Crypto Crash is particularly bad for black investors

After cryptocurrency values ​​began crashing hard this year, headlines of people losing millions, their life savings either Retirement Funds flooded the news. When crypto bank Celsius Network filed for bankruptcy this summer, only its customers lost US$5 billion. Even digital asset evangelists like Binance CEO Changpeng Zhao and FTX CEO Sam Bankman-fried saw their wallets drop billions. But one group in particular was disproportionately affected: black investors.

In recent years, a number of companies have used targeted marketing approaches to introduce crypto to Black communities as a tool for building individual and generational wealth. While companies like, EthereumMax, and FTX spent millions on celebrity marketing campaigns like Matt Damon, kim kardashian Y tom brady to promote the potential of crypto investments and broaden your appealmessages to black investors, using stars like Spike Lee and Kyle Lowry, were more pointed: No skip in this opportunity to create wealth and stay behind. In The Lee’s Coin Cloud announcement in particular, said that cryptocurrencies are “new money” and “inclusive”, as opposed to “old money”, which is systematically oppressive. In other words, the sell was that investing in crypto could help level the playing field and allow black households to do financial gains relatively quickly just as white households had historically been able to. The companies used messages that referenced the history of financial exclusion and positioned cryptocurrencies as an alternative and more accessible form of wealth creation.

Other people of color also saw the opportunity. About one in five Black, Hispanic, or Asian Americans say they have invested, traded, or used cryptocurrency compared to 13 percent of white Americans. according to the Pew Research Center. There is also an age gap: 38% of black American investors under the age of 40 owned cryptocurrencies in 2022 compared to 29% of whites in the same age group. a recent survey from Ariel Investments and Charles Schwab found. (There is no similar data on Canadian investors, but the experts quoted in this article Let’s just say we tend to follow American trends).

This means that black investors, in particular, are now likely to be overweight in their cryptocurrency holdings, he says. Terri R. Bradford, a senior payments specialist at the Federal Reserve Bank of Kansas City who has investigated consumer crypto ownership. So when cryptocurrency crashed, blacks and other racialized groups who put money into the market became some of the hit hardest by his fall. People lost thousands while others felt cheated by the hype. As a black investor, Samson Williams, told NPR: “Retail investors, particularly in the Black and Latino communities, have been sold to perfection, but there is no steak there. And we are the first group to lose out”.

The wealth gap and financial exclusion

The tactic of trading cryptocurrency as a way to close the racial wealth gap has its roots in financial racism that has been around long before digital currencies. Among segregated schools that affected access to education for decades housing discrimination and labor markets, blacks have traditionally had less purchasing power and fewer investment opportunities than their white peers. A 2019 role by the Canadian Center for Policy Alternatives found that as of 2015, racialized men earned 78 pence for every dollar earned by non-racialized men, a gap that has not changed since 2005. The data also shows that because people of color tend to earn less money, they have less income to invest. And another barrier to wealth creation? Racism in home ownership. Recent reports found racial bias in home assessments as black canadian homeowners had the largest discrepancy on the appraised value of your properties, a traditional cornerstone of wealth creation.

“The potential harm is greater for a marginalized person in a marginalized community”

All of these factors put the stakes higher for black investors, says Sabaa Quao, co-founder of the Toronto-based firm. Richie works daily, a savings, investment and financial education platform created for children and their families. He says that when you look at just the 20th century, you can see the impact of financial exclusion. of wealth-generating opportunities, such as buying property or investing, has had on racialized groups. As a result, they often have to be more financially savvy and more attentive to risk management. “The potential harm is greater for a marginalized person in a marginalized community,” she says. This is because if they lose money through their investments, it is often a proportionately greater amount of their wealth due to the historical gap.

Why cryptocurrencies attracted black investors

It’s easy to understand why black investors may not trust traditional investment opportunities or institutions. In 2021, 76 percent of black Canadian entrepreneurs surveyed by Abacus He said that their race makes it more difficult to succeed because it is more difficult for them to access the necessary funds for their business. That same survey found that only 19 percent trusted banks to do the right thing for them and their community. Add microaggressions experienced by black entrepreneurs and clients, it is not surprising that black investors turned to alternative sources of wealth generation such as cryptocurrencies.

Technology has also made it easier to invest in the stock market and buy digital assets, says Bradford, noting that most of us have a computer in our pocket and can sign up for a free trading account. And, he says, ease of access also includes information. “You read reviews, listen to testimonials and watch a couple of YouTube videos, then make up your mind,” he says, adding that testimonials from friends, family and respected celebrities are often considered more trustworthy than those from banks and other financial institutions. . Institutions Information is also easier to find on social media platforms like TikTok and YouTube compared to walking into a bank and expecting to speak to a financial advisor who may have unconscious biases.

“You read reviews, listen to testimonials, and watch a couple of YouTube videos, then you make up your mind”

But Bradford says that not all information on the Internet is useful. She says that positive messaging around cryptocurrencies has led black investors to overestimate the returns of digital currencies by more than 20 percent compared to white investors, who often have better access to financial information and advisors. If a white family, for example, has worked with a financial adviser for a long time, the children of that family are more likely to have access to or use such an adviser as well.

Additionally, Quao says that investing apps are designed to increase engagement. Between push notifications and using colors like red and green to encourage quick decisions, many apps can encourage users to make continuous or multiple investments, which can lead to impulsive behavior and is generally not an advisable long-term wealth building strategy. “People are faced with a level of design and marketing sophistication, rhetoric and semantics, hype and propaganda, and a lot of people will be influenced by that wave,” he says. “You have to be more prudent.”

How to foster better financial inclusion

The implications of the cryptocurrency collapse spell a bigger problem: the exclusion of black investors from traditional market opportunities, the lack of trust in financial institutions by black Canadians, the need for financial education around the different types of assets and their risks and the desire to generate wealth.

To help close the gaps, continuing education is key; It’s not enough to take a finance course in high school. Quao says the best protection against falling behind in market trends is to learn early and often. He, like other black businessmen, focuses on educating and increasing the wealth of black families through his company Wealthie Works. Other associations like the black wealth club and the Black Entrepreneur Fund focus on supporting Black Canadians and closing the wealth gap. But the best way to stay financially informed is to pay attention to what’s happening in the markets. “Financial education degrades over time,” he says. He also stresses the importance of reading the fine print and assessing risk, as crypto companies are under no obligation to give you unbiased insights to understand investments. “That’s really all for the individual to do,” he says.

emma toddA blockchain expert and CEO of MHH Technology Group, which covers data systems, blockchain consulting, and communication for emerging tech organizations, he has been involved in cryptocurrency for years, starting with mining. She says google finance is a good starting point as it allows investors to customize simulated portfolios, get the latest financial news and track assets. There is also a financial services company. Morning Starwhich offers financial education, research and simulated portfolios, and is available to anyone.

Quao, Bradford and Todd all They say that cryptocurrency investments are not inherently bad and see a benefit to the currencies and blockchain technology that drives the market. But, like all assets, it should be understood for both its value and its risks before investing in it. And the biggest problems of financial exclusion cannot be solved with cryptography alone. Government policies and institutional initiatives that help close the racial wealth gap, improve financial education for all, and ensure that Canadians have access to equitable investment opportunities is what will help bring about meaningful change. As Williams told NPR: “The day someone says, this is how Bitcoin or crypto solved unemployment and a living wage, then I’ll take it seriously.”

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