Crypto Crash Hits Black Investors. NewsWire

NewsWire: 7/21/22

• The collapse of crypto has hit black investors especially hard. According to a new study, black investors are more likely than white investors to own crypto and consider it the best way to invest. (Financial Times)
• NH: In a previous NewsWire, we covered a Paul Krugman op-ed that argued crypto investors are disproportionately nonwhite, lower income, and less educated. He further warned that “vulnerable families” would pay the price for a future crypto crash. (See “Who Invests in Crypto?”) 
• Since that article was published, crypto prices have indeed swan-dived. In November, Bitcoin hit $68K. Today it stands at $23K. That’s a drop of -66%. In that same period, Coinbase’s stock has fallen by -90%. And the company announced it would lay off 18% of its staff. According to CoinMarketCap, the global market cap of all crypto investments has fallen from $2.9T to $960B--a drop of two-thirds.
• So who's getting beaten up by this crash? An Ariel Investments and Charles Schwab survey of households with income above $50K shows just how disproportionately blacks are invested in digital currencies. 25% of blacks own crypto, while only 15% of whites say the same. Moreover, 33% of blacks believe crypto is a safe investment, while only 18% of whites agree. 

• The survey also suggests black crypto owners are more likely to be beginner investors. 23% of black investors say they started investing “in general” due to excitement about crypto. Only 4% of white investors say the same. What's more, among blacks, ownership goes up as age goes down. This is true among white investors as well, but the share of young blacks who own crypto is still higher than young whites (38% vs. 29%). 
• Unfortunately, the survey did not ask how much money these black investors put into digital currencies. It could be that they own only minimal amounts. Nonetheless, these results show black investors appear to be more exposed to the crypto market, especially those that are entirely new to investing.
• So I have to say it. Krugman was right. I don't say this with pleasure, because the man is by turns bitter and snarky. But he does make an unimpeachable argument (reiterated here in his victory-lap column): If any kind of financial regulation makes sense for the purpose of protecting the uninformed and vulnerable, it makes sense in this case--especially when the securities in question market themselves as "currency" and "stablecoins."