There’s a wealth gap in cryptocurrency ownership: Those who invest in crypto are better off than those who spend or send it.
The US Federal Reserve for the first time included questions about cryptocurrency in its annual economic well-being survey. The Fed’s results, released in a report (pdf) on May 23, show a split in the roughly 12% of US adults who say they own crypto.
About 10% said they bought or held cryptocurrencies such as bitcoin or ether as an investment in the last year, while about 2.5% said they either bought something with crypto in the last year or sent it to family and friends.
This data suggests that most crypto holders—who are disproportionately wealthy and have access to bank accounts, credit cards, and retirement savings—don’t actually use it for anything other than speculation. And those who rely on it for payments or money transfers were likely hit hardest in the last six months as the bottom fell out of the crypto market.
The division between crypto investors and crypto transactors is stark.
“Those who held cryptocurrency purely for investment purposes were disproportionately high-income, almost always had a traditional banking relationship, and typically had other retirement savings,” the Fed wrote.
Of those investing in crypto, 46% had an income of $100,000 or more while 29% earned less than $50,000 each year. By contrast, only 24% of crypto transactors made $100,000 while about 60% made under $50,000.
Crypto investors were also much likelier than crypto transactors to have a bank account (99% vs. 87%), a credit card (97% vs. 73%), and a retirement savings account (89% vs. 71%).
Crypto advocates bill it as an alternative financial system set apart from central and private banks. But recent downturns in the crypto markets have mimicked those in the traditional financial markets, leading many analysts to surmise that corporate and institutional investment in crypto has linked the two markets. Thus, crypto is no longer seen as a reliable hedge against rising inflation.
If you have invested in crypto since the start of 2021, you’ve likely lost money. The price of bitcoin has fallen to about $32,000 a coin, seeing its peak price of $64,000 halved in just six months. Ether, the native currency of the Ethereum blockchain, home to most nonfungible token (NFT) projects, has similarly lost half of its value since November 2021.
Even so-called stablecoins aren’t proving stable during this downturn. The algorithmic stablecoin TerraUSD and its sister cryptocurrency LUNA went to zero after a mass sell-off this month, burning those who considered TerraUSD a safe store of value that’s always pegged to the US dollar.
The new Fed report shows that those who treat cryptocurrency as more than playthings for high-risk speculation are disproportionately unbanked and low-income. They depend on crypto’s purchasing power to buy things and transfer money.
Inflation is up 8.5% year over year, but crypto is still not a safe store of value. In fact, it’s unregulated and highly volatile, and even the coins marketed as stable offer no legal assurance that they will maintain their full value. Crypto investing may be fun for people looking to diversify a complex portfolio of financial assets, but crypto can severely hurt low-income and unbanked people who put faith in its services.