Fed Study: Crypto Buyers Shaped by Beliefs, Lured by Past Bitcoin Gains

A Federal Reserve Bank of Cleveland working paper has uncovered a striking pattern in American cryptocurrency investing: the decision to buy digital assets is driven less by demographics or risk tolerance than by fundamentally different beliefs about future returns. Titled "Do You Even Crypto, Bro? Cryptocurrencies in Household Finance," the study draws on repeated surveys of up to 25,000 US households and was authored by researchers Michael Weber, Bernardo Candia, Olivier Coibion, and Yuriy Gorodnichenko.

The gap between owners and non-owners is dramatic. Crypto owners expected an average 22% return over the following year, compared with just 7% among non-owners, and they also perceived crypto as substantially less risky. In the researchers' 2021 survey, 87% of non-owners said they did not know what return to expect from crypto, while even among owners, 54% admitted the same uncertainty, underscoring how poorly understood the asset class remains. Expected returns explained more of the variation in who owns cryptocurrency than a broad range of demographic characteristics.

The study also included a randomized information experiment showing that simply telling people about Bitcoin's recent performance increased both their desired crypto allocation and their subsequent purchases. The authors argue this points to a self-reinforcing dynamic common in speculative bubbles: "Positive returns attract new participants, which raises the price further," pulling in still more buyers. A one-percentage-point increase in an individual's expected crypto return was an unusually powerful predictor of ownership, suggesting that shifts in market sentiment can rapidly translate into real buying pressure across the crypto ecosystem.