A new Federal Reserve Bank of Cleveland study suggests that beliefs about future crypto returns and perceptions of risk play a larger role in determining who invests in cryptocurrency than many traditional demographic factors.
The research also points to a potential feedback loop: when investors learn about Bitcoin’s previous gains, they may increase their desired crypto allocation and become more likely to buy, potentially reinforcing market rallies.
Crypto Investors Have Very Different Return Expectations
The working paper, “Do You Even Crypto, Bro? Cryptocurrencies in Household Finance,” draws on repeated surveys of up to 25,000 U.S. households per wave.
Researchers found a significant gap between crypto owners and non-owners. In 2021, crypto holders expected an average 22% return over the following year, compared with roughly 7% among people who did not own crypto.
Crypto owners also generally viewed digital assets as less risky than non-owners.
Expectations were strongly associated with ownership. The researchers found that a one-percentage-point increase in expected crypto returns corresponded to roughly a 0.8-percentage-point increase in the probability of owning cryptocurrency.
According to the study, expectations about returns and risk explained more variation in crypto ownership than characteristics such as age, income and gender.
Crypto Investors Remain Demographically Different
Although expectations were the strongest explanatory factor, the research also identified demographic differences.
People under 40 were significantly more likely to own crypto than those over 60. Men were also more likely than women to report cryptocurrency ownership, while participation increased among higher-income and wealthier households.
Still, the researchers argue that crypto differs from traditional assets such as stocks, bonds and gold because investor beliefs appear unusually important in determining participation.
A large share of Americans also remain uncertain about crypto. In the researchers’ 2021 survey, 87% of non-owners said they did not know what return to expect from cryptocurrency over the next year. Even among crypto owners, 54% said they were uncertain about future returns.
Information About Bitcoin’s Gains Can Change Behavior
The study’s randomized information experiment produced one of its most notable findings.
In 2025, households were randomly shown information about Bitcoin, stocks, GameStop or inflation. Participants who received information about Bitcoin’s previous 12-month performance increased their desired cryptocurrency allocation by roughly two percentage points.
That represented an increase of about 47% compared with the control group’s average desired allocation of 4.3%.
Actual crypto purchases also increased by approximately 2.5 percentage points.
The response was strongest among people who said they had avoided crypto because they lacked sufficient information. Participants who already viewed cryptocurrency negatively were much less responsive to the information.
The findings suggest that simply learning about strong past performance can influence both expectations and investment behavior.
A Potential Feedback Loop for Crypto Markets
The researchers believe this behavior could help explain why crypto markets can experience powerful speculative cycles.
The mechanism is straightforward:
Higher returns → greater investor interest → increased buying → higher prices → more attention → new buyers.
If investors place significant weight on recent performance, a strong Bitcoin rally could therefore attract additional capital, potentially amplifying the rally.
The same mechanism can work in reverse when prices fall and expectations deteriorate.
This creates a market in which investor learning and changing beliefs can become an important source of volatility alongside fundamental factors.
Crypto Gains Can Also Influence Spending
The study found evidence that cryptocurrency wealth can affect household spending, although the effect was concentrated in major purchases.
A doubling in Bitcoin’s price increased the probability that a household whose entire financial portfolio was invested in crypto would purchase a durable good by about 1.4 percentage points.
However, researchers did not find the same persistent effect on everyday consumption.
They argue that the pattern resembles how households may treat gambling or lottery gains rather than conventional long-term wealth increases.
Why the Findings Matter
The study offers a different explanation for crypto’s volatility.
Rather than being driven solely by changes in fundamentals, cryptocurrency prices may also reflect large differences in investor expectations, limited understanding and the way new information changes behavior.
Traditional financial assets tend to be influenced heavily by observable characteristics such as income, wealth and risk tolerance. Crypto appears to place much greater weight on what investors believe its future returns will be.
That creates an important implication for future market cycles: crypto demand may depend not only on where Bitcoin is going, but also on how investors interpret where it has already been.
If strong historical returns consistently attract new participants, past performance could become an important driver of future demand, reinforcing the very volatility that makes crypto markets distinctive.
