Cryptocurrency crash reverberates broadly amongst black American traders

The widespread losses caused by the crypto crash were even broader for black investors.

A quarter of black American investors owned crypto at the start of the year, compared with just 15% of white investors, according to a survey by Ariel Investments and Charles Schwab. Black Americans are more than twice as likely to buy crypto as their first investment.

The value of those investments has exploded. Total market capitalization of electronic money fell to less than $1 billion from more than $3.2 billion last year. The drop in the digital asset was accompanied by a bear market in US stocks.

Black Americans’ greater exposure to cryptocurrencies has made them more vulnerable to a financial downturn, even as their households on average hold fewer assets.

The allure of wealth building, amplified by marketing, has attracted many black investors to cryptocurrencies. Dollar price of bitcoin increased 9,300% over 5 years to the highest level in November.

Jefferson Noel, 27, said he first came into contact with cryptocurrency in January 2019 when he accidentally invested $5 in bitcoin while using the Cash App, a payment service.

Jefferson Noel, a crypto investor
Jefferson Noel puts $20,000 of his savings into crypto © Calving Productions

“I didn’t know what it was, and I don’t even remember doing it,” he said.

In May of last year, his unintentional investment was worth $70. The returns prompted him to heed a friend’s advice to move $20,000 of his savings into other cryptocurrencies, such as dogecoin, instead of more traditional investments like index fund.

“[Black Americans] Noel said. “As far as I can tell, the black community sees crypto as a way to even be the playing field and get in the game before the gatekeepers prevent others from joining.”

But now he is rethinking that decision. The ongoing losses wiped out more than 20% of his crypto investments. He is researching mutual funds on his uncle’s advice, but still buying more crypto.

Historically, black investors have tended to be conservative, investing more money in low-risk assets like insurance and savings bonds. According to the Ariel-Schwab survey, black Americans have less trust in the stock market and financial institutions than white Americans. Separate studies have linked their apprehension to decades of discrimination in the financial system.

Jatali Bellanton, author of a personal finance textbook geared toward young black Americans
Jatali Bellanton sees crypto as a way to make up for missed wealth-building opportunities

Jatali Bellanton, author of a personal finance curriculum aimed at young black Americans called Kids Who Bank, sees cryptocurrencies as a way to offset wealth-building opportunities that were previously available. This is not on the stock and housing market.

“We don’t want to be left behind when it comes to new technology,” she said.

The promise of cryptocurrencies as a wealth-builder has been bolstered by celebrity endorsements, sponsorships, and promotions.

Prominent black Americans including musicians Jay-Z and Snoop Dogg, boxer Floyd Mayweather, actor Jamie Foxx, and film producer Spike Lee have promoted cryptocurrencies to their communities.

Lee appeared in an advertisement for crypto ATM operator Coin Cloud last year, saying that “old money will not come to us; it pushes us down” and “systematically represses”, while digital assets are “positive, all-encompassing”.

Last month, Jay-Z announced a partnership with former Twitter executive Jack Dorsey to launch a literacy program “Bitcoin Academy” in the public housing complex in Brooklyn, where he grew up.

Such celebrity advocates have faced heavy criticism for being paid to sell high-risk investments to people who may not have the resources to withstand the volatility of their celebrities. electronic money.

“Ninety-eight percent of these cryptocurrencies are not designed to do anything,” said Najah Roberts, former financial advisor and founder of crypto education center Crypto Blockchain Plug. other than extracting money from people’s bank accounts.

This is not ‘get rich quick’, added Roberts. “There are a lot of targeted ads that are targeting our community.”

Bellanton said this is not an advertisement but a vision of financial freedom, the lack of minimum investments common to mutual funds and the feeling that blockchain distributed ledgers are more transparent than big banks. attract first-time investors.

“The reason that minorities with a higher percentage of people are using crypto is because if you are not rich, send [USD Coin, a stablecoin asset] Brian Brooks, chief executive officer of blockchain company Bitfury, said at the Aspen Ideas Festival last month. “It’s just cheaper. The whole system is cheaper and faster. It doesn’t have all the barriers to entry where you can only get it if you’re already rich. ”

Despite the risk of loss, many black investors continue to invest in the market. Dennis McKinley, 41, bought the discount against his financial advisor’s advice. He said his cryptocurrencies now make up about 30% of his overall portfolio, which is held alongside stocks.

“Young black America is reaching a point where we have a lot of freedom to invest in alternative strategies beyond real estate,” said McKinley, a small business owner in Atlanta. , a small business owner in Atlanta, said. “I think it’s important to learn and go beyond that.”

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