The widespread losses caused by the cryptocurrency crash are even greater among black investors.
A quarter of black American investors owned cryptocurrencies at the start of the year, compared to just 15% of white investors, according to a investigation by Ariel Investments and Charles Schwab. Black Americans were more than twice as likely to buy cryptocurrency as their first investment.
The value of these investments has imploded. Total cryptocurrency market capitalization has fallen below $1 billion from over $3.2 billion last year. With the fall in digital assets comes a bear market in US equities.
Black Americans’ greater exposure to cryptocurrencies has made them more vulnerable to the financial downturn, even though their households hold less wealth on average.
The allure of wealth creation, amplified by marketing, has attracted many black investors to cryptocurrencies. Bitcoin’s dollar price has risen 9,300% in five years to hit its peak in November.
Jefferson Noel, 27, said he gained his first exposure to crypto in January 2019 when he accidentally invested $5 in bitcoin using Cash App, a payment service.
“I had no idea what it was and I don’t even remember doing it,” he said.
Last May, his involuntary investment was worth $70. The astronomical gain inspired him to follow a friend’s advice to invest $20,000 of his savings in other cryptocurrencies, such as dogecoin, instead of more traditional investments such as index funds.
“[Black Americans] I don’t want to be left behind anymore,” Noel said. “As far as I know, the black community sees crypto as a way to level the playing field and get in the game before gatekeepers block others from participating.”
But he is now reconsidering that decision. Persistent losses wiped out over 20% of his crypto investment. He researches mutual funds on the advice of his uncle, but always buys more crypto.
Historically, black investors have tended to be conservative, putting more of their money into lower-risk assets such as insurance and savings bonds. Black Americans trust the stock market and financial institutions less than white Americans, according to the Ariel-Schwab survey. Separate studies have linked their apprehension to decades of discrimination in the financial system.
Jatali Bellanton, the author of a personal finance program for young Black Americans called Kids Who Bank, sees cryptocurrencies as a way to offset wealth-building opportunities that were historically unavailable in real estate and stock markets.
“We don’t like to be left behind when it comes to new technologies,” she said.
The promise of cryptocurrencies as wealth creators has been supercharged by celebrity endorsements, endorsements and publicity.
Prominent Black Americans, including musicians Jay-Z and Snoop Dogg, boxer Floyd Mayweather, actor Jamie Foxx, and filmmaker Spike Lee, have been promoting crypto to their communities.
Lee appeared in ads for crypto ATM operator Coin Cloud last year, saying that “old money isn’t going to get us back; it pushes us down” and “systematically oppresses”, whereas digital assets are “positive, inclusive”.
Last month, Jay-Z announced a partnership with former Twitter chief executive Jack Dorsey to launch a “Bitcoin Academy” literacy program at the Brooklyn public housing complex where he grew up.
These celebrity endorsers have come under heavy criticism for being paid to sell high-risk investments to people who may not have the resources to deal with the volatility of crypto.
“Ninety-eight percent of these cryptocurrencies weren’t designed to do anything other than extract money from people’s bank accounts,” said Najah Roberts, former financial adviser and founder. from the Crypto Blockchain Plug cryptocurrency education center.
“It’s not ‘get-rich-quick’,” Roberts added. “There are massive targeting ads that target our community.”
Bellanton said it’s not about ads, but about the prospect of financial freedom, a lack of investment minimums common to mutual funds, and a sense that the blockchain distributed ledger is more transparent than the big banks that attract new investors.
“The reason minorities at a higher rate than others are adopting crypto is precisely because if you’re not already rich, it’s a lot cheaper to send [USD Coin, a stablecoin asset] than sending a thread,” said Brian Brooks, chief executive of blockchain company Bitfury, at the Aspen Ideas Festival last month. “It’s just cheaper. The whole system is cheaper and faster. There aren’t all these barriers to entry where you can only get it if you’re already rich.
Despite the risk of losses, many black investors remain invested in the market. Dennis McKinley, 41, bought the drop against the advice of his financial adviser. He said his crypto coins now make up around 30% of his overall portfolio, held alongside stocks.
“Young black America is just getting to a point where we have the freedom to have the ability to invest in alternative strategies in addition to real estate,” said McKinley, an Atlanta small business owner. “I think it’s important to learn and get out there.”