future of finance.

People who are drawn to crypto because of how the technology works and the promise of a more global and accessible financial system to those people, it takes more than falling prices to scare them away, Malekan said.

Tyrone Norris, the software developer, said he learned to be careful about buying crypto the hard way.

Growing up in Washington, DC, Norris studied computer programming in high school and took college courses, but never graduated because he couldn’t afford to go full-time. He worked as a contractor, moving across the country and never owned a home or access to a workplace pension plan.

When Norris first decided to invest in crypto, he snooped around exchanges and chose MANA, a token powering the 3D virtual world Decentraland, because he shared his ex-girlfriend’s name and he saw it as a sign.

He went all-in, emptying his bank account of $4,000. When his investment in MANA doubled, he started betting on the coins he thought were the most lucrative. But one exchange turned out to be a scam and another based in New Zealand lost millions in a hack. Norriss’ investment fell to zero, but two years later he returned to the game with another $5,000. Again, he watched it soar, then crash as the crypto winter of 2022 set in.

I was a rookie, I didn’t understand what I was doing. I was putting my crypto in dangerous places, Norris said.

For now, he’s taking a break from software development to focus on building a crypto-backed hip-hop gaming project. Norris said he has no regrets because investing introduced him to the possibilities of blockchain.

I come from nothing, he said. I don’t expect anything to be right.

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The Associated Press receives support from the Charles Schwab Foundation for educational and explanatory reports aimed at improving financial literacy. The independent foundation is separate from Charles Schwab and Co. Inc. The AP is solely responsible for its journalism.

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