Distrust or speculation? the socioeconomic drivers of U.S. cryptocurrency investments

Summary

Focus

Cryptocurrencies such as bitcoin and ether have been marketed as alternatives to government-issued currencies and commercial banking. Proponents argue that key value propositions of the asset class are their asserted resistance to debasement and censorship by governments or financial institutions over who can transact. We evaluate whether distrust in the existing financial system is indeed a motive for investing in cryptocurrencies. We also examine the socioeconomic characteristics of cryptocurrency holders.

Contribution

The paper uses US survey data to consider whether cryptocurrencies are attractive to retail investors as alternatives to the mainstream financial system. We also provide a profile of investors and discuss their level of knowledge about this asset class. We then analyse patterns of cryptocurrency investment over time and across different cryptocurrencies.

Findings

We find no evidence to support the hypothesis that cryptocurrencies are sought as alternatives to the mainstream financial system. Investors in cryptocurrencies show no more concern about the security of cash or commercial banking than the rest of the population. Cryptocurrency investors tend to be educated, young and male. People who have experience using digital finance are more likely to invest in cryptocurrencies. In recent years a gap in ownership of cryptocurrencies across genders has emerged despite converging knowledge levels about cryptocurrencies.

 We examine how investor characteristics vary across different cryptocurrencies. We find that owners of cryptocurrencies tend to stick with their investments.

Abstract

Employing representative data from the U.S. Survey of Consumer Payment Choice, we disprove the hypothesis that cryptocurrency investors are motivatedby distrust in fiat currencies or regulated finance. Compared with the general population, investors show no differences in their level of security concerns with either cash or commercial banking services. We find that cryptocurrency investors tend to be educated, young and digital natives. In recent years, a gap in ownership of cryptocurrencies across genders has emerged. We examine how investor characteristics vary across cryptocurrencies and show that owners of cryptocurrencies increasingly tend to hold their investment for longer periods.

JEL classification: D14, D91, E42, G11, G12, G28, O33

Keywords: digital currencies, cryptocurrencies, distributed ledger technology, blockchain, payments, digitalisation, banking, household finance, money, bitcoin, ether, xrp, bitcoin cash, litecoin, stellar, eos