Fed Study: Cryptocurrency Investors Rely on 'Belief' and Are Influenced by Historical Returns

By: blockcast.it|2026/08/27 11:32:55

Author: Kurumi, Crypto City

Cleveland Fed Research: Investment Expectations More Critical than Age or Income

The latest research from the Federal Reserve Bank of Cleveland indicates that the behavior of cryptocurrency investors in holding assets is highly correlated with their subjective expectations of future returns and risks, even more so than demographic characteristics such as age, income, and gender. The findings also provide another perspective on the high volatility of the cryptocurrency market: investors have significant cognitive differences regarding asset prospects, and rising prices may further reinforce optimistic expectations.

This study, titled "Do You Even Crypto, Bro? Cryptocurrencies in Household Finance," was co-authored by Michael Weber, Bernardo Candia, Olivier Coibion, and Yuriy Gorodnichenko. The research team conducted multiple rounds of large-scale surveys analyzing the cryptocurrency investment behavior of American households, with each round covering approximately 25,000 households.

The study found significant demographic differences among cryptocurrency investors. After controlling for other factors, individuals under 40 are about 13 percentage points more likely to hold cryptocurrencies than those over 60; men are also about 4 percentage points more likely to hold cryptocurrencies than women, and high-income and high-asset households are similarly more likely to participate in the market.

Holders Expect Annual Returns of 22%, Non-Holders Only 7%

Compared to demographic characteristics, researchers found that investors' "belief" in the future performance of cryptocurrencies has a stronger explanatory power. Among respondents willing to predict future returns, cryptocurrency holders expect an average return of 22% over the next year, while non-holders expect only about 7%, a difference of 15 percentage points.

The research shows that for every 1 percentage point increase in an individual's expected cryptocurrency return, the likelihood of holding cryptocurrencies increases by about 0.8 percentage points. The subjective judgments of investors regarding returns and risks can explain the differences in holding behavior significantly more than age, income, and gender.

This phenomenon differs from traditional financial assets such as stocks, bonds, and gold. Investment behavior in traditional assets typically derives higher explanatory power from income, wealth, and demographic characteristics, while the cryptocurrency market is more susceptible to investors' subjective expectations of future prices.

The study also found that many people are actually unable to determine how much return cryptocurrencies might yield in the future. In a 2021 survey, as many as 87% of non-cryptocurrency holders stated they did not know what returns to expect over the next year; even among those who already held cryptocurrencies, 54% of respondents could not answer.

Just Looking at Bitcoin's Past Returns Can Increase Investment Willingness

The research team will conduct a randomized information experiment in 2025, grouping surveyed households and providing different information about Bitcoin ($BTC), stocks, GameStop, or inflation. Among those informed about Bitcoin's performance over the past 12 months, there was a noticeable change in their willingness to invest in cryptocurrencies.

Results showed that after receiving information about Bitcoin's historical returns, respondents' desired allocation to cryptocurrencies increased by an average of about 2 percentage points. The control group originally hoped to allocate about 4.3%, which translates to an increase in investment willingness of about 47%.

This effect was also reflected in actual trading behavior. Respondents who saw recent return information about Bitcoin were about 2.5 percentage points more likely to subsequently purchase cryptocurrencies. Those who originally did not hold cryptocurrencies due to "lack of information" showed the most significant response; those who had already deemed cryptocurrencies as poor investments were less influenced by historical return information.

Researchers believe this may create a unique price feedback loop in the cryptocurrency market. When prices rise and generate impressive historical returns, new investors increase their return expectations upon seeing related information, further buying cryptocurrencies, and the influx of new funds may push prices up, attracting more market participants.

Cryptocurrency Gains Resemble 'Winning the Lottery,' Price Volatility Likely to Persist

The research further observed household consumption behavior after wealth increases from cryptocurrencies. Results indicated that if Bitcoin's price doubles, a household fully allocated to cryptocurrencies would see a 1.4 percentage point increase in the likelihood of purchasing durable goods, representing an approximate 7% increase compared to the original purchasing probability.

However, this wealth effect did not significantly extend to general daily consumption. Researchers thus likened cryptocurrency gains to "gambling income" or lottery winnings, as investors are more likely to view sudden increases in asset value as one-time gains rather than stable and permanent increases in household wealth.

The study suggests that the cryptocurrency market lacks consistent information and a common pricing belief, leading to significant disparities among different investors regarding future returns and risks. Historical price performance can directly alter the expectations and buying behavior of some investors, making the market more susceptible to cycles of price and sentiment reinforcement. This investor belief, information disparity, and pursuit of returns may continue to make high volatility a significant characteristic of the cryptocurrency market.

This content is provided for general informational purposes only and doesn't constitute financial, investment, legal, or tax advice. Any events, rewards, online promotions, or related information mentioned herein should not be considered a recommendation, solicitation, or invitation to purchase, sell, trade, or otherwise deal in any crypto assets. Crypto assets are highly volatile and may result in loss. The availability of WEEX services, products, and related events may vary by region. You are responsible for ensuring that your participation is in accordance with applicable local laws and regulations.

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