You were right. This is not a passing fad.
Despite all the legal troubles faced by entrepreneurs like Sam Bankman-Fried and the regulatory mess that companies like Binance find themselves in, people continue to buy cryptocurrencies.
Even though the price of bitcoin plummeted in 2022, the percentage of people owning cryptocurrencies in the United States increased from 3% to 11% in the space of a year. It’s up 12% this year, according to a National Bureau of Economic Research (NBER) working paper, and bitcoin’s price is up more than 75% from its 2022 low.
Belief – or simply curiosity – about cryptocurrency does not deserve the condescension of old-timers and personal finance grumps. All you have to do is ask yourself a few questions about your personality and why you are attracted to cryptocurrencies.
The gap between men and women is remarkable. This year, the Pew Research Center released an analysis showing that while 41% of men aged 18-29 said they had owned or used cryptocurrency, only 16% of women in the same age group did the same.
One possible explanation for this gender imbalance is chemical. “It’s testosterone poisoning,” said William Bernstein, 75, a retired neurologist and author of The Four Pillars of Investing. “Testosterone does wonders for muscle mass and speed of reflexes, but it does absolutely nothing for judgment. »
Are you that type of quick-witted broker? This is not a rhetorical question. Ask a woman or someone else who might have better judgment – or just different judgment – than you.
The wealth gap between racial groups remains large, and young adults experiencing this reality for the first time often make a vow to break the circle. But any rush can make you an easier target for influencers and celebrities selling dubious cryptocurrencies.
“There is a real desire to make up for lost time when it comes to wealth accumulation in the United States,” says Yanely Espinal, 33, director of educational outreach at Next Gen Personal Finance, a nonprofit organization for educational purposes. “Cryptocurrencies are therefore sold as a means of catching up if one is willing to take risks. »
The greatest appeal of cryptocurrencies is often the possibility of high returns – the kind of tenfold return on investment bitcoin owners experienced if they bought in early 2019 and sold in early 2021.
But I’m not here to tell you not to try, no matter what. Quite the contrary.
Let’s take the example of Aadi Gujral’s journey. Mr. Gujral, 17-year-old founder of the Foundation for Financial Literacy, discovered cryptocurrencies in the early days of the pandemic. He bought bitcoins, then jumped on the bandwagon, trying his hand at other currencies and coin mining.
“There were times when it was incredibly profitable and times when I regretted every choice,” Gujral said. Given the volatility, my money would probably have been safer and better invested in an equity index fund. »
But would he have learned more from a boring basket of the 500 largest US stocks? Would he have had a better idea of ​​his own risk tolerance? Would he have become a better teacher for young people his age? No, no and no.
For Bernstein, whose eldest grandchild is 10 years old and will soon be ready to absorb his wisdom, the biggest mistake a cryptocurrency enthusiast would make would be to view owning cryptocurrency as a real investment. Investments, he said, have profits (like a company you own stock in) or create income (when the company pays a dividend on its shares). Cryptocurrencies do neither, unless you sell them for a gain.
You can think of your months or years of owning cryptoassets as hours spent at the theater or at a concert, and only spend what you think is worth for the enlightenment or enjoyment you will derive from it.
But don’t dismiss people like Bernstein out of hand. “That’s the advantage of being an old geezer,” he said. Older people don’t put as much money into cryptocurrency as younger people, not because they disagree, but because they’ve seen this movie before and know how it usually ends . »