The Black Investors Who Were Burned by Bitcoin

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Two years ago, a Maryland-based information technology specialist, who wished to remain anonymous for reasons that will become clear in a minute, began serious research on bitcoin. He had seen the ubiquitous advertisements for it, he told me. He had a background in computer science and was interested in cryptography. He saw the promise of the blockchain, bitcoin’s distributed transaction ledger. And he had seen the amazing rally in the value of bitcoin and other cryptocurrencies. “I wanted to see how far it would go,” he told me.

He put in $1,000. Soon after, crypto markets began to falter. He started losing money and decided to back out rather than lose more. “I have a good idea of ​​what it was all about,” he told me.

The IT specialist is one of thousands of US investors who have seen their savings float into the ether as bitcoin and other cryptocurrencies entered not just a bear market, but what many Web3 proponents are calling a “crypto winter.” The price of a single bitcoin has dropped from a peak of over $68,000 last November to about $16,000 today; the shocking collapse of crypto trading company FTX earlier this month drove prices lower than in 2017. Cryptocurrencies as a whole have lost more than $2 trillion in paper value over the past year.

The Maryland man is also one of thousands of black investors who have seen the value of their crypto investments plummet. The prototypical face of crypto is young, white, techie, and male, but perhaps no other demographic has been hit harder by the crypto crisis than black Americans, who are half as likely to own stocks as their white counterparts, but significantly more likely to to own shares. own cryptocurrencies. As black investors plunged into the crypto market at or near the most recent top, many of those investors are now in the red.

That’s especially concerning because black investors had so little to lose to begin with: young black men are one of the poorest segments of American society. It is also concerning because many black investors have put money into bitcoin because they found it so difficult to build generational wealth in the first place. Discriminated by banks, overlooked by investment managers, pressured and saddled with educational debt, many turned to more esoteric opportunities.

The IT specialist understood the possible downside. “I don’t lose money I can’t afford to lose,” he told me, explaining that he’s a practitioner of dollar-cost averaging, an index fund enthusiast, and an endorser of Benjamin Graham’s value investing ideology. “I don’t have time to pick stocks; I’m not a wizard.” Bitcoin, he added, was a curiosity for him, not something he wanted to bet his retirement on.

But many others exposed themselves to a level of risk that wasn’t fully transparent and that they couldn’t really afford — though it’s impossible to pinpoint exactly how many people lost money and how badly they fared. Indeed, researchers have little data on who owns cryptocurrencies, and even less data on the demographics and distribution of profits and losses.

That said, surveys show that black investors got into crypto enthusiastically, but belatedly. Black Americans were much less likely than their white counterparts to have heard of, let alone invested in, cryptocurrencies in the early days. (2015, The Atlantic Ocean published a story headlined “Why Are So Few Black People Using Bitcoin?”) That was true until the late 2010s, when bitcoin rose in value and the markets for coins, tokens, and NFTs – other types of digital assets – began to pick up. blow. According to data provided to me by the Federal Reserve Bank of Atlanta, 10.4 percent of black consumers owned crypto in 2021, up from 7.4 percent in 2020. Before that, the Diary of Consumer Payment Choice survey had too few respondents to do a generate solid estimate.

As of 2021, that was Black Americans Lake more likely than their white counterparts to own crypto. They were also more likely to own crypto than stocks or mutual funds, according to a Federal Reserve Bank of Kansas City study. Then the crypto market fell apart. “We saw the same thing happen with the dot-com bubble, when we saw many African-American investors looking for popular internet stocks for the first time,” said John W. Rogers, the founder of the investment firm Ariel Investments, and himself a notable black investor. , told me. “So many people have made so much money in the last seven or eight years, and it’s natural to fall into the trap of chasing what worked yesterday.”

Of course maybe, but also expensive. And tragically, according to Mehrsa Baradaran, a law professor and the author of The Color of Money: Black Banks and the Racial Wealth Gap. “In the black community, there’s a real desire for financial autonomy,” she told me. “The system is not working. And the only way is to get the system to work. But if you are a minority, it has been a struggle that has not yet paid off.”

Indeed, crypto had a practical appeal to small dollar investors from historically marginalized communities: you could buy bitcoin on the Cash App without a credit check. It also had clear financial appeal. A survey by Charles Schwab and Ariel Investments earlier this year found that a quarter of black investors expected to earn 20 percent or more per year from their investments in crypto. dollar fortunes from almost nothing. (Schwab and Ariel’s research also found that many crypto investors didn’t fully understand that they were buying a high-risk, unregulated product.)

Crypto also appealed to many black investors who distrusted traditional finance. They had good reasons for their suspicion: Traditional financial institutions are charging black people more for mortgages, valuing their homes for less, denying them loans and jobs at high rates, and continuing to undermine their communities.

Many black investors also read headlines promising that crypto was an engine for racial equality, saw constant ads offering coins and NFTs, watched NBA players and NFL stars start taking their paychecks in bitcoin. (In a Crypto.com Super Bowl ad that aired this year, LeBron James tells a teenage version of himself, “If you want to make history, you have to make your own decisions.”)

All of this might not have mattered were it not for the vicissitudes of the business cycle and the sudden catastrophe of the coronavirus pandemic. The wave of black investors piling into bitcoin and the like coincided with a sharp rise in real wages among black workers. It also coincided with the distribution of stimulus checks, child tax credit payouts, and expanded unemployment insurance payouts. (The Federal Reserve Bank of Cleveland found that COVID stimulus checks caused a surge in the price of bitcoin.) Millions of people who had never been able to save or invest much suddenly had cash on hand, and many chose to invest it in crypto. Push.

But the bubble burst as interest rates rose, the broader technology sector entered a recession and new buyers dried up. “These are not really investable assets,” Rogers of Ariel Investments told me. “It is not a farm that produces wheat. It’s not technology, like an Apple computer, that is changing the world. You just buy them in the hope that someone else will pay a higher price for them.”

Few people are willing to pay higher prices now, especially after the FTX debacle. Sure, the crypto market has exploded and broken again and again over the past several decades, and many black investors could see their losses turn into gains over time. But the surest way to build a crypto fortune is to have bought early; shoot-the-moon payment days may be a thing of the past. And recent polls show a sharp drop in the proportion of black Americans owning bitcoin, indicating that many people may have been buying high and selling low.

To protect individual investors of all races in the long run, the government must strictly regulate crypto in the public interest. (The current lack of regulation helps keep digital currency speculation separate from the traditional financial system. Congress passing industry-friendly crypto regulations would be the worst of both worlds in some ways). Black families also need better ways to build wealth, supported by broad public investment. As for the Maryland IT specialist, he’s done with bitcoin, but not crypto. He still has dogecoin for a lark, he told me. “For five hundred dollars you get 50 million coins,” he said. “It is purely speculative. There is nothing of any real value.”

The Valley Voice
The Valley Voicehttp://thevalleyvoice.org
Christopher Brito is a social media producer and trending writer for The Valley Voice, with a focus on sports and stories related to race and culture.

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