Crypto Investors: How Many?

As of 2021, around 106 million people were using cryptocurrencies around the world, according to a report by Crypto.com. This figure was reached by analysing data from blockchains, surveys and exchanges. However, a poll found that only 8% of Americans invest in cryptocurrency, with 40% of Americans saying they had no interest in investing. A separate report by Gemini crypto exchange found that 14% of Americans owned crypto in 2021, equating to more than 21.2 million adults.

Who are tomorrow's crypto investors?

According to a 2021 report by the Gemini crypto exchange, the number of crypto investors is set to double, changing the profile of the "average" crypto investor. Today, the average crypto investor is a 38-year-old male with an annual income of around $111,000. Tomorrow's crypto investors are expected to be older, with an average age of 44, and a slightly lower annual salary of around $107,000.

The report also suggests that there may be more women investors in the future. Of the 63% of adults who say they are "crypto-curious", 53% are women. These individuals are interested in investing in digital assets but want to learn more first. Currently, 26% of crypto holders in the US are women.

The majority (74%) of cryptocurrency owners today fall between the ages of 25 and 44, with another 19% between 45 and 55. This indicates that younger individuals are more likely to invest in crypto, with the majority of investors being under 55.

Education is a crucial component of crypto growth for investors. Of the 3,000 people polled, 77% said they wanted to learn more about crypto, even if they already owned some. This suggests that tomorrow's crypto investors will be well-informed and well-researched about crypto's purpose and potential.

When it comes to risk appetite, it's important to note that cryptocurrencies are risky investments and can be subject to significant price volatility. As such, long-term investors are generally advised to stick to the most established cryptocurrencies, such as Bitcoin and Ethereum.

In terms of accessibility, crypto investments are becoming increasingly available to a wider range of individuals. As of June 25, 2024, there were over 8,000 cryptocurrencies in the market, with a market capitalization of $2.25 trillion. The total market cap as of July 3, 2024, was $2.22 trillion.

Some of the best cryptocurrencies to invest in, according to Forbes Advisor India and CoinCodex, include:

• Bitcoin (BTC)
• Ethereum
• Tether (USDT)
• Binance Coin (BNB)
• Solana (SOL)
• U.S. Dollar Coin (USDC)
• XRP
• Dogecoin
• Toncoin
• Cardano (ADA)

Why is crypto investing not for everyone?

Crypto investing is not for everyone because it is a highly speculative and risky endeavour. Cryptocurrencies are a new technology that is still maturing and may never achieve mainstream usage. The market is currently dominated by speculative trading, with studies showing that exchange trades are the most prevalent use for cryptocurrencies, accounting for far more economic activity than ordinary trades and purchases. This means that the price of cryptocurrencies is largely driven by speculation and can be extremely volatile. While some people have made large amounts of money from crypto investing, many others have lost money due to scams, fraud, or simply because the value of their holdings has decreased.

Another reason crypto investing is not for everyone is the complex security protocols that must be followed. Cryptocurrency exchanges are vulnerable to hacking and other criminal activity, and investors can lose their holdings if they do not take the necessary precautions. Additionally, safely storing cryptocurrencies can be difficult, and there is a risk of losing access to your holdings if you forget your private key or passphrase.

The regulatory environment for cryptocurrencies is also uncertain. While the industry is growing and gaining traction among investors, regulators may crack down on the crypto industry if it is seen as a threat rather than an innovative technology. This could significantly impact the value of cryptocurrencies and the ability of investors to access their holdings.

Furthermore, cryptocurrencies have been criticised for their energy consumption and lack of practical application. Some experts argue that cryptocurrencies, particularly Bitcoin, are highly inefficient and produce unnecessary emissions. At present, cryptocurrencies have little to no practical application beyond speculation and investment.

Finally, crypto investing may not be suitable for everyone due to the psychological traps and biases that investors can fall into. These include the herd instinct, Fear of Missing Out (FOMO), and the Greater Fool Fallacy. It is important for investors to be aware of these pitfalls and to make informed decisions based on research and due diligence rather than emotional impulses.

How does crypto investing work?

Investing in cryptocurrencies is risky and highly volatile. The prices of cryptocurrencies, even the most established ones, are much more unpredictable than the prices of other assets like stocks.

The first step to investing in cryptocurrencies is to open an account with a cryptocurrency exchange. Most stockbrokers do not support trading in cryptocurrency. Coinbase is one of the most popular and beginner-friendly exchanges in the US. Other options include Gemini, and newer brokers such as Robinhood and SoFi.

Once you've funded your account with fiat currency, you can make an order to buy your cryptocurrency. Orders on an exchange work the same way as orders in the stock market. The exchange will match your buy order with someone making a sell order at the same price and make the trade.

After your trade is complete, the exchange will hold your cryptocurrency for you in a custodial wallet.

There are several ways to invest in cryptocurrency:

• Buy cryptocurrency directly: You can choose to directly purchase and store one or more cryptocurrencies. Your options range from the most established digital currencies like Ethereum and Bitcoin to newly released coins.
• Invest in cryptocurrency companies: You can invest in companies with a partial or total focus on cryptocurrency. Your options include cryptocurrency mining companies, mining hardware makers, and companies that support cryptocurrency.
• Invest in cryptocurrency-focused funds: If you don't want to choose among individual cryptocurrency companies, then you can decide to invest in a cryptocurrency-focused fund instead. You have a choice of exchange-traded funds (ETFs), such as index funds and futures funds, in addition to a range of cryptocurrency investment trusts.
• Invest in a cryptocurrency Roth IRA: If you want to invest in cryptocurrency and also garner the tax advantages afforded by an individual retirement account (IRA), then you can consider investing in a cryptocurrency Roth IRA.
• Become a crypto miner or validator: This is the most direct way to invest in cryptocurrency. Cryptocurrency miners and validators can earn rewards in crypto, which they can either hold as investments or exchange for another currency.

What are the risks of crypto investing?

As of April 2021, about 14% of the US population, or over 21.2 million adults, own cryptocurrency. This number is expected to increase, with 13% of those polled expressing intentions to purchase digital assets within the next 12 months.

If you're considering investing in cryptocurrencies, it's important to be aware of the risks involved. Here are some key points to keep in mind:

Volatility and Loss of Investment

The cryptocurrency market is extremely volatile, with frequent and rapid fluctuations in value. The high volatility means that an investment worth thousands of dollars today could be worth only hundreds tomorrow, and there is no guarantee that the value will rise again. As with any investment, there are no guarantees, and you should be prepared to lose your entire investment.

Regulatory Uncertainties

Government regulations around crypto are constantly evolving and may differ depending on your location. These regulations can impact how you use or access your crypto, leading to uncertainty and volatility in the market. As crypto is a relatively new phenomenon, it may take time for clear and consistent guidelines to be established.

Scams and Security

Cryptocurrency exchanges and wallets have been targeted by scams and hackers, resulting in significant financial losses for investors. It's important to research platforms and coins thoroughly before investing, as there is no protection or insurance for lost or stolen cryptocurrencies. Additionally, cryptocurrency transactions are typically irreversible, and there are no legal protections in place, unlike with credit or debit cards.

Decentralization and Lack of Central Authority

Cryptocurrencies are decentralized and exist outside the control of governments and central banks. While this is a defining feature, it also means that they are not backed by any central authority, and their value is not tied to promises by a government or central bank. This lack of regulation makes cryptocurrencies susceptible to market manipulation and unethical management practices.

User Risk and Technical Complexity

The technical complexity of using and storing crypto assets can pose a significant risk to new users. For example, losing your private key, experiencing a hard drive crash, or having your wallet corrupted by a virus can result in losing your funds entirely. Additionally, there is no way to reverse or cancel a cryptocurrency transaction once it has been sent.

Criminal Activities and Pseudonymity

Cryptocurrencies have become popular tools for criminal activities such as money laundering and illicit purchases. While transactions are recorded on a public ledger (blockchain), they are pseudonymous, leaving a digital trail that law enforcement agencies can potentially follow.

Energy Consumption

Mining cryptocurrencies requires significant energy consumption, sometimes as much as entire countries consume. This has led to concerns about the environmental impact and sustainability of crypto mining.

Why is crypto investing so popular?

Investing in cryptocurrencies has become increasingly popular, with more than 21.2 million American adults (about 14% of the U.S. population) owning digital assets such as Bitcoin or Ethereum. This trend is not limited to the U.S., as the popularity of cryptocurrencies is rising globally. Several factors contribute to the growing appeal of crypto investing:

Decentralization and Security: Cryptocurrencies are decentralized digital currencies based on blockchain technology. This means that transactions are secure, and there is no central authority overseeing the system. The absence of intermediaries, such as banks, makes it easier and faster to transfer money. Additionally, the decentralized nature of blockchain technology ensures that there is no single point of failure, enhancing the overall resilience of the system.

Inflation Protection: Cryptocurrencies like Bitcoin have a limited supply, which means their value can increase over time, especially when compared to traditional currencies that can be printed at the discretion of central bankers. This fixed supply makes cryptocurrencies attractive to investors concerned about the impact of inflation on the value of their assets.

Cost-Effective Transactions: Cryptocurrencies can facilitate global fund transfers with minimal or zero transaction costs. By eliminating the need for third parties like VISA, cryptocurrencies reduce the fees associated with traditional money transfer services.

Diversification of Investment Portfolios: Crypto assets have historically shown low price correlations with the U.S. stock market and other traditional investment options. As a result, including cryptocurrencies in an investment portfolio can enhance diversification and potentially stabilize returns.

Ease of Access: Investing in cryptocurrencies is relatively straightforward and does not require extensive identification verification or background checks. A computer or smartphone with an internet connection is all that is needed to start investing in crypto assets.

Potential for High Returns: The volatile nature of the cryptocurrency market means that investors can achieve significant gains in a short period. While this volatility cuts both ways, the prospect of rapid and substantial returns attracts many investors to the crypto space.

While crypto investing offers these advantages, it is essential to remember that it is a risky endeavour. The lack of central authority and the anonymous nature of transactions make cryptocurrencies vulnerable to scams and fraud. Additionally, the highly speculative nature of the market, where asset values are largely driven by crowd psychology, can lead to substantial losses. Therefore, investors must approach crypto investing with caution and conduct thorough research before committing their funds.

Frequently asked questions