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We all know that despite the numerous struggles and obstacles experienced over the years, crypto has managed to capture the interest and wealth-building dreams of numerous investors and enjoys the support of millions of people from all around the world – over 560 million, to be more precise. As data on the BTC and ETH coin price shows, the crypto market, led by Bitcoin and Ethereum, has seen impressive growth, prompting many to step into this nascent industry. This has turned digital assets into a very interesting subject of study that plenty of financial experts and analysts are busy exploring and dissecting.
And yet, given the novelty of this asset class, the intricate layers of technology that make up its structure, and its precipitous evolution, a lot of things about crypto are still wrapped in mystery, one of them being the demographic profile of crypto investors. We may have data on the biggest crypto investors since these are large companies, exchanges, and brokerages like BlackRock, Grayscale, and Binance or prominent figures in business and finance like Brian Armstrong and Michael Saylor. But when it comes to those who make up the rest of the crypto investors’ cohort and are not in the public eye, information is scarce at best.
We tend to think of crypto investors as this collective entity of faceless and nameless individuals about whom we don’t really know much. This has given rise to plenty of questions, such as whether we are dealing with an entirely different breed of investors with different interests and motivations, or are they just average investors who have expanded their financial endeavors into the crypto space? What are their preferred strategies, and what are the factors influencing their decisions and behaviors?
If so far, we couldn’t really find an answer to these queries, recent research on the demographics of cryptocurrency investors by Marco Di Maggio, Professor of Finance at Imperial College Business School, and a faculty research fellow at the National Bureau of Economic Research, is able to give us some valuable insights into the fascinating world of crypto investors so we can finally figure out who’s behind the crypto hype.
Investors’ characteristics and their regulatory implications
Marco Di Maggio’s foray into crypto investors’ demographics and the desire to understand who invests in crypto, and why and how they do it was prompted by the rapid development of the cryptocurrency industry and the increasing presence of digital assets in mainstream finance. Di Maggio explains that uncovering the core characteristics of crypto investors is extremely important for regulatory purposes.
Regulators need to know who crypto investors are so they can draft adequate policies and procedures for this asset class. For example, if the vast majority of investors come from modest income backgrounds and put all their savings into crypto, they expose themselves to high risks. On the other hand, if most investors are well-off individuals who benefit from substantial disposable income and use crypto as a diversification tool, the risks are much more manageable. Each of these situations would require a distinct regulatory approach.
Authorities may consider that adopting stringent measures is the best course of action if they believe that crypto investors are part of select groups. However, Di Maggio’s research reveals that crypto investors share notable similarities with traditional investors. According to the study, more than 80% of participants also hold other types of investments, such as stocks, tend to have higher income levels, and are more financially savvy than the general population.
These findings suggest that regulators should aim to develop a sensible regulatory framework that supports innovation while also mitigating risks, instead of treating crypto as a niche product. With digital currencies gaining more ground in traditional finance, it’s necessary for regulatory agencies to acknowledge that the same people who invest in well-established assets will also be investing in crypto.
Crypto investments tend to rise following income shocks
Another interesting discovery that Di Maggio’s research brought to light is that investments in digital currencies usually surge after drastic income changes such as stimulus payments. According to the professor, this underscores a more general trend where people are inclined to take advantage of liquidity increases and direct their extra disposable income towards high-risk investments like crypto.
Nevertheless, Di Maggio’s study provides a broader picture of this trend, showing that although investors allot some of these funds to crypto, the biggest portion still goes to traditional investments. This proves that investors are well aware of the risks associated with crypto investments, and while they are willing to embrace newer financial instruments, they also focus on risk management measures that can help them balance out their portfolios, ensuring consistent growth and stability.
Crypto investments are more reactive to market returns than traditional investments
Di Maggio’s study also confirms that crypto investors react more strongly to market returns. This means they are easily swayed by price spikes, which attract mass investments into the market. Bitcoin’s price history and the reactions it triggered provide a good example in this respect. After each major Bitcoin bull run, the market was flooded with new investors seeking to earn high returns.
This not only highlights the extreme volatility of the market and the speculative nature of crypto investments but also points out that FOMO remains a powerful motivator for crypto investors. Many still view crypto as a solution for rapid gains, and many of their decision are driven by emotions and spur-of-the-moment impulses, although crypto’s high earning potential offers no guarantees for successful outcomes. At the same time, a lot of people think that cryptocurrencies can act as a hedge against inflation, which could be particularly beneficial during times of economic downturn.
The main takeaway here is that crypto investors are not this mysterious group of people who have nothing in common with the rest of the world. Although wealthy investors continue to dominate the market, the pool of crypto holders is a lot more diverse than it was initially believed, and with crypto becoming more widespread and accessible, this diversity might increase in the future.
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