Women and people of color seem to slightly prefer cryptocurrencies to traditional stocks, according to a new study from NORC at the University of Chicago.
While only 1 in 8 U.S. adults traded in the crypto market during the 12-month period beginning in June 2020 — considerably less than the nearly 1 in 4 Americans who traded in traditional stocks during the same period — crypto had the edge with a more diverse cohort of investors.
Of those who had assets like bitcoin in their portfolios, 41% were women and 44% were people of color, the study found. By contrast, only 38% of women and 35% of people of color reported trading in traditional stocks. Investors earning less than $60,000 a year were also more likely to invest in crypto (35%) than stocks (27%).
That discrepancy might be explained, at least in part, by the relative newness of crypto, which gives investors the perception that it's more accessible than the traditional stock market, according to Angela Fontes, a Ph.D. economist at the University of Chicago.
"There's this whole world of information around the stock market and how to trade [and] what stocks to trade that's full of terminology that first you need to learn and understand," Fontes recently told CNBC's Make It. "Whereas in crypto, there's a lot more information at the basic level, because it's not at the same maturity as traditional stock investing is."
'Before anyone chooses to invest in crypto, they should understand exactly what they are investing in'
Cryptocurrencies have become one of the buzziest topics in finance, capturing the imaginations of everyone from regular retail investors to celebrity entrepreneurs like Elon Musk. Bitcoin, the world's largest cryptocurrency, has increased its value by more than 250% since last July.
The allure of such huge returns has pushed many new buyers into the volatile crypto market, but they should be advised that they do so at very high risk, says Robin Sherwood, a certified financial planner at HTG Investment Advisors in New Canaan, Connecticut.
"A good strategy would be not to invest in crypto," Sherwood says. "Unlike traditional stocks, cryptocurrencies have no underlying value. Cryptocurrencies are highly volatile assets which can just as easily double as drop in half. For professional traders or individuals looking to speculate with a small portion of their savings, trading in and out of crypto may be of interest, but they are not assets to invest in."
Not all advisors are so risk-averse. Some say they're amenable to the idea of including crypto in a balanced portfolio, including Simon Tryzna, chief investment officer at ClearPath Capital Partners in San Francisco.
Video by Helen Zhao
"Before anyone chooses to invest in crypto, they should understand exactly what they are investing in and why they are doing so and then understand its risk," Tryzna says. But if clients understand the technology and its potentially fickle returns, Tryzna believes it can work as part of a broader asset allocation.
"The younger [investors] are likelier to understand the underlying technology better and are more confident in their investment thesis," Tryzna says. "So, generally speaking, for a younger client who is mindful of the risks, I'd be OK with them allocating a higher percentage of their portfolio to crypto, versus someone who is older and has a shorter investment time horizon."
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