Cryptocurrency Crash Reverberates Widely Among Black Investors

The widespread losses caused by the cryptocurrency crash are even greater among black investors.

A quarter of black American investors owned crypto at the start of the year, compared to just 15 percent of white investors, according to a survey by Ariel Investments and Charles Schwab. African-Americans were more than twice as likely to purchase crypto as their first investment.

The value of those investments has imploded. The total market capitalization of cryptocurrencies has plunged below $1 trillion from over $3.2 trillion last year. The fall in digital assets is accompanied by a bear market in US stocks.

Blacks’ increased exposure to cryptocurrencies has left them more vulnerable to the financial downturn, even as their households on average have less wealth.

The allure of creating wealth, amplified by marketing, has drawn many black investors to cryptocurrencies. The dollar price of bitcoin rose 9,300 percent in the five years to 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 while using Cash App, a payment service.

Jefferson Noel put $20,000 of his savings into crypto © Calving Productions

“I had no idea what it was, and I don’t even remember doing it,” he said.

Last May, his unintentional investment was worth $70. The astronomical gain inspired him to follow a friend’s advice to invest $20,000 of his savings in other cryptocurrencies, like dogecoin, instead of more traditional investments, like index funds.

“[Black Americans] I don’t want to be left behind again,” Noel said. “As far as I can tell, the black community sees crypto as a way to level the playing field and get in the game before the gatekeepers stop others from getting in.”

But now he is reconsidering that decision. Persistent losses have wiped out more than 20 percent of his cryptocurrency investment. He is looking into mutual funds on the advice of his uncle, but keeps buying more cryptocurrencies.

Historically, black investors have tended to be conservative, putting more of their money in low-risk assets like insurance and savings bonds. Black Americans trust the stock market and financial institutions less than white Americans, according to the Ariel-Schwab survey. Separate studies have linked his fear to decades of discrimination in the financial system.

Jatali Bellanton, author of a personal finance curriculum aimed at young African Americans
Jatali Bellanton sees crypto as a way to make up for lost wealth creation opportunities

Jatali Bellanton, author of a personal finance curriculum aimed at young black Americans called Kids Who Bank, sees cryptocurrencies as a way to offset wealth-building opportunities historically unavailable in the real estate and stock markets.

“We don’t like to be left behind when it comes to new technology,” he said.

The promise of cryptocurrencies as generators of wealth has been enhanced by celebrity endorsements, sponsorships and publicity.

Prominent black Americans, including musicians Jay-Z and Snoop Dogg, boxer Floyd Mayweather, actor Jamie Foxx, and filmmaker Spike Lee, have promoted cryptocurrencies in their communities.

Lee appeared in commercials for crypto ATM operator Coin Cloud last year, saying “old money isn’t going to pick us up; pushes us down” and “systematically oppresses”, 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 in the Brooklyn public housing complex where he grew up.

These celebrity backers have faced heavy criticism for being paid to sell high-risk investments to people who may not have the resources to weather cryptocurrency volatility.

“Ninety-eight percent of these cryptocurrencies weren’t designed to do anything other than extract money from people’s bank accounts,” said Najah Roberts, a former financial advisor and founder of cryptocurrency education center Crypto Blockchain Plug.

“This is not ‘get rich quick,'” Roberts added. “There are massive announcements targeting our community.”

Bellanton said it’s not the announcements but the prospect of financial freedom, the lack of common investment minimums for mutual funds, and the sense that blockchain’s distributed ledger is more transparent than big banks that attracts investors. first-time investors.

“The reason why minorities at a higher rate than others are adopting crypto is precisely because if you’re not already rich, it’s much cheaper to send [USD Coin, a stablecoin asset] to send a cable,” said Brian Brooks, CEO of blockchain company Bitfury, at the Aspen Ideas Festival last month. “It’s just cheaper. The whole system is cheaper and faster. It doesn’t have all these barriers to entry where you can only get it if you’re already rich.”

Despite the risk of loss, many black investors continue to invest in the market. Dennis McKinley, 41, has been buying the dip against the advice of his financial adviser. He said that his crypto now makes up about 30 percent of his overall portfolio, along with stocks.

“Young Black America is getting to a point where we have the freedom to have the opportunity to invest in alternative strategies other than real estate,” said McKinley, a small business owner in Atlanta. “I think it’s important to learn and get out there.”

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