Crypto Investors Driven by Beliefs, Not Demographics

A new study from the Federal Reserve Bank of Cleveland reveals that the behavior of cryptocurrency investors is largely driven by their expectations about future returns, rather than demographic or financial factors.

The researchers analyzed household survey data and a randomized information experiment to reach this conclusion. They found that expected returns strongly track who owns cryptocurrency, with a one-percentage-point increase in an individual's expected crypto return corresponding to an 0.8-percentage-point rise in the probability of owning cryptocurrency.

The study also highlights uneven knowledge and beliefs across the population. In a 2021 Federal Reserve survey, 87% of respondents who did not own crypto said they did not know what return to expect from it over the following year. Among crypto owners, the figure was still high, 54% reported not knowing what return to expect.

The authors connect this belief gap to a potentially self-reinforcing market dynamic. If rising prices strengthen optimistic expectations, those expectations can attract new participants whose buying then supports higher prices.