Two years ago, a Maryland-based information-technology specialist—who asked to remain anonymous for reasons that will become apparent in a minute—started researching bitcoin in earnest. He’d 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-transactions ledger. And he had watched the astonishing 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. Shortly after, the crypto markets began to falter. He started to lose money and decided to pull out rather than risk losing any more. “I got a good sense of what it was all about,” he told me.
The IT specialist is one of thousands of American investors who have seen their savings disappear into the ether as bitcoin and other cryptocurrencies have entered not just a bear market, but what many Web3 proponents are calling a “crypto winter.” The price of a single bitcoin has plummeted from a peak of more than $68,000 last November to about $16,000 today; the shock collapse of the crypto-trading firm FTX earlier this month sent prices lower than they were in 2017. Cryptocurrencies as a whole have lost more than $2 trillion in paper value in 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, techy, and male, but perhaps no other demographic group has been harder hit by the crypto bust than Black Americans, who are half as likely to own stocks as their white counterparts but significantly more likely to own cryptocurrencies. Because Black investors piled into the crypto market at or near its most recent top, many of those investors are now in the red.
That is especially worrisome 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 worrisome because many Black investors poured money into bitcoin because they found it so hard to build generational wealth in the first place. Discriminated against by banks, overlooked by investment managers, redlined and saddled with educational debt, many turned to more esoteric opportunities.
The IT specialist understood the potential downside. “I do not lose money I cannot afford to lose,” he told me, explaining that he is a practitioner of dollar-cost averaging, an aficionado of index funds, and a subscriber to the value-investing ideology of Benjamin Graham. “I don’t have time to pick stocks; I’m not a magician.” Bitcoin, he added, was a curiosity for him, not something he was willing to wager his retirement on.
But many others exposed themselves to a level of risk that was not fully transparent and that they could not really afford—although it’s impossible to nail down exactly how many people lost money and how badly they fared. Indeed, researchers have scant data on who owns cryptocurrencies, and even less data on the demographics and distribution of gains and losses.
That said, surveys show that Black investors got into crypto with gusto, but late. Black Americans were much less likely than their white counterparts to have heard of cryptocurrencies in the early days, let alone to have invested in them. (In 2015, The Atlantic published a story bearing the headline “Why Are So Few Black People Using Bitcoin?”) That was true up until the very end of the 2010s, when bitcoin was surging in value and the markets for coins, tokens, and NFTs—other kinds of digital assets—began blowing up. According to data that the Federal Reserve Bank of Atlanta provided to me, 10.4 percent of Black consumers owned crypto in 2021, up from 7.4 percent in 2020. Before that, its Diary of Consumer Payment Choice survey had too few respondents to generate a solid estimate.
As of 2021, Black Americans were more likely than their white counterparts to own crypto. They were also more likely to own crypto than stocks or mutual funds, according to one study from the Federal Reserve Bank of Kansas City. Then the crypto market fell apart. “We saw the same thing happen with the internet bubble, when we saw many African American first-time investors chasing hot internet stocks,” John W. Rogers, the founder of the mutual-fund firm Ariel Investments, and a notable Black investor himself, told me. “So many people made so much money over the last seven or eight years, and it is natural to fall into the trap of chasing what worked yesterday.”
Natural, perhaps, but also costly. And tragic, in the assessment of 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 is a real yearning to have financial autonomy,” she told me. “The system doesn’t work. And the only path is to get the system to work. But if you’re a minority, that has been a struggle that has yet to yield fruit.”
Indeed, crypto held practical appeal for small-dollar investors from historically marginalized communities: You could buy bitcoin on Cash App without a credit check. It had obvious financial appeal too. A survey by Charles Schwab and Ariel Investments earlier this year showed that a quarter of Black investors anticipated making 20 percent a year or more from their investments in crypto—a not-entirely-fanciful assumption, given that many of crypto’s early investors manifested billion-dollar fortunes out of nearly nothing. (The Schwab and Ariel survey also showed that many crypto investors did not fully understand they were buying a risky, unregulated product.)
Crypto also appealed to many Black investors who distrusted traditional finance. They had good reasons for their suspicion: Traditional financial institutions charge Black people more for mortgages, appraise their homes for less, deny them loans and jobs at high rates, and continue to redline their communities.
Many Black investors also read headlines promising that crypto was an engine for racial equity, saw constant advertisements for coin offerings 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 gotta call your own shots.”)
None of this might have mattered if not for the vicissitudes of the business cycle and the sudden catastrophe of the coronavirus pandemic. The surge in Black investors piling into bitcoin and the like coincided with a sharp run-up in real wages among Black workers. It also coincided with the distribution of stimulus checks, child-tax-credit disbursements, and expanded unemployment-insurance payments. (The Federal Reserve Bank of Cleveland found that COVID stimulus checks fueled a bump in the price of bitcoin.) Millions of people who’d never had much to save or invest suddenly had cash on hand, and many chose to push it into crypto.
But the bubble burst when interest rates rose, the broader tech sector entered a recession, and new buyers dried up. “These are not really investable assets,” Rogers, of Ariel Investments, told me. “It’s not a farm that produces wheat. It’s not technology, like an Apple computer, that changes the world. You’re just buying 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 boomed and busted and boomed and busted again and again in the past dozen-plus years, and many Black investors might see their losses turn into gains in time. But the surest way to build a crypto fortune is to have bought early; shoot-the-moon paydays may be a thing of the past. And recent polls show a sharp decline in the share of Black Americans holding bitcoin, indicating that many folks might have bought high and sold low.
To protect individual investors of all races over the long term, the government needs to strictly regulate crypto in the public interest. (The current lack of regulation is helping to keep digital-currency speculation separate from the traditional financial system. Congress passing industry-friendly crypto rules would in some ways be the worst of both worlds.) Black families also need better pathways to building wealth, ones supported by broad government investment. As for the Maryland IT specialist, he is done with bitcoin—but not with crypto. He still holds dogecoin for a lark, he told me. “Five hundred dollars gets you 50 million coins,” he said. “It’s purely speculative. There’s nothing of any real value.”