Fed study finds crypto investors driven by beliefs, easily swayed by returns
A Cleveland Fed working paper argues crypto ownership is driven less by demographics than by sharply different beliefs about future returns. In repeated U.S. household surveys, expected crypto returns explained ownership better than age, income, or gender. Crypto owners expected much higher gains and viewed crypto as less risky than non-owners. The gap is unusual versus stocks, bonds, and gold, where demographics matter more. A randomized experiment found that showing households Bitcoin’s recent performance increased desired crypto allocations and later purchases, especially among people who said they lacked information. The researchers suggest this can create a feedback loop: past price gains raise bullish expectations, bring in new buyers, and push prices higher. The paper also finds crypto wealth can briefly lift durable-goods spending, but looks more like lottery or gambling income than lasting wealth. Overall, crypto volatility may stem from disagreement, learning, and weak shared information.
