Bye-Bye Crypto? US Investors Ditch Digital Currency After Price Plunge?

US Crypto Ownership and Usage Drops in 2023

A recent survey by the Federal Reserve paints a different picture of cryptocurrency ownership and usage in the United States compared to industry estimates.

The Fed's Survey of Household Economics and Decisionmaking (SHED) found that around 18 million adults reported using or owning crypto in the 12 months leading up to October 2023.

This translates to just 7% of surveyed adults, a significant decline from 10% in 2022 and 12% in 2021.

Furthermore, only 1% of adults reported using crypto for transactions like payments or sending money. This represents a 50% drop from the previous year.

A table illustrating the percentage of cryptocurrency usage among adults in the United States. (Source: Federal Reserve)

Interestingly, the most common reason for using crypto in transactions wasn't a lack of trust in banks, but rather because the recipient preferred it.

Faster transaction speeds and privacy concerns were also cited as motivating factors, but to a lesser extent.

Source: Federal Reserve

It's worth noting that the Fed's findings contradict claims made by cryptocurrency exchange Coinbase.

Coinbase, a vocal advocate for crypto adoption, has previously stated in its lobbying efforts that 52 million Americans own crypto.

The Federal Reserve survey did not receive a response from Coinbase regarding their methodology for arriving at this figure.

Demographics of Crypto Users in the US

The Fed's survey also sheds light on the demographics of crypto users in the United States.

Individuals with higher annual incomes (over $100,000) were more likely to have used crypto for any reason. Millennials (aged 30-44) made up the largest share of crypto users, followed closely by Gen Z adults (aged 18-29).

Interestingly, men were three times more likely to use crypto compared to women.

For those using crypto for financial transactions, Black and Hispanic adults were the most common demographic.

When it comes to crypto as an investment, Asian adults were the largest user group, while White adults were the least likely to use crypto for any reason.

The Fed's survey was conducted in October 2023 and included a representative sample of 11,488 US adults aged 18 and over.

The data was weighted to reflect the national adult population as per the US Census Bureau's March 2023 current population survey.

Knowledge Gap in Cryptocurrency Investment

A contributing factor to the decline in cryptocurrency ownership and usage in the United States may stem from a lack of understanding of blockchain technology.

A recent survey by Preply, a language learning company, reveals a surprising disconnect between cryptocurrency investment and understanding of the underlying technology.

While the allure of cryptocurrencies is undeniable, a significant portion of US investors seem to be entering the market without a grasp of blockchain, the distributed ledger system that powers it.

The survey findings show that roughly 60% of US cryptocurrency investors lack a clear understanding of blockchain technology.

This translates to three out of every five crypto investors surveyed being unsure about how the system functions.

This lack of knowledge extends beyond just blockchain, with 35% of respondents admitting they aren't confident in their overall knowledge of cryptocurrencies.

Interestingly, despite the knowledge gap, the survey also indicates a strong curiosity about the world of crypto.

This is evident in the high search volume for crypto-related acronyms and abbreviations. DAO (Decentralised Autonomous Organisation), DEX (Decentralised Exchange), and ICO (Initial Coin Offering) were the most frequently searched terms, suggesting an interest in delving deeper but potentially a barrier to entry through complex terminology.

Encouragingly, the survey also found that over half (54%) of those who haven't invested in crypto yet are interested in learning more.

This indicates a potential pool of future investors who are approaching the market with a desire for knowledge.

Fear of Missing Out (FOMO) and Bitcoin Price Volatility

Another contributing factor is likely due to FOMO, which often results in a superficial understanding of the underlying technology.

FOMO, or fear of missing out, is a common investor malady that can lead to bad decisions.

In the case of Bitcoin, the meteoric price rise in 2020 (from $7,194 to $60,360) followed by a steep decline in 2022 (down to $16,547) exemplifies this.

Many may have incurred huge losses as a result of FOMO and subsequently opted to disengage from cryptocurrency.

In March, Bitcoin experienced another surge, reaching a record high of $73,679. This has reignited investor anxieties about missing out on potential profits.

Cryptocurrency Ownership Stalls After Price Plunge

During the crypto winter in 2022, the cryptocurrency market faced a significant slowdown in new investors, according to a survey by the Federal Reserve Bank of Atlanta.

This stagnation comes after two years of rapid growth, where ownership doubled year-on-year.

The report attributes this shift to the dramatic price crash experienced by cryptocurrencies in spring 2022.

The Atlanta Fed researchers suggest that the negative headlines surrounding the cryptocurrency market in 2022, including plummeting prices, high-profile arrests, and the decline of NFTs, discouraged potential investors.

They believe this led to a decline in the "get-rich-quick" mentality that previously fueled cryptocurrency speculation.

The survey data also indicates "buyer's remorse" among existing cryptocurrency owners.

The researchers suggest that the market volatility has instilled emotions like euphoria, anxiety, and regret within the crypto investor community.

Interestingly, despite the lower asset prices in 2022, the survey suggests that few investors took advantage of this as a buying opportunity.

This behaviour contrasts with traditional investment philosophies like Benjamin Graham's value investing, which emphasises buying during market weakness and selling during periods of strength.

The Atlanta Fed's findings suggest that cryptocurrency speculators may be more inclined to buy when prices are high and avoid entering the market during downturns.

Gen Z Investing: Fear of Missing Out

A survey conducted by the CFA Institute and the Financial Industry Regulatory Authority Investor Education Foundation (FINRA) in late 2022 investigated the investment behaviours and motivations of Gen Z (aged 18–25), millennials, and Gen Xers across the US, Canada, UK, and China.

The findings revealed a trend of Gen Z entering the investment world at a younger age, driven in part by the fear of missing out (FOMO).

Over 40% of Gen Z investors in the US, Canada, and UK reported that FOMO significantly influenced their decision to start investing.

This number jumps to a staggering 60% for Gen Z investors in China.

This apprehension about missing out on potential financial gains is leading Gen Z around the globe to take the plunge into investing at a young age.

Notably, over 80% of Gen Z investors in the US and UK began investing before the age of 21, with similar figures of 79% in Canada and 63% in China.

Interestingly, a quarter of Gen Z investors in the US began their investment journey before they even turned 18, with slightly lower percentages (around 20%) reported in the UK and Canada.

China stands out in this category, with only 7% of Gen Z starting to invest before reaching adulthood.

The survey also shed light on the investment preferences of Gen Z in the US.

Cryptocurrencies and individual stocks appear to be the most popular choices. Their motivations for investing are multifaceted, ranging from long-term saving goals to securing additional spending money.

A significant portion (61%) of Gen Z investors expressed a desire to accumulate enough funds for travel and vacations.

Additionally, 55% aim to build a buffer for unexpected expenses, and over half aspire to achieve financial independence and a comfortable retirement.

Turning to financial education, Gen Z, the digital natives, are leveraging social media and online resources to gain financial literacy.

Nearly half (48%) reported using social media platforms to learn about investing and personal finance.

Internet searches (47%) and guidance from parents and family (45%) were also cited as valuable sources of information.

YouTube and general internet searches emerged as the preferred platforms for financial education, followed by social media channels like Instagram and TikTok.

Future of Cryptocurrencies: FOMO or Sustainable Growth?

The Federal Reserve's findings on declining crypto ownership and the results from other surveys paint a concerning picture of a market driven by FOMO and a lack of understanding of the underlying technology.

While Gen Z investors are entering the market early, their motivations often stem from fear of missing out rather than a long-term strategy.

The contrasting investment behaviours during high and low points in the crypto market further highlight this.

The question remains whether cryptocurrencies can evolve beyond a speculative asset class and find sustainable growth through real-world applications and increased investor knowledge.