The Crypto Market Hasn’t Been Black America’s Financial Savior

Ariel Bailey saw the advertisements on television about cryptocurrency and watched her social media timelines pile up with posts from people who said they were making a fortune investing in digital tokens. At first, she ignored them, she said. Finally, Bailey grew curious.

It was late 2020 and the Michigan woman said she took a chance, withdrew $1,500 from her savings account and bought some dogecoin. Bailey, 30, said her investments grew in 2021 and the first half of 2022, but things started to take a turn for the worse last summer.

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“I mean, I knew there was risk involved,” said Bailey, who is Black. “I was waiting for it to improve and it just didn’t. What made it worse, I didn’t really understand why it was going down as much as it did.”

What Bailey experienced is happening to more and more Black investors, economists and researchers said. Sharp declines in digital assets have left thousands of Black people wishing they hadn’t taken the plunge into crypto.

Two years ago, famous athletes and celebrities marketed crypto to Black Americans as a potential way to narrow the wealth gap between their white counterparts. Black Americans reportedly bought in heavily. A 2022 survey from Charles Schwab found that Black Americans were more likely to invest in crypto than whites.

Black Americans like Bailey who bought crypto during the height of its craze would have been better off investing in a traditional stock market index fund, a recent study from the Center for Economic Policy and Research (CEPR) found.

CEPR drew its conclusion by comparing how well cryptocurrencies performed in a five-year span of August 2017 to August 2022 compared to the stock market. The overall market grew 56.4% during that time period and the S&P 500 rose 60.8%.

The average crypto token however fell 46.6%, according to CEPR’s study, published last month. The stock market even outperformed crypto tokens created by Black founders, the study concluded.

The crypto industry has gained widespread popularity in recent years, particularly among investors who distrust long-established financial institutions. However, prices of bitcoin, ether, solana and other tokens nosedived in 2022 once inflation soared and American households were no longer willing to spend cash on riskier investments.

The crypto world took another major blow last November when FTX Trading, the industry’s third-largest exchange, unexpectedly declared bankruptcy. Its former CEO Sam Bankman-Fried has been charged with fraud and money laundering and awaits a trial scheduled for later this year. Former FTX customers meanwhile are suing the company in hopes of getting getting their accounts unlocked and access to their assets.

“The risks of investing in crypto go far beyond FTX and Sam Bankman-Fried,” Algernon Austin, who co-authored the CEPR study, said. “This simple comparison with stock market indexes shows that crypto has failed to deliver to its investors. It’s often a money-loser, and there are many other risks and pitfalls as well. Yet, we continue to see crypto touted as a boon to the Black community.”

FTX’s collapse, along with a rise in crypto hacks and scams, has started to erode investors’ confidence. A Bankrate survey published in September found that, in 2022, only 21% of Americans felt comfortable investing in crypto. That’s down from 35% the year prior.

Bailey said she lost everything she invested in crypto from 2020. She said she was OK losing out because the money she invested wasn’t needed for everyday expenses.

“I think there’s still some value in crypto,” she said. “I would just say really do your research on the app you’re using, which ones to buy and definitely don’t depend on it making you rich.”

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