Cleveland Fed study: Crypto ownership driven by return expectations

A working paper from the Federal Reserve Bank of Cleveland suggests that cryptocurrency ownership is primarily driven by differing beliefs regarding future returns rather than demographic factors such as age, income, or gender. Analyzing surveys of up to 25,000 U.S. households, researchers found that crypto owners expected average annual returns of 22%, significantly higher than the 7% expected by non-owners.

The study identifies a feedback loop where positive returns attract new participants, which in turn drives prices higher and draws in more buyers. Experimental data showed that presenting households with Bitcoin’s previous 12-month performance increased desired crypto allocation by approximately 47% and led to higher actual purchases.

Additionally, the research notes that crypto wealth tends to function similarly to gambling income. While a doubling in Bitcoin’s price increased the likelihood of crypto-heavy households purchasing durable goods, it did not significantly impact regular consumer spending patterns.