The proliferation of young individuals, particularly males, delving into the realm of cryptocurrencies has surged remarkably. Herein lies some sagacious advice devoid of admonition.
Despite the legal tribulations plaguing entrepreneurs like Sam Bankman-Fried and the regulatory complexities entangling corporations like Binance, the acquisition of cryptocurrencies persists.
Even in the face of Bitcoin’s substantial decline in 2022, the proportion of United States citizens possessing crypto burgeoned from 3 percent to 11 percent within a year. Currently standing at 12 percent this year, according to a National Bureau of Economic Research (N.B.E.R.) working paper, Bitcoin’s value has soared over 75 percent from its nadir in 2022.
Your resolute belief or mere curiosity concerning crypto should not invite condescending reproach from the more experienced individuals in the realm of personal finance. Rather, it demands introspection into who you are and the allure crypto holds for you.
Undeniably, younger adults exhibit greater openness to this avenue of financial engagement. The N.B.E.R. research reveals that individuals below 40 years of age are more inclined to possess crypto compared to those over 60. Moreover, a discernible gender divide emerges, with males being more likely owners.
The gender disparity warrants attention. Recent analysis by the Pew Research Center disclosed that while 41 percent of men aged 18 to 29 acknowledged owning or employing cryptocurrency, a mere 16 percent of women within the same age bracket did the same.
A plausible explanation for this gender skew is rooted in biology. “It’s testosterone poisoning,” commented William Bernstein, a retired neurologist and the author of “The Four Pillars of Investing.” “While it enhances muscle mass and reflex speed, it has no bearing on judgment.”
Are you the quick-twitch trader? This isn’t a rhetorical question. Consult a woman or someone whose judgment may surpass or diverge from yours.
Pew’s findings also unveiled that while 14 percent of white adults possessed crypto, the figures stood at 21 percent for Black or Hispanic adults and 24 percent for Asian American adults.
Notwithstanding, the chasm in racial wealth remains substantial, often driving young adults, upon confronting the stark realities, to vow breaking the cycle. Yet, hastiness could render one susceptible to influencers and celebrities peddling dubious crypto schemes.
Yanely Espinal, director of educational outreach at Next Gen Personal Finance, a nonprofit focused on education, remarked, “There’s an earnest desire to bridge the gap in wealth accumulation in America. Crypto is portrayed as a means to catch up if one dares to take a risk.”
Undoubtedly, the allure of crypto often hinges on the potential for high returns, the kind that Bitcoin holders reaped with tenfold gains from early 2019 to early 2021.
However, such instances may not repeat, and the individuals who achieved those gains might well have benefited from luck. Duplicating such a feat—buying and selling at precisely the opportune moments—necessitates extraordinary skill or, more realistically, a stroke of luck.
Nonetheless, my intention is not to dissuade you from exploring this avenue under any circumstances. On the contrary, let’s consider the journey of Aadi Gujral. The 17-year-old founder of the Foundation for Financial Literacy embarked on a path that led him to crypto during the initial days of the pandemic. He acquired Bitcoin and subsequently ventured into other currencies, even dabbling in coin mining.
“There were periods when this was highly profitable and times when I regretted every decision,” admitted Gujral. “Given the volatility, my money might have been safer and better invested in a stock index fund.”
Yet, would he have garnered equivalent insights from a mundane collection of the largest 500 U.S. stocks? Would he have cultivated a clearer understanding of his risk tolerance? Would he have honed his ability to educate peers his age? The answer to all these queries is a resounding no.
Espinal, an advocate for crypto education, expresses concerns about teenagers investing their entire savings in crypto and subsequently losing everything. Such experiences might sour their perception, compelling them to opt for safer avenues like savings accounts. This could inadvertently divert them from investing, which holds immense potential for wealth building, particularly among people of color.
Espinal’s apprehension is justified. Numerous young adults witnessed their parents’ retirement savings suffer profound losses during the 2008 economic crisis, deterring them from the stock market for years. Eventually, they realized that abstaining from stocks proved to be the wrong choice amidst a roaring bull market.
However, at present, only a fraction of crypto owners report substantial financial harm—merely 3 percent, according to Pew’s research.
Yet,this could abruptly change. The implication here is that you should not commit more funds to crypto than you can afford to lose.
In the view of William Bernstein, whose eldest grandchild is a 10-year-old on the cusp of benefiting from his wisdom, the gravest error a crypto enthusiast could commit is perceiving crypto ownership as actual investing. Investments, he asserts, generate earnings (as seen in company stocks) or yield income (when a company disburses dividends on its stock). Crypto accomplishes neither unless you sell it for a profit.
Perhaps you should regard your months or years of crypto possession similarly to the hours you spend at a theater or a concert. Invest only what you deem the enlightenment or enjoyment you gain from it is worth.
However, dismissing figures like Mr. Bernstein out of hand would be unwise. “That’s the characteristic of being an elder,” he remarked. “Older individuals abstain from investing in crypto not due to a lack of understanding, but because they’ve witnessed this narrative before and know how it usually concludes.”
