It’s been a rough few weeks for the crypto space. At one point, within 24 hours, $200 billion was wiped off the value of crypto assets. Welcome to 2022 Crypto Cash Crash.
With Black Americans leaning heavily into crypto, they have been hard hit.
The Economist reports this gladiator-size downturn happened when two major cryptocurrency entities, Coinbase, a cryptocurrency exchange, and Terra, one of the best-known stablecoins, plummeted in the market on May 11 and 12. After the two collapsed, it triggered the industry and millions of investors lost big time — some of their entire life’s savings. Out of that group, statistics say, African-Americans were drastically affected.
Black investors have been shown to favor crypto over traditional stocks. An April 2022 survey by Ariel Investments and Charles Schwab showed that 25 percent of Black people, who tend to earn less and have fewer savings than whites in this nation, but have a household income over $50,000, own cryptocurrency, compared with 15 percent of their white counterparts.
The research further showed age plays a part in which demographic of African-Americans are most likely to invest in the cryptocurrency, saying almost two-fifths of young people under 40 own some form of digital money, whereas only 29 percent of whites of the same age bracket do.
The Boston Globe states minority investors are key to the new $3 trillion market and have been crucial to creating this new financial system.
One reason for the ratio difference between races is that Black respondents to the survey were new to investing and really excited about crypto.
Cryptocurrency, or crypto, is any form of currency that exists digitally or virtually, according to Investopedia. Crypto uses cryptography to process transactions. While cryptocurrencies don’t have a central issuing or regulating authority, they do use a decentralized system to record transactions and issue new units. It does not have a physical existence, nor is it minted, issued or regulated by a government. While not being able to touch it or place it in your leather wallet, your digital assets are stored in a crypto wallet.
Traditionally Blacks, various surveys report, have proven to be conservative in the way they invest. But the concept of cryptocurrency is appealing, making them two times more likely to believe the virtual notes are safe investments. Some 30 percent of those Black investors in the Ariel-Schwab survey believed crypto is regulated by the government.
The truth is the opposite. The industry is almost entirely unregulated. Some investment experts warn of the risks of crypto. In May, Coinbase admitted customers who bought into their assets would not be protected, should the company go bankrupt.
The Federal Trade Commission, a consumer-protection and antitrust authority, also released staggering numbers about corporate swindling in the space. Fraud cost investors $750 million in 2021, a little over four times more than credit card fraud, which was $181 million last year.
African-Americans, based on the Ariel-Schwab survey, have bought into the trustworthiness of the crypto market, despite being highly skeptical of the stock markets. In fact, 30 percent of Blacks in this country are distrustful of the market or other financial institutions.
Black Americans are close to three times more likely to choose cryptocurrency as their first investment (11 percent versus 4 percent) than their white counterparts and twice as likely to describe it as the best investment overall (8 percent versus 4 percent).
The Washington Post reported the nation created the environment for this phenomenon by traditionally locking Blacks out of wealth-building models that have their roots in the stocks.
“When you have been locked out of the system when you haven’t had pathways to create generational wealth, you see this as an opportunity,” Cleve Mesidor, the founder of the National Policy Network of Women of Color in Blockchain, told The Washington Post.
“You’re going to tell your community about it and you’re going to find ways to optimally use it to ensure you cannot just build wealth for your community. But build wealth for the next generation,” she continued.
Darrick Hamilton, professor of economics and urban policy at the New School, is not sure jumping into crypto is the answer either.
He told The Washington Post, “It is true the traditional financial system has not provided access and frankly exploited Black people. But the remedy isn’t to turn to another vulnerable system, however well-intended it may or may not be.”
The educator believes “the remedy is a public sector that ensures they have access in an equitable way.”