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Most financial assets attract investors through a fairly predictable mix of demographics, income levels, and risk tolerance. Cryptocurrency does not. A new working paper from the Federal Reserve Bank of Cleveland argues that what separates crypto owners from everyone else is not who they are, but what they believe, and those beliefs can shift rapidly when someone shows them a price chart.
The paper, titled “Do You Even Crypto, Bro? Cryptocurrencies in Household Finance,” was authored by researchers Michael Weber, Bernardo Candia, Olivier Coibion, and Yuriy Gorodnichenko. Drawing on repeated surveys of as many as 25,000 US households per wave, it concludes that expected returns explain more of the variation in crypto ownership than a wide range of demographic characteristics combined. That finding has uncomfortable implications for anyone trying to understand where crypto prices go next.
The Belief Gap Is Wider Than Most People Realise
In the researchers’ 2021 survey, 87% of non-owners said they had no idea what return to expect from cryptocurrency over the following year. That figure is striking on its own, but the number among actual crypto owners was still 54%, meaning more than half of people already holding digital assets could not form a return expectation either. The asset class, in other words, is broadly not understood even by those who have committed money to it.
Among those willing to make a forecast, however, the divergence was enormous. Crypto owners expected an average annual return of 22%, compared with just 7% among non-owners. Owners also tended to perceive crypto as less risky than non-owners did, reversing the intuition most observers would apply from the outside.
The statistical relationship between expectations and ownership was unusually tight. A one-percentage-point increase in an individual’s expected crypto return was associated with a 0.8-percentage-point increase in the probability of owning cryptocurrency. When the researchers stacked expected returns and perceived risk against observable characteristics such as age, income, and gender, the belief variables explained considerably more variation in ownership. For traditional assets like stocks, bonds, and gold, demographic and financial characteristics typically carry more explanatory weight than differences in expected returns. Crypto reverses that relationship entirely.
Demographics still matter at the margins. People under 40 were 13 percentage points more likely to own cryptocurrency than those over 60, even after controlling for other factors. Men were about 4 percentage points more likely than women to own crypto, and higher-income and wealthier households participated at higher rates. But these patterns are secondary to the belief structure underneath them.
Past Returns Can Manufacture New Buyers
The most consequential section of the paper is an experiment conducted in 2025, in which researchers randomly assigned households to receive information about Bitcoin’s recent performance, stock market returns, GameStop, or inflation. The results were direct and measurable.
Participants shown Bitcoin’s previous 12-month return increased their desired crypto portfolio allocation by roughly 2 percentage points, representing approximately a 47% increase relative to the 4.3% desired allocation recorded in the control group. Actual subsequent crypto purchases also rose by about 2.5 percentage points. The authors describe the result plainly: “providing information about recent Bitcoin returns induces some households to start buying cryptocurrency.”
The effect was concentrated among people who said they had avoided crypto because they lacked sufficient information. Those who already believed crypto was a bad investment did not respond meaningfully to the information treatment. This distinction matters because it identifies the specific population most susceptible to narrative-driven entry into the market, people who are not ideologically opposed but simply uninformed, and who can be moved by a single data point about recent performance.
The authors connect this mechanism to speculative bubble dynamics. “Positive returns attract new participants, which raises the price further,” they write, describing a feedback loop in which rising prices reinforce bullish expectations and pull more buyers in, whose purchases then push prices higher still. The loop does not require fraud or manipulation to operate. It only requires that a large enough population remains uncertain about crypto’s value and is reachable by information about past gains.
Crypto Gains Spent Like Lottery Winnings, Not Wealth
The paper also examines how crypto wealth feeds into household spending, and the findings here are sobering in a different way. A doubling in Bitcoin’s price made a household whose entire financial portfolio was in crypto 1.4 percentage points more likely to purchase a durable good, equivalent to roughly a 7% increase relative to the baseline probability of such a purchase. But the effect did not extend into ordinary day-to-day consumption.
The researchers draw a pointed comparison: crypto gains appear to be treated more like gambling income or lottery winnings than a permanent increase in wealth. Holders seem to understand, at some level, that the gains are fragile and transient, even when they act on them. This has implications for the broader economic argument that crypto wealth creation translates into real consumer spending and growth. The evidence here suggests the transmission is narrow and conditional.
For retail investors in Malaysia and Singapore, where crypto adoption has grown steadily and regulators including the Securities Commission Malaysia and the Monetary Authority of Singapore have both moved to tighten oversight of digital asset platforms, the study’s findings carry a specific warning. The populations most likely to be drawn into crypto by positive return narratives are precisely those with the least prior information about the asset, meaning they are entering based on momentum rather than analysis. Both regulators have emphasised investor education as a pillar of their frameworks, and this research suggests that education needs to address not just risk disclosures but the psychological mechanics of how return information shapes behaviour.
Volatility Is Structural, Not Incidental
The paper’s closing argument is its most important one. The authors conclude that cryptocurrency’s volatility is not simply a product of thin markets or speculative excess in any given cycle. It is rooted in the fundamental disagreement and ongoing learning among investors who hold sharply different beliefs about what the asset is worth and what it will return.
“The absence of common information and beliefs about crypto across investors,” they write, “suggests that price volatility will continue to be one of the most defining characteristics of this new asset for the foreseeable future.”
That framing reframes the volatility question in a way that should give pause to anyone expecting crypto to mature into a stable asset class simply through the passage of time or the arrival of institutional capital. If the investor base continues to be replenished by uninformed buyers responding to recent price signals, the feedback loop the researchers describe will keep reasserting itself through every cycle. The next wave of retail demand may depend not only on where Bitcoin’s price is, but on what story gets told about how it got there.
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