โBlockchain technology is revolutionizing our economy, sports and entertainment, the world of art and the way we relate to each other,โ the NBA superstar said in a statement announcing the partnership with the LeBron Family Foundation. James. โI want to make sure that communities like the one I come from are not left behind.โ
But cryptocurrency is so speculative that investors, especially the financially vulnerable, are simply better to buy at low cost, no-frills stock index funds.
โInvesting in cryptocurrency is extremely high risk,โ Algernon Austin, director of Economic and Racial Justice at the Center for Economic and Policy Research (CEPR), said during an interview about investing in cryptocurrency and creating black wealth. "As an investment, it's closer to gambling."
Austin co-authored a report launched earlier this year comparing crypto to index funds. Looking at a random sample of 100 cryptocurrencies, all in the top 1,000 by market capitalization, Austin and his team found that the median cryptocurrency declined 46.6% from August 2017 to August 2022. But a total stock index fund it rose 56.4% during that period. period, while an S&P 500 index fund rose 60.8 percent.
Let's put it in dollar terms.
If someone had bought $1,000 worth of a cryptocurrency from the top 1,000 coins in 2017, it would have lost nearly half its value over the span of five years, the report showed. โIn contrast, if someone had bought $1,000 of a total stock market or S&P 500 index fund, it would have risen to around $1,600,โ the report says. "While it is possible to create significant wealth with crypto very quickly, it seems more likely that someone will lose money investing in crypto than they will benefit from it."
So no, cryptocurrencies are not helping black people build generational wealth.
Cryptocurrencies have outperformed index funds in shorter time frames, but the reward is not worth the risk in the long run, Austin said. Early investors in bitcoin have seen great returns, but today's investors are buying high with stratospheric volatility.
Although an index fund does not guarantee profits โ no investment โ it is less risky and more appropriate for most investors.
The data is clear, Austin said, citing research by economists at the Bank for International Settlements showing that Three-quarters of investors in bitcoin, the largest crypto by market capitalization, have lost money.
โThe volatile price of cryptocurrencies prevents them from being widely used as a means of payment,โ the researchers said in the paper. working document 2022.
Here's another major problem for investors today: your timing is not right.
In a recent Pew Research Center survey, 24 percent of Asian adults and 21 percent of black or Hispanic adults say they have invested in or used a cryptocurrency, compared to just 14 percent of white adults. In general, data shows that 17 percent of American adults fall into one of these categories.
But Pew found that blacks are more likely than whites to say they used cryptocurrency for the first time in the last year.
That's worrisome, given the turmoil in the industry. The price of a bitcoin has chopped from a high of $68,000 in November 2021 to around $27,000 this week.
Investors may be thinking, "Great, I'll jump in now, buy cheap, and ride the wave to riches."
Except there's more to it than price.
There was the collapse of the celebrity-backed FTX cryptocurrency exchange. Sam Bankman-Fried, Co-Founder and CEO of FTX, has been charged with eight countsincluding wire fraud and money laundering.
Crypto Lenders Celsius Network and digital traveler declared bankruptcy. Two main cryptocurrencies: TerraUSD and Luna - crashed, and do kwonthe founder of digital, has been accused of fraud.
Pew found that 45 percent of Americans reported that their investment performed worse than expected, compared with 15 percent who said it outperformed.
Or, as Austin pointed out during our interview, just look what JPMorgan Chase & Co. found when analyzing customer data. Of nearly 5 million checking account customers, more than 600,000 made transfers to crypto accounts.
It also found that low-income investors were more likely to buy digital currency at high prices than high-income individuals.
"Using bitcoin prices at the time of transfers to crypto accounts as a proxy for investment price, we found that low-income households bought crypto at substantially higher prices," the report said.
And, of course, blacks are overrepresented among the nation's low-income population, Austin noted.
The wealthiest and crypto-savvy investors, who are disproportionately white, have been able to come and go at the right time. โThe research suggests that they are taking advantage of low-income investors,โ he said.
Promote it, and they will come. Is It has been the mantra of cryptocurrency champions, many of whom are creating wealth for themselves by selling to less sophisticated investors unprepared to recoup big losses.
โThe industry spent all this money on ads and all these celebrities to attract a lot of people,โ Austin said. โIndex funds don't do that. You don't have basketball players and celebrities like Matt Damon doing trades on index funds."
Damon and James appeared in crypto.com commercials with the tagline "Fortune favors the brave."
Do you know what is brave?
Ignore the feverish charade of cryptocurrency, even from seemingly well-meaning black influencers, in favor of historically proven low-cost index funds. sustained wealth it is rarely sexy and sensational. It is most often achieved through patience and prudence.
