The New York Times: A Letter to Young Crypto Audiences

Source: The New York Times

Compiled by: BitpushNew Mary Liu

More and more young people, especially men, are buying cryptocurrencies, and here are some suggestions (not lectures).

First, you are right; this is not a passing fad.

Despite entrepreneurs like Sam Bankman-Fried getting into legal trouble and companies like Binance facing regulatory chaos, people continue to buy cryptocurrencies.

Although the price of Bitcoin plummeted in 2022, the percentage of Americans owning cryptocurrencies grew from 3% to 11% in just one year. According to a working paper from the National Bureau of Economic Research, Bitcoin's price has risen by 12% this year, more than 75% from its low in 2022.

Belief in cryptocurrencies—or just curiosity—should not be belittled by outdated notions of personal finance and scolding; it simply requires you to ask some questions about who you are and why cryptocurrencies are appealing.

Indeed, young people are more open to this way of working with money. According to data from N.B.E.R., if you are under 40, you are more likely to own cryptocurrencies than those over 60, with a predominance of men.

The gender gap is noteworthy. This year, an analysis from the Pew Research Center showed that while 41% of men aged 18 to 29 reported owning or using cryptocurrencies, only 16% of women in that age group did the same.

William Bernstein, 75, said, "One possible explanation for the gender bias is chemical factors; testosterone plays a significant role in muscle mass and reflex speed, but it does not help with judgment."

William Bernstein is a retired neurologist and the author of "The Four Pillars of Investing."

Are you the smart trader? This is not a rhetorical question; ask the women or others around you, their judgment may be better than yours—or just different.

The Pew Research Center also reported that while 14% of white adults own cryptocurrencies, 21% of Black or Hispanic adults own cryptocurrencies, and 24% of Asian American adults also own cryptocurrencies.

The racial wealth gap remains vast, and young people facing this reality often vow to break the cycle, but any hasty actions may make you more susceptible to influencers and celebrities peddling dubious cryptocurrency schemes.

Yanely Espinal, 33, said, "In the U.S., from a wealth accumulation perspective, people do want to catch up." Espinal is the education outreach director for Next Gen Personal Finance, a nonprofit organization, and she said, "Therefore, the promotional vision of cryptocurrencies is that if you do this, if you are willing to take risks, you can achieve a leap in wealth."

The biggest allure of cryptocurrencies is often the potential for high returns—if Bitcoin owners bought in early 2019 and sold in early 2021, they would have seen a tenfold return.

But similar events may never happen again, and the few who achieved those gains were likely lucky. Repeating such actions—buying and selling at the right times—requires extraordinary skill (or more likely, akin to being struck by lightning twice).

However, this article does not attempt to tell you to never try under any circumstances; quite the opposite.

Think about the journey of Aadi Gujral. Gujral is the 17-year-old founder of the Financial Literacy Foundation, who found his way into cryptocurrencies early in the pandemic. He bought Bitcoin, then jumped on the hype train, dabbling in other currencies and mining tokens.

Gujral said, "Sometimes it brings incredible profits, and sometimes I regret every choice, considering the volatility; my funds might be safer and better invested in index funds."

But would he learn more from a basket of boring 500 largest U.S. stocks? Gain a better understanding of his risk tolerance? Become a better teacher to his peers? No, no, no.

Espinal, who guides educators on how to teach cryptocurrencies and is the author of "Manage Your Money," worries that teenagers will pour all their savings into cryptocurrencies and lose everything.

She said, "They might leave with a bad experience and put their money into a savings account because they don’t want to feel that way again, which could lead them to give up on investing, and investing is a huge opportunity for wealth creation, especially for people of color."

Espinal's concerns are understandable; many young people watched their parents' retirement savings evaporate overnight after the 2008 economic collapse and have been hesitant to invest in stocks for years. However, avoiding them during the bull market has proven to be the wrong choice.

Yet, for now, few cryptocurrency owners are suffering. According to research from the Pew Research Center, only 3% reported that trading cryptocurrencies severely harmed their financial situation.

This situation could suddenly change without warning. However, this means you should not invest more in cryptocurrencies than you can afford to lose.

William Bernstein's great-grandson is already 10 years old, and he wants to impart some wisdom. For him, the biggest mistake cryptocurrency enthusiasts make is treating ownership as a real investment. He said investments either generate returns (like a company whose stock you own) or create income (when a company pays dividends on its stock). Cryptocurrencies do neither unless you sell them for profit.

You might view months or years of cryptocurrency ownership as your time at the theater or concert and only invest what you think is worthwhile. But don’t immediately rebut someone like Bernstein's age, who says, "That's the nature of old stubbornness; older people don’t put large amounts of money into cryptocurrencies like young people do, not because they are unwilling to participate, but because they have experienced painful losses and know how it usually ends."