In recent times, there has been a remarkable surge in the number of young individuals, particularly males, who have embraced the world of cryptocurrencies. What follows is some guidance devoid of admonishments, aimed at those who are either intrigued by or deeply involved in this domain.
Indeed, your intuition was correct – cryptocurrencies are far from a fleeting trend.
Amidst the legal predicaments faced by entrepreneurs like Sam Bankman-Fried and the regulatory complexities entangling companies such as Binance, the public’s fascination with cryptocurrencies remains unwavering.
Even with the significant drop in Bitcoin’s value during 2022, the proportion of individuals in the United States who possess cryptocurrency expanded from a mere 3 percent to a noteworthy 11 percent within a single year. Currently, it stands at 12 percent this year, as indicated by a working paper from the National Bureau of Economic Research. Concurrently, the price of Bitcoin has soared by over 75 percent since its nadir in 2022.
This fervor for crypto, whether grounded in strong conviction or mere curiosity, is not something deserving of condescension from the more seasoned experts in personal finance. It merely entails delving into introspective inquiries regarding your identity and the allure that cryptocurrencies hold for you.
It holds true that the younger demographic displays greater openness toward the concept of utilizing cryptocurrencies for investment. As per the N.B.E.R. study, individuals under the age of 40 are more likely to possess cryptocurrencies compared to those over 60, and this demographic trend also aligns with a greater representation of males.
The gender disparity is an intriguing facet. This year, an analysis by the Pew Research Center disclosed that while 41 percent of men aged 18 to 29 reported owning or using cryptocurrencies, only 16 percent of women in that age group could make the same claim.
One conceivable rationale for this gender gap is biological. “It’s testosterone poisoning,” remarked William Bernstein, a retired neurologist and the author of “The Four Pillars of Investing,” in jest. “It does wonderful things for muscle mass and reflex speed, but it doesn’t do anything at all for judgment.”
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Are you the kind of fast-reacting trader? This isn’t a rhetorical query. Consider seeking the perspective of a woman or an individual who might possess better, or simply different, judgment than you do.
The Pew Research Center also brought to light that while 14 percent of white adults had dabbled in cryptocurrencies, the figures stood at 21 percent for Black or Hispanic adults and an even higher 24 percent for Asian American adults.
The persistent gap in wealth along racial lines is undeniable, and when young adults first confront this stark reality, they frequently pledge to shatter this cycle. However, rushing into decisions might render them susceptible to the influence of influencers and celebrities endorsing potentially questionable crypto ventures.
Yanely Espinal, aged 33, the director of educational outreach at Next Gen Personal Finance, a non-profit dedicated to financial education, commented, “There is a real desire to be able to play catch-up when it comes to wealth accumulation in America. So crypto is sold as this vision that if you do this, you can catch up if you’re willing to take a risk.”
The allure of crypto often stems from the potential for substantial returns – the type of exponential gains Bitcoin holders reaped when they entered the market in early 2019 and exited in early 2021.
However, it’s important to acknowledge that replicating such a feat might be an exceptional stroke of luck. Accomplishing such impeccable timing for both purchase and sale demands remarkable skill or, more likely, an occurrence akin to lightning striking twice.
Nevertheless, I’m not here to discourage you from exploring this avenue under any circumstances. Quite the opposite.
Consider the journey undertaken by Aadi Gujral. At 17, he is the founder of the Foundation for Financial Literacy. Amidst the early days of the pandemic, he found his way to the realm of crypto. Starting with Bitcoin, he then ventured into various other currencies and even ventured into mining coins.
“There were times when this was incredibly profitable and times where I was regretting every choice,” reflected Mr. Gujral. “With the volatility, my money would have probably been safer and better invested in a stock index fund.”
But would he have gained as much insight from a conventional basket of the top 500 U.S. stocks? Would he have truly grasped his capacity to tolerate risk? Would he have evolved into a better mentor for his peers? The answer to all these questions is a resounding no.
Yanely Espinal, who educates instructors on teaching about cryptocurrencies and is the author of “Mind Your Money,” does express concerns about teenagers who channel all their savings into cryptocurrencies and end up losing everything.
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“They could walk away with a bad taste in their mouth and keep their money in savings accounts because they don’t want that feeling again,” she noted. “That can turn them away from investing, which is such a huge opportunity for wealth building, especially for people of color.”
Espinal’s apprehension is valid, as numerous young adults witnessed their parents’ retirement funds plummet during the aftermath of the 2008 economic crisis, an experience that deterred them from engaging with stocks for years. Ultimately, sidestepping these investment opportunities proved to be a misguided decision during a period that saw an exuberant bull market.
As of now, the majority of crypto holders have yet to suffer significant setbacks. According to Pew research, a mere 3 percent of them claim that their involvement with crypto has dealt substantial blows to their financial well-being.
However, this situation might change abruptly and unpredictably. The lesson here is simple – refrain from committing more funds to crypto than you can afford to lose.
From the perspective of Mr. Bernstein, whose oldest grandchild is a 10-year-old on the brink of absorbing his wisdom, the most significant misstep for a crypto enthusiast would be to regard their involvement as actual investing. In his view, investments inherently yield earnings (as seen in stocks of companies) or generate income (when a company pays dividends on its stock). Crypto, unless sold for profit, falls into neither of these categories.
One might liken their months or years of crypto ownership to the hours spent at a theater or a concert. Thus, only expend as much as you believe the enlightenment or joy derived from this endeavor is worth.
However, it would be imprudent to summarily dismiss figures like Mr. Bernstein. “That’s the thing about being an old fogey,” he chuckled. “Older people don’t put money into crypto as much as younger people not because they’re not with it, but because they’ve seen this movie before, and they know how it usually ends.”
