The Crypto Crash Is Particularly Bad for Black Investors

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After the start of cryptocurrency values crashed hard this year, headlines of people losing millions, their life savings either retirement There was a flood of money in the news. When crypto bank Celsius Network filed for bankruptcy this summer, its customers were alone US$5 billion lost, Even digital-asset evangelists like Binance CEO Changpeng Zhao and FTX CEO Sam Bankman-Fried view their portfolio drop billions, But one group in particular was disproportionately affected: black investors.

Over the past few years, several companies have used a targeted marketing approach to pitch crypto to black communities as a tool to build personal and generational wealth. While companies like, EthereumMax and FTX spent millions on marketing campaigns using celebrities Matt Damon, Kim Kardashian And tom brady To avoid the potential of crypto investing and broaden its appealThe messages to black investors — using stars like Spike Lee and Kyle Lowry — were more intentional: Don’t. quit Get left behind on this wealth-building opportunity. In Exclusively Lee’s CoinCloud ad, he said that crypto is “new money” and “inclusive” as opposed to “old money”, which is systematically oppressive. In other words, the sale was that investing in crypto could help level the playing field and allow black families to build relatively quick financial gain Just like white families were traditionally able to. companies used messages that pointed to a history of financial exclusion and Deployed Crypto As an alternative, more accessible form of wealth creation.

Other people of color also saw the opportunity. Nearly one in five black, Hispanic or Asian Americans say they have invested in, traded or used cryptocurrencies, compared to 13 percent of white Americans. According to Pew Research Center, There’s also an age divide: Thirty-eight percent of black American investors under 40 owned crypto in 2022, compared to 29 percent of white people in the same age group. a recent survey Found with Ariel Investments and Charles Schwab. (There isn’t similar data on Canadian investors, but the experts cited in this article Says we follow American trends.)

This means that black investors, in particular, are likely to be overweight in their holdings with the cryptocurrency, says Terry R. Bradford, is a senior payments specialist at the Federal Reserve Bank of Kansas City who has researched consumer crypto ownership. So when cryptocurrency crashed, Blacks and other racial groups who put money into the market became some of the most affected by its collapse, People lost thousands while others felt cheated by the publicity. As a black investor, Samson Williams, told npr: “Retail investors, especially in black and brown communities, they’ve been sold, but there’s no stake. And we are the first group to lose.

wealth gap and financial exclusion

The strategy of marketing crypto as a way to close the racial wealth gap has its roots in financial racism that existed long before digital currencies. between segregated schools that affected access to education for decades housing discrimination and job markets, black people have traditionally had less earning power and fewer investment opportunities than their white peers. 2019 paper The Canadian Center for Policy Alternatives found that as of 2015, non-racial men earned 78 cents for every dollar earned by non-racial men—a difference that has remained unchanged since 2005. data also shows Because racialized people make less money, they have less income to invest. And, another obstacle to wealth-building? Racism in home ownership. Recent reports received Racial Bias in Home Assessment Black Canadians as Homeowners the most widespread discrepancy was in the appraised value of their properties—a traditional cornerstone of wealth creation.

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

Toronto-based co-founder Saba Quao says all these factors make the stakes high for black investors Wealth Works Daily, a savings, investment and financial literacy platform built for children and their families. He says that when you look at the 20th century alone, you can see the effects of financial exclusion. from wealth-creation opportunities, such as buying or investing in property, on racial groups. As a result, they often have to be more financially literate and cautious about risk management. “The potential harm is greater for the marginalized person in a marginalized community,” he says. This is because if they lose money through their investments, it is often a proportionately larger portion of their wealth due to historical differences.

Why crypto appeals to black investors

It is easy to understand why black investors may not trust traditional investment opportunities or institutions. By 2021, 76 percent of Black Canadian entrepreneurs survey by abacus Said his race makes it harder to succeed because it’s more difficult for him to access the money he needs for his business. The same survey found that only 19 percent trust banks to do what is right for them and their community. add Microaggressions Experienced by Black Entrepreneurs And customers, it’s no wonder why black investors turn to alternative sources of wealth creation like crypto.

Technology has also made it easier to invest in the stock market and buy digital assets, says Bradford, pointing out that most of us have a computer in our pocket and can sign up for a free trading account. And, she says, easy access also includes information. “You read reviews, listen to testimonials and watch some YouTube videos, then you make a decision,” she says, adding that testimonials from friends, family and respected celebrities are often more trustworthy than those from banks and other financial people. is seen as institutions. It’s also easier to find information on social media platforms like TikTok and YouTube than to walk into a bank and hope to speak to a financial advisor who may have unintentional biases.

“You read reviews, listen to testimonials and watch some YouTube videos, then you decide”

But Bradford says not all information on the Internet is useful. She says the positive messaging around crypto has led black investors to anticipate returns on digital currencies of more than 20 percent higher than white investors, who often have better access to financial information and advisors. For example, if a white family has worked with a financial advisor over a long period of time, it is more likely that the children of that family will also have access to or use of an advisor.

Plus, Quao says that investing apps are built to increase engagement. Between using push notifications and colors like red and green to prompt quick decision making, many apps users can be encouraged To make ongoing or multiple investments – that can lead to impulsive behavior and is generally not a sound strategy for building long-term wealth. “People are up against the level of sophistication of design and marketing, rhetoric and semantics, propaganda and propaganda, and a lot of people are going to be affected by that wave,” he says. “You need to be more prudent.”

How to promote better financial inclusion

The implications of the crypto crash indicate a larger problem: the exclusion of Black investors from traditional market opportunities, the lack of trust in financial institutions by Black Canadians, the need for financial literacy about the different types of assets and their risks, and the desire for wealth generation. .

Ongoing education is important to help bridge the gap; Taking one finance course in high school is not enough. Quao says the best protection against missing out on market trends is to learn early and often. He, like other black entrepreneurs, focuses on educating and raising wealth to racialized families through his company, Wealthy Works. like other unions black wealth club and the Black Entrepreneur Fund focused on supporting Black Canadians and closing the wealth gap. But the best way to be financially literate is to pay attention to what’s happening in the markets. “Financial literacy tends to diminish over time,” he says. He also stressed the importance of reading the fine print and evaluating risk as crypto firms are under no obligation to give you unbiased knowledge to understand investments. “It’s really up to the individual,” he says.

Emma ToddA blockchain expert and CEO of MHH Technology Group, which covers data systems, blockchain consulting and communications for emerging tech organizations, has been involved in cryptocurrencies for years, starting with mining. she says google finance is a good starting point, as it allows investors to customize simulated portfolios, receive the latest financial news, and keep track of assets. is also a financial services firm morning StarWhich provides financial literacy, research and mock portfolios, and is available to anyone.

Quao, Bradford and Todd all Says crypto investments aren’t inherently bad, and he sees a benefit to currencies and the blockchain technology that powers the market. But, like all assets, one needs to understand both its value and its risk before investing in it. And, the larger issue of financial exclusion cannot be solved with cryptocurrency alone. Government policies and institutional initiatives that help close the racial wealth gap, improve financial literacy for all and ensure Canadians have equal investment opportunities will help drive meaningful change . As Williams told NPR: “The day someone says, here’s how bitcoin or crypto solved unemployment and a living wage, I’ll take them seriously.”

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