New research from the Federal Reserve Bank of Cleveland found that cryptocurrency investors differ in clear ways from investors in traditional assets. The study says views on future returns and risk vary widely across investors, and that information about Bitcoin’s past price gains can push people to raise their intended allocation to crypto and, in some cases, actually buy it.
Return expectations explain ownership better than demographic traits
The paper, titled Do You Even Crypto, Bro? Cryptocurrencies in Household Finance, is based on multiple waves of U.S. household survey data. Each round covered as many as roughly 25,000 households.
The researchers found that expectations for future cryptocurrency returns do more to explain who chooses to hold crypto than demographic characteristics such as age, income, and gender.
Crypto holders expect average returns of about 22% over the next year, well above the roughly 7% expected by non-holders. Holders also generally see crypto assets as less risky than non-holders do.
A 1-point increase in expected returns is linked to a 0.8-point rise in holding probability
The study also found that for every 1 percentage point increase in a person’s expected crypto return, the probability that the person holds crypto rises by about 0.8 percentage points. In the paper’s findings, expected returns and risk perceptions explain crypto ownership even better than traditional factors such as age, income, and wealth.
That sets crypto apart from assets such as stocks, bonds, and gold. In traditional markets, investors’ economic background usually does more to explain differences in asset allocation. In crypto, subjective views on future price performance carry more weight.
Bitcoin’s 12-month gain data increased allocation intent
The research team also ran a randomized information experiment. It found that simply giving investors information about Bitcoin’s gains over the previous 12 months significantly increased their willingness to allocate money to crypto.
Among respondents who saw Bitcoin’s historical performance data, the share planning to allocate to crypto rose by about 2 percentage points. Relative to the control group’s 4.3% allocation intent, that was an increase of about 47%. The probability of actually purchasing crypto also rose by about 2.5 percentage points.
Study points to a feedback loop in crypto market cycles
The study said this mechanism may help explain the crypto market’s recurring boom-and-bust pattern: rising prices attract more investors, new money pushes prices higher, and that creates a loop of rising prices, stronger optimism, and more buying.
Cointelegraph was cited as the source of the research report, with the item published in Chinese by Odaily.