The latest research from the Federal Reserve Bank of Cleveland shows that there are significant differences between cryptocurrency investors and traditional asset investors. Their views on the future returns and risks of digital assets are vastly divergent, and the historical performance information of Bitcoin may further encourage investors to increase their allocation willingness and actually purchase crypto assets. The research paper “Do You Even Crypto, Bro? Cryptocurrencies in Household Finance” is based on multiple rounds of household survey data in the United States, covering up to about 25,000 households in each round.

Researchers found that compared to demographic characteristics such as age, income, and gender, investors’ expectations of future returns from cryptocurrencies better explain who chooses to hold crypto assets. The study shows that cryptocurrency holders expect an average return of about 22% over the next year, significantly higher than the approximately 7% expectation of non-holders. At the same time, holders generally believe that the risks of crypto assets are lower than the judgments of non-holders. Researchers found that for every 1 percentage point increase in an individual’s expected return from cryptocurrencies, the probability of holding crypto assets increases by about 0.8 percentage points. The explanatory power of return expectations and risk perceptions on cryptocurrency holding behavior even surpasses traditional factors such as age, income, and wealth.

This characteristic contrasts with traditional assets such as stocks, bonds, and gold. For traditional investment categories, investors’ economic backgrounds usually better explain differences in asset allocation, while the crypto market relies more on investors’ subjective judgments about future price performance. In addition, the research team discovered through a randomized information experiment that simply providing investors with information about Bitcoin’s price increase over the past 12 months significantly increases their willingness to allocate to crypto assets. Data shows that respondents who saw historical performance information about Bitcoin had an increase of about 2 percentage points in the proportion planning to allocate to crypto assets, representing an increase of about 47% compared to the control group’s 4.3% allocation willingness; the probability of actually purchasing crypto assets also increased by about 2.5 percentage points. The study suggests that this mechanism may explain the cyclical boom and bust phenomenon in the crypto market: rising prices attract more investors, and new funds further drive up prices, thus forming a cycle of “price increase — enhanced optimistic expectations — more buying.”