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In-Depth: Why Are Young Investors Putting Their Money in Cryptocurrency?

05/23/22 · Reports · This is not a financial advice
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These days, investing for young adults usually means building a portfolio of cryptocurrencies rather than traditional assets such as stocks and bonds.

Over the last few years, especially younger millennials and members of Generation Z have funneled large fractions of their savings into these new alternative assets. They also tend to be staunch advocates of both cryptocurrency and blockchain technology, which powers it.

Curious to know what it is about cryptocurrencies that have so captured the minds and portfolios of so many young investors?

Read on for an in-depth look at some major reasons crypto has become a favored investing product among the youth.

  1. Positive Outlook on the Technology

    While many young people do scalp trade crypto for the chance of turning a quick profit, a good number choose to DCA and hold their favorite coins long-term because they believe in the value of the technology itself.

    These long-term holders see cryptocurrency as potentially applicable and useful for the years to come, some even going so far as to consider it "the future of finance."

    Some young investors are interested in the ways cryptocurrencies can be used to help the disenfranchised in countries with limited economic freedom. Privacy coins like the highly secure and specially encrypted Monero, for instance, can only be stored through a dedicated XMR wallet. The Monero technology allows for fully anonymous, secure transfers of the coin that aren't vulnerable to intervention from governments or other regulatory bodies.

    Crypto exchanges (particularly no-KYC exchanges that support privacy coins like Monero) have thus allowed people born in disadvantaged regions to receive money from relatives abroad, without exposing themselves or the relatives to any risk of scrutiny.

    Other young crypto enthusiasts are particularly interested in the potential applications and future value of the blockchain, the foundational technology behind cryptocurrency. Blockchain is a digital ledger that's distributed across a network of computers instead of being controlled by any single organization or individual.

    Devotees of crypto believe that blockchain's decentralized construction makes it a secure, transparent repository for financial transactions and other important information.

  2. Loss of Faith in Traditional Financial Institutions

    Younger millennials and members of Gen Z will have grown up exposed to the harsh realities of global recessions, financial crises, mortgage debt crash and bailouts, quantitative easing and generally speaking economic uncertainty.

    This exposure has not only made them cautious and careful about their finances, but also diminished their inclination to trust traditional financial systems. Many have come to see banks and other conventional financial institutions as inefficient and inequitable, if not outright exploitative.

    To these investors, many of whom feel deprived of opportunities to acquire and build wealth through conventional means, cryptocurrency presents a promising shot at greater economic mobility.

    Some may also see crypto trading as a means of pushing back against financial systems that have failed to support their generation in the ways that they need.

  3. Ease of Access

    Cryptocurrency platforms of 2022 pride themselves on their accessibility. This has historically been a major selling point with investors of all ages and in all kinds of markets.

    A new investor can create an account with a crypto exchange with relative ease, sometimes even without identifying themselves since the law is still unclear on that issue in most countries. Then they can immediately receive access to the wealth of investing opportunities and trading products the platform provides.

    Take Binance for instance: With just a smartphone, you can buy crypto there, trade its derivatives, stake it, farm it or put it in a locked interest-bearing account. The options that investors get on crypto platforms are simply not even in the same ballpark as what you get in a bank nowadays.

    Compare this to traditional investing, where the process of even setting oneself up as an investor is fraught with so many complications. New participants are often compelled to study a multitude of complexities before they can even begin trading through a brokerage account.

    Most cryptocurrencies also do not have an IPO, which means that both retail investors and venture capitalists have roughly the same opportunities to support and earn returns on crypto projects.

    Given all this, it's unsurprising that young people would avoid investing in stocks in favor of more accessible alternatives.

  4. Sense of Community

    It's possible to trace at least some of the younger generation's interest in crypto to the ubiquity of the internet, social media, and other digital technology in their lives.

    A recent study by Hargreaves Lansdown PLC, for instance, found that up to 60% of investors under 40 years of age preferred to get their investing advice on social media platforms like Reddit and YouTube.

    Crypto proponents naturally maintain a strong presence in the online forum culture, ready to welcome novice traders into their ever-growing online communities. The power this sense of community has to attract young investors to crypto spaces can't be understated, especially during the post-pandemic times.

    Besides the alluring promise of great economic returns, many young people find that participating in crypto communities removes their loneliness and sense of social isolation. They thus come to see these online spaces as trustworthy sources of advice on viable crypto projects, as well as spaces for community discussion or support in the event of failed investments.

    Some young investors also relish the opportunity to be part of an active movement. Many crypto holders are eager to find more involved ways to further support the projects they invest in. They may act as marketers and community managers in online spaces, and their actions in those spaces can and often do help drive the markets.

Bottom line

At the end of the day, young investors' interest in cryptocurrencies is in large part a reflection of the technological, social, and economic realities that have shaped their lives.

These new and radically divergent investing behaviors in turn have the potential to help reshape the global financial landscape in years to come.

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