Fed Study Reveals Expectations Drive Crypto Ownership

A new study from the Federal Reserve Bank of Cleveland suggests that the main reason cryptocurrencies don't behave like other financial assets may be due to differing expectations about their future returns. The researchers analyzed data from up to 25,000 U.S. households per wave and found that expectations about crypto returns account for more of the differences in who owns cryptocurrency than a wide range of demographic characteristics.

The study highlights that people outside the crypto market struggle to form a return forecast at all, with 87% of non-owners saying they didn't know what return to expect over the following year. Among crypto owners, this share was still high at 54%. However, when owners did estimate returns, they expected an average 22% return over the next year, versus 7% among non-owners.

The researchers also conducted an information experiment where households were randomly assigned to receive information about Bitcoin's past 12-month return. The study found that participants shown Bitcoin's recent performance increased both what they wanted to hold and what they went on to buy, with a 2 percentage point increase in desired crypto allocation and a 2.5 percentage point increase in subsequent crypto purchases.