Federal Reserve Study Reveals Crypto Investors Driven by Beliefs and Past Returns, Not Demographics

Expectations Trump Demographics in Crypto Ownership

A new working paper from the Federal Reserve Bank of Cleveland challenges conventional wisdom about who buys cryptocurrency and why. Researchers Michael Weber, Bernardo Candia, Olivier Coibion, and Yuriy Gorodnichenko analyzed surveys from as many as 25,000 U.S. households and found that investors’ beliefs about future returns, rather than age, income, or gender, are the strongest predictors of cryptocurrency ownership. This reverses the pattern seen in traditional asset classes, where demographic characteristics typically hold far greater explanatory power.

The disconnect in expectations is stark. In a 2021 survey, 87% of non-crypto owners stated they did not know what returns to expect from digital assets over the following year. Even among current crypto owners, 54% expressed similar uncertainty. For those with a view, the gap widened dramatically: crypto owners anticipated an average return of 22% annually, compared to just 7% among non-owners. Additionally, crypto owners perceived significantly lower risk than those without holdings. The researchers determined that a single percentage-point increase in an individual’s expected return corresponded to a 0.8-percentage-point rise in the probability of owning cryptocurrency—an exceptionally strong relationship.

Past Performance and Information Shape Buying Behavior

The study examined how new information influences crypto adoption through a 2025 randomized experiment. Researchers provided households with information about Bitcoin’s previous 12-month performance and observed that those receiving this data increased their desired crypto allocation by approximately 2 percentage points—a 47% jump relative to a 4.3% baseline allocation among the control group. Notably, subsequent actual crypto purchases also rose by about 2.5 percentage points, suggesting that past returns directly drive market entry by new investors.

The effect was not uniform across all participants. Those who already held negative views on cryptocurrency showed minimal response to the performance information. Instead, the impact concentrated among people who cited insufficient information as their reason for not investing in crypto. This suggests that information gaps leave crypto markets susceptible to feedback loops: rising prices attract new participants who may lack deep understanding, their purchases push prices higher, and further gains draw in additional investors—a dynamic potentially fueling speculative cycles.

Crypto Wealth Behaves Like Gambling Income

The research also probed how crypto wealth affects household behavior. When Bitcoin prices doubled, households holding crypto saw a 1.4-percentage-point increase in the likelihood of purchasing durable goods—roughly a 7% increase in absolute terms. However, this effect did not extend to ordinary spending patterns. The researchers concluded that crypto gains are treated more akin to lottery winnings or gambling windfalls than as permanent increases in wealth. This distinction underscores a fundamental difference in how investors mentally categorize cryptocurrency gains versus traditional investment returns.

The study’s findings suggest that crypto volatility stems from investor disagreement and learning rather than purely from market fundamentals—a critical insight for understanding why digital assets behave so differently from traditional financial instruments.

Source: Federal Reserve Bank of Cleveland, via Cointelegraph. Not financial advice.