According to University of Chicago researchers, cryptocurrency traders are getting more racially diverse. Nearly 40% of 2021’s traders identified as non-white, suggesting a notable shift from the traditional image of the middle-aged IPA tech bro. Cryptocurrency provides a new opportunity to participate in an estimated two trillion dollar market for many African Americans. Still, is this strategy enough to shrink the growing racial wealth gap, and are the risks justifiable?
What is cryptocurrency?
Essentially, cryptocurrency is a decentralized store of value. Unlike the US dollar, it doesn’t derive its value from a centralized monetary authority. Blockchain technology underpins crypto, which encrypts and tracks transactions, making it difficult to counterfeit and serve as an attractive trade means in the metaverse. The digital coin functions as a medium that obtains its value from market forces (scarcity, demand, news volatility, and payment adoption). The premise challenges traditional norms, drawing ridicule from the likes of Warren Buffett, who, in regards to Bitcoin, stated:
“It does not meet the test of currency. I wouldn’t be surprised if it’s not around in 10 or 20 years. It is not a durable means of exchange. It’s not a store of value.”CNBC, 2014
Yet, in 2021, El Salvador became the first country to accept Bitcoin as legal tender. Additionally, the price of Bitcoin surged to $68,000, more than double the value from the previous year.
The measure of wealth
Generally, financial wealth is defined as the assets left over after expenses and liabilities, with most wealth captured in the family home’s value. As prices across the US increased over the decades, we should expect increased proportional wealth. Yet, in 2019, the Federal Reserve reported that Black families had less than 15% of the median wealth of their white counterparts ($24,100 compared to an average of $188,200).
Many of the causes stem from racist practices with lingering generational impact:
- Jim Crow-era laws (1877-1964) prohibited the purchase of land by African Americans and restricted housing rights for African Americans.
- Redlining (1930-1968) was a process once backed by the FHA to include discriminatory covenants precluding sales to Black buyers. The effects are entrenched in current maps dividing many municipalities.
- Lending practices disproportionally stripped Black homeowners of equity during the last housing crisis.
And recent realtor studies and analyses from the Home Disclosure Act continue to produce the following headlines:
- Homes in Black neighborhoods are undervalued by $46,000 on average
- Black Americans 84% more likely to be denied mortgages than their white counterparts
And COVID isn’t making it any better.
The National Association of Realtors reported that between April and July of 2021, 82% of Americans who purchased homes were White. Areas in Southern California experienced double-digit price increases for twelve consecutive months in 2021, again reducing opportunities for traditional Black ownership. Yet, conversations focus on access or equal opportunity without fully addressing long-term remediation, substantive penalties for predatory lending, and generational policy reform. So, are alternative ways of building wealth the answer?
COVID-19 uncertainty spikes interests in cryptocurrencies
Last year, the cryptocurrency market grew nearly 70%, with $817 billion in Bitcoin alone. CNBC’s millennial survey indicated that 83% of millennial millionaires own cryptocurrencies. There are now an estimated 100,000 crypto-millionaires, but we won’t know precisely the majority owners due to its anonymous, decentralized nature. Yet, none of the top 5 public Bitcoin millionaires were Black. And, not surprisingly, the wealth isn’t evenly distributed across investors. With a holding of 5 million BitCoin, the top 10,000 bitcoin investors amass the consolidation of wealth. That’s roughly $230 billions’ worth at recent prices, replicating traditional inequality trends.
Climate impact and cryptocurrency
The technologies for a crypto-economy are not green. Although there is demand for sustainable practices in computing, a study in 2018 by the Research Council of Norway suggested that Bitcoin could push global warming beyond 2°C. Displacement, degraded air and water quality, and lack of economic advancement will disproportionately affect Black and Brown communities. Digital currency-based industrialization could impact the communities now investing in it. Yet, without targeted intervention, members of those communities are betting on the possible returns as the quickest route to prosperity. And as crypto exchanges go mainstream (such as the new Coinbase and Mastercard partnership), adoption is expected to accelerate and drive prices even higher.
The complexity of choice
There isn’t an absolute best investment strategy for individuals or populations. I grew up hearing the merits of Black economics and investing in my community to see housing in once predominantly Black neighborhoods in Brooklyn gentrified—despite collective actions. The inclination to stay to fight to keep affordable housing affordable is compelling.
Yet, at the same time, had I invested in Bitcoin 10 years ago, I might have authored a different personal journey. Might I, too, be one of the crypto-wealthy displacing Puerto Rican inhabitants while seeking a tax haven? Perhaps I’d reinvest just enough to appear like I’m giving back. Or I’d perpetually sponsor a handful of high achieving prospects who would later prove the merits of the Talented Tenth in a post-racial America. All without regard for a capitalist system entangled in the foundation of slavery and exploitation and ignoring those that weren’t chosen. So, the decision falls within said system’s guidelines until you make enough for it not to matter—or you build a literal spaceship to escape it.
And there it is. Only time will tell whether the digital opportunities will skew toward equity for Black traders or merely mirror today’s norms. But for those traders, it’s not just a matter of risks tolerance and individual ruggedness if the impact leaves a mark. You can make your digital cash, but what happens when you effectively leave your community holding the ugly yoga pants?