Crypto Investors Driven by Beliefs and Expectations

A new working paper from researchers at the Federal Reserve Bank of Cleveland suggests that people's beliefs about cryptocurrencies are driving their investment decisions, rather than traditional demographic or financial factors.

The study, titled 'Do You Even Crypto, Bro? Cryptocurrencies in Household Finance', analyzed household survey data and a randomized information experiment to understand what drives crypto ownership.

The researchers found that expected returns on cryptocurrencies are the strongest predictor of ownership, surpassing the impact of factors such as age, income, and gender. In fact, a one-percentage-point increase in an individual's expected crypto return corresponds to a 0.8-percentage-point rise in the probability of owning cryptocurrency.

The study also highlights how uneven knowledge and beliefs are across the population. In a 2021 Federal Reserve survey, 87% of respondents who did not own cryptocurrency said they did not know what return to expect from it over the following year.