A new working paper from the Federal Reserve Bank of Cleveland offers a striking reason for crypto’s peculiar behavior: who buys cryptocurrency is shaped less by standard demographics or risk appetite than by radically different beliefs about future returns.
Using repeated surveys of up to 25,000 U.S. households per wave, researchers Michael Weber, Bernardo Candia, Olivier Coibion and Yuriy Gorodnichenko show that expectations about crypto returns explain substantially more of the variation in ownership than a wide set of observable characteristics. That gap helps explain crypto’s persistent price swings and how rallies can draw in fresh buyers, creating a feedback loop in which rising prices strengthen bullish beliefs and attract more capital.
The paper — titled “Do You Even Crypto, Bro? Cryptocurrencies in Household Finance” — also reports a randomized information experiment showing that simply exposing people to Bitcoin’s recent 12-month performance raises both their desired crypto allocations and their actual purchases. Participants shown Bitcoin’s prior-year return increased their target crypto allocation by roughly 2 percentage points (about a 47% increase relative to the control group’s 4.3% desired allocation) and raised documented crypto purchases by around 2.5 percentage points.
Information effects were concentrated among respondents who said they hadn’t bought crypto because they lacked sufficient information; those who already believed crypto was a bad investment generally did not change behavior after the treatment.
Large gaps in perceived returns and risk
The researchers find big differences in expectations. Among respondents willing to forecast, crypto owners expected an average one-year return of about 22%, versus roughly 7% among non-owners. Owners also tended to see crypto as less risky than non-owners did. Quantitatively, a one-percentage-point increase in an individual’s expected crypto return was associated with a 0.8-percentage-point higher probability of owning cryptocurrency.
These expectation-based measures (expected returns and perceived risk) explained far more about who owns crypto than age, income, education or gender — a reversal of the usual pattern for traditional assets like stocks, bonds and gold, where demographics and financial characteristics typically dominate.
Still, the investor profile is distinctive: people under 40 were about 13 percentage points more likely to own crypto than those over 60 (holding other factors constant). Men were roughly 4 percentage points more likely than women to hold crypto, and higher-income and wealthier households showed greater participation.
Widespread uncertainty about crypto
Part of the reason expectations vary so much is limited knowledge. In a 2021 survey cited by the authors, 87% of non-owners said they did not know what return to expect from crypto over the next year; among crypto owners, 54% said the same.
Spending, wealth effects and the “gambling income” signal
The paper also explores how crypto gains affect household spending. A doubling of Bitcoin’s price made a household whose entire financial portfolio was in crypto 1.4 percentage points more likely to buy a durable good — roughly a 7% increase relative to the baseline probability of such a purchase — but it did not translate into higher routine consumption. The authors interpret this pattern as consistent with households treating crypto windfalls more like gambling or lottery winnings than as a permanent rise in wealth.
Implications for volatility and future demand
Taken together, the findings point to a mechanism for speculative episodes: past gains can attract new participants whose buying pushes prices higher, which in turn updates beliefs and lures still more buyers. Because beliefs about crypto are so dispersed and because many people learn from recent returns, price volatility driven by disagreement and learning is likely to persist.
The authors conclude that the absence of common information and shared beliefs about crypto across investors makes large price swings an enduring feature of the market. For retail demand, that implies the next wave of entrants may depend not just on current Bitcoin prices but on how people are informed about recent performance and what they’re told about past returns.
