The widespread losses caused by the cryptocurrency crash are even greater among black investors.
A quarter of black Americans own cryptocurrencies, compared to just 15% of white investors, according to a survey by Ariel Investments and Charles Schwab. Black Americans were more than twice as likely to buy cryptocurrency as their first investment.
The value of these investments has imploded. The total cryptocurrency market cap has fallen to less than $1 billion from over $3.2 billion last year. With the decline in digital assets comes a bear market in US equities.
Black Americans’ greater exposure to cryptocurrencies has made them more vulnerable to the financial downturn, even though their households have less wealth on average.
The lure of wealth creation, enhanced by marketing, has attracted many black investors to cryptocurrencies. Bitcoin’s dollar price is up 9,300% in five years, reaching its peak in November.
Jefferson Noel, 27, said he got his first exposure to crypto in January 2019 when he accidentally invested $5 in bitcoin using Cash App, a payment service.
“I had no idea what it was and I can’t even remember doing it,” he said.
Last May, his involuntary investment was worth $70. The astronomical gains inspired him to take a friend’s advice to invest $20,000 of his savings in other cryptocurrencies, such as dogecoin, rather than more traditional investments such as index funds.
†[Black Americans] I don’t want to be left behind anymore,” said Noel. “As far as I know, the black community sees crypto as a way to level the playing field and get into the game before gatekeepers block others from participating.”
But he is now reconsidering that decision. Continued losses wiped out more than 20% of its crypto investment. He researches mutual funds on the advice of his uncle, but always buys more crypto.
Historically, black investors have generally been conservative, putting more of their money into lower-risk assets such as insurance and savings bonds. Black Americans trust the stock market and financial institutions less than white Americans, according to the Ariel-Schwab survey. Other research has linked their fears to decades of discrimination in the financial system.
Jatali Bellanton, the author of a personal finance program for young black Americans called Kids Who Bank, sees cryptocurrencies as a way to offset wealth-building opportunities that were historically unavailable in the real estate and stock markets.
“We don’t like to be left behind when it comes to new technologies,” she said.
The promise of cryptocurrencies as creators of wealth has been fueled by celebrity endorsements, endorsements, and publicity.
Prominent black Americans, including musicians Jay-Z and Snoop Dogg, boxer Floyd Mayweather, actor Jamie Foxx and filmmaker Spike Lee, are promoting crypto in their communities.
Lee appeared in ads for crypto ATM operator Coin Cloud last year, saying that “old money won’t get us back; it pushes us down” and “systematically suppresses”, while digital assets are “positive, inclusive”.
Last month, Jay-Z announced a partnership with former Twitter CEO Jack Dorsey to launch a “Bitcoin Academy” literacy program at the Brooklyn public housing complex where he grew up.
These celebrity endorsers have been heavily criticized for being paid to sell risky investments to people who may not have the resources to handle crypto volatility.
“Ninety-eight percent of these cryptocurrencies are not designed to do anything but withdraw money from people’s bank accounts,” said Najah Roberts, former financial advisor and founder of the cryptocurrency education center Crypto Blockchain Plug.
“It’s not ‘get rich quick,'” Roberts added. “There are huge targeting ads targeting our community.”
Bellanton said it’s not about advertising, it’s about the prospect of financial freedom, a lack of investment minimums common to mutual funds, and a sense that the blockchain-distributed ledger is more transparent than the big banks that attract new investors.
“The reason minorities are using crypto at a faster rate than others is precisely because if you’re not already rich, it’s a lot cheaper to ship [USD Coin, a stablecoin asset] send a thread,” Brian Brooks, chief executive of blockchain company Bitfury, said at the Aspen Ideas Festival last month. “It’s just cheaper. The whole system is cheaper and faster. There are not all these barriers to entry where you can only get it if you are already rich.
Despite the risk of losses, many black investors remain invested in the market. Dennis McKinley, 41, bought the straw against the advice of his financial advisor. He said his cryptocurrencies now make up about 30% of his total portfolio, in addition to stocks.
“Young black America is just getting to a point where we have the freedom to invest in alternative strategies in addition to real estate,” said McKinley, a small business owner in Atlanta. “I think it’s important to learn and go out.”