Who holds cryptoasets and why?

Why do some individuals choose to buy cryptoassets while others do not? The debate around cryptoassets has been increasingly polarised over the past years, yet aside from narrative evidence, only a few small surveys have explored the demographics and motives of investors (See Steinmetz et al. 2021, Auer and Tercero-Lucas 2022, Pew Research 2022, JPMorgan Chase 2022, Board of Governors 2022).

A new large survey study by leading US researchers has been published employing data from a representative sample of U.S. households participating in the Nielsen Homescan Panel (Weber et al 2023). This new quarterly survey provides information on households' portfolio decisions and ownership of cryptoassets, along with their demographic characteristics and their detailed expectations on risk and returns over time.

One striking result is that cryptoassets are in many ways unique. First, it is unique the extent to which people feel they lack understanding about them. A higher proportion than compared to any another asset class feel they cannot even estimate expected returns in cryptoassets. Second, when they do, households disagree more about future crypto returns. Owners of cryptoassets are much more optimistic about future crypto returns than those who do not invest in the market, the same is not true for other assets – bonds, stocks or gold.

This is an important study to understand opinion and perceptions shaping attitudes towards this market. Let’s have a detailed look.

The survey

The study utilises data from a series of quarterly Nielsen Homescan Panel surveys conducted since 2018. The survey involve 80,000 U.S. households who track their purchases at the Universal Product Code (UPC) level. Respondents provide detailed demographic information about themselves and their households as part of their participation in the Nielsen panel. The Nielsen Homescan Panel is considered broadly representative of the population. The survey design aims to capture a diverse range of households across various demographic categories. The response rates for the surveys range from 20% to 25%. This means that a portion of the panel members choose to participate in each wave of the survey. On average, around 60% of each wave's respondents participated in the previous quarterly wave.¹

The ownership of crypto

How large a share of population owns cryptoassets and how is it changing? Ownership has increased over time and even after market crashes. The percentage of U.S. households owning cryptoassets like Bitcoin increased significantly from about 3% to 11% from 2021 to 2022 as the bitcoin price rose (see Figure 1). Even after the Bitcoin price drop, the share of cryptoasset owners continued to grow, reaching 12%. 

Figure 1 – Ownership of Cryptoassets by U.S. Households

Bitcoin prices and share of households reporting that they own cryptoassets. In the early (2018) and late (2021-2022) surveys, all households were asked if they owned cryptoassets. In the middle waves (2019-2020), households were asked about cryptoasset ownership only if they had financial wealth greater than their monthly income.  Source: Weber et al (2023).

Who owns crypto? Cryptoasset owners are not equally distributed across demographics. They are more likely to be male, have higher incomes, identify as politically independent (including Libertarian leanings), and are less likely to be white. Additionally, a significant proportion of cryptoasset owners are young. Most individuals who hold cryptoassets have only a small fraction of their overall financial wealth invested in this market. Yet approximately 20% of cryptoasset owners report that cryptoassets account for at least 50% of their financial holdings (Figure 2, Panel A). While bitcoin is the most held cryptoasset, investors usually have invested in multiple cryptoassets (Figure 2, Panel B). Besides bitcoin, the top popular assets are Ether and Dogecoin.

Figure 2 – Ownership of Cryptoassets by U.S. Households

Panel A reports the share of financial portfolio allocated to crypto currencies conditional on owning a crypto currency. Panel B reports which crypto currencies are in financial portfolios conditional on owning a crypto currency. For Panel B, respondents can choose multiple currencies. The data are from the Summer 2021 survey wave.  Source: Weber et al (2023).

Do people regret the investments? Not at all. The vast majority of cryptoasset holders report to be either happy with their crypto-holdings or would consider holding a larger share of their wealth in crypto.

Why people do or do not hold cryptoassets?

Why do some people choose to buy cryptoassets and others don’t? Given the demographic profile of investors, one might expect younger investors to be more willing to hold a high-risk potentially high-return asset than older investors, given the different time horizons of their investment plans. The survey respondents that invest in the crypto market deliver reasoning broadly compatible with this explanation but show also other motives.

Here are the main factors that influence these decisions:
• Expected Earnings. The main reason cited by cryptoasset holders is the high expected return of cryptoassets. They see it as a potentially lucrative investment opportunity.
• Portfolio diversification. includer common reason to own cryptoassets is to build a diversified portfolio. Cryptoassets are seen as a way to diversify your investment portfolio.
• Store of value and hedge against inflation. People see cryptoassets, especially bitcoin, as a store of value and a hedge against inflation. They see it as a means of preserving wealth in uncertain economic  times. 
• Support for cryptoassets development. Several respondents are “true believers” and cite a desire to support the development and growth of cryptoassets as a reason for investing. 

On the other hand, those who do not own cryptoassets give as the main explanations the lack of knowledge and their negative perception of cryptoassets as financial assets. Many are not familiar with this asset class and do not fully understand its potential benefits. Others believe that cryptoassets are a poor investment, too risky, or unlikely to contribute to existing investment portfolios.

To better understand motives and expectations, the researchers have also collected quantitative data on the expected return of various financial assets including cryptoassets. Cryptoasset holders tend to have higher expectations for future earnings, with bitcoin's average expected return over a given period of 22% compared to 7% reported by non-cryptoassets holders (Figure 3, panel A). Furthermore, although cryptoasset holders perceive the uncertainty associated with cryptoasset returns (Figure 3, panel B), cryptoassets are generally understood as less risky overall compared to the perception of non-owners (Figure 3, Panel C). 

Figure 3 – Expected risks and returns

Panel A reports the histogram of expected returns for bitcoin by cryptoasset ownership. Panel B reports the histogram for implied standard deviation (uncertainty) in the reported subjective distributions by ownership status. The data for Panel B is restricted to the control group Ie subjective distributions were elicited only post-treatment. Panel C reports the distribution of the qualitative responses on Bitcoin’s perceived riskiness. The data are from the Summer 2021 survey wave.  Source: Weber et al (2023).

Interestingly, households who report knowing little about cryptoassets (40% of households who do not own crypto) tend to be unwilling to provide quantitative forecasts of cryptoasset returns (almost 90% of these households). This shows their extreme uncertainty regarding the assets.

These results suggest that differing views on cryptoasset performance and risk contribute to differences in financial decision-making among individuals. Indeed, in a statistical analysis, the expected return to cryptoassets has a significant explanatory power in accounting for whether individuals choose to hold cryptoassets. Additionally, perceptions of riskiness and expected returns of other asset classes also contribute to the decision-making process. In fact, the combined effect of these expectations is more influential in explaining cryptoassets holding decisions than observable individual characteristics.

The difference in perception of cryptoassets as a financial asset extends to its perceived correlation with other assets and inflation. Among cryptoasset holders, there is a positive correlation between expected inflation and expected returns from cryptoassets, suggesting that cryptoassets can act as a hedge. However, this correlation does not exist among non-cryptoasset holders. The two groups do not disagree on other asset classes that are perceived to comove with inflation: individuals assume a positive correlation with housing, gold and stock returns, and a negative one with bonds and savings account returns. 

These results are consistent with qualitative descriptions of investment motives and indicate that crypto holders view cryptoassets as a strong hedge against inflation, while those who do not own cryptoassets don’t.

In fact, these differences in beliefs have explanatory power for investment decisions. The expected return to cryptoassets alone explains more of the variation in whether people choose to hold them than all the observable characteristics of individuals combined. Conversely, expected returns for other assets have a weaker predictive power in determining asset ownership compared to cryptoassets.

Crypto wealth and consumption

The study reveals that changes in the price of bitcoin, the most held cryptoasset, affects the subsequent durable goods spending decisions of cryptoasset holders. The extent of this impact is proportional to the share of their financial wealth held in the form of cryptoassets.

Furthermore, the impact of crypto-earnings on spending behaviour differs from that of conventional assets. While the passthrough into durable goods purchases aligns with other assets, there is effectively no passthrough into non-durable spending for cryptoassets. 

This suggests that crypto-earnings are perceived more like a windfall, similar to lottery winnings, and are more likely to be spent on a single large purchase rather than being spread out over time as an increase in overall wealth. These findings collectively highlight the unique position of cryptoassets among existing financial assets, possibly due to their novelty and the limited knowledge individuals have about them.

Information and attitudes

Information or the lack of it seems to be a key driver of decision. To test that and the way in which agent build expectations about assets, the researchers have conducted an experiment providing information about cryptoassets to a random sample of households (against a control sample) to find that it has a significant impact on their decisions regarding whether to hold the asset and the allocation of their portfolio. 

Informing individuals about the high positive returns of cryptoassets in recent years leads to an increase in their desired share of cryptoassets in their portfolio, often at the expense of stocks. Moreover, individuals who initially had no knowledge about cryptoassets and did not own any show a particularly strong response to the information, indicating that high returns for a new speculative asset can create expectations of future high returns and attract new investors seeking similar gains. 

Additionally, households not only increase their desired amount of cryptoassets but also tend to increase their desired share of gold, indicating an increased preference for high-risk assets. Information about inflation reinforces the perception that cryptoassets are inflation hedges, as they align the desired share of cryptoassets with inflation expectations.

In contrast, information about stock returns has little discernible impact on desired portfolio shares or actual cryptoasset holdings, likely due to the already well-known nature of stock returns among households. 

These results provide causal evidence and broadly corroborate what is known for new markets, where news about current earnings can have a significant impact on average consumer expectations and investment decisions. Positive profits encourage new entrants to enter, driving prices higher. Consumers do not seem to expect a mean reverting behaviour from assets, but rather extrapolating past returns to future returns seems to be the norm.

Conclusions

A new study has provided detailed information about American households attitudes towards cryptoassets through time. 

The market stands out for its unique characteristics: divergent views and apparent lack of understanding of it for a large share of the population.  Investors in cryptoassets are more likely to be young, male, have higher incomes, identify as politically independent, and less likely to be white. Crypto investors expect higher returns on their assets than non-crypto-holders. The expected returns for cryptoassets alone explains more of the variation in whether people choose to hold cryptoassets than all the demographic characteristics combined.

The lack of common information and beliefs about cryptoassets among all investors suggests that price volatility may remain one of the most defining characteristics of this emerging asset for the foreseeable future. 

Bibliography

Michael Weber, Bernardo Candia, Olivier Coibion, and Yuriy Gorodnichenko, “Do You Even Crypto, Bro? Cryptocurrencies in Household Finance,” NBER Working Paper No. 31284

Steinmetz, Fred, Marc von Meduna, Lennart Ante, and Ingo Fiedler, 2021. “Ownership, uses and perceptions of cryptocurrency: Results from a population survey,” Technological Forecasting and Social Change173(C): 121073

Auer, Raphael, and Tercero-Lucas, David, 2022. "Distrust or speculation? The socioeconomic drivers of U.S. cryptocurrency investments," Journal of Financial Stability 62(C): 101066

Pew Research Center, 2022. “46% of Americans Who have Invested in Cryptocurrency Say It’s Done Worse than Expected,” https://www.pewresearch.org/short-reads/2022/08/23/46-ofamericans- who-have-invested-in-cryptocurrency-say-its-done-worse-than-expected/

JPMorgan Chase & Co., 2022. “The Dynamics and Deomographics of U.S. Household Crypto-Asset Use,” https://www.jpmorganchase.com/institute/research/financialmarkets/dynamics-demographics-us-household-crypto-asset-cryptocurrency-use

Board of Governors of the Federal Reserve System, 2022. “Economic Well-Being of U.S. Households in 2021.” https://www.federalreserve.gov/publications/files/2021-reporteconomic- well-being-us-households-202205.pdf

Footnotes

¹ While there is a panel dimension to the survey, where participants can be surveyed repeatedly over time, the panel's size may be influenced by voluntary opt-outs. If respondents find the surveys challenging or decide not to continue participating, the panel dimension may be somewhat limited.

Haftungsausschluss 

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