A Study Reveals the Weight of Convictions Among Crypto Investors

Why do some buy bitcoin while others prefer to stay away? A study by the Federal Reserve Bank of Cleveland points less to age or income and more to a harder-to-measure factor: what each person thinks about the future returns of crypto. And a few figures on past performances can sometimes be enough to sway the undecided.

In Brief

• The Cleveland Fed publishes a study indicating that household return expectations explain crypto ownership better than age, income, or gender.
• A randomized experiment shows that informing households about bitcoin's past returns increases their desired allocation by 47% and their actual purchases by 2.5 percentage points.
• Crypto gains would be treated like lottery winnings: they boost the purchase of durable goods but not current spending.

Return Expectations Weigh More Than Age or Income in Crypto

The Federal Reserve Bank of Cleveland published a working paper in July focused on American households and cryptos, based on quarterly surveys conducted since 2018 with 15,000 to 25,000 households.

Its authors, economists Michael Weber, Bernardo Candia, Olivier Coibion, and Yuriy Gorodnichenko, compare crypto holders to holders of stocks, bonds, or gold. The finding aligns with the recent debate on investor greed: psychology weighs at least as much as fundamentals.

Titled "Do You Even Crypto, Bro? Cryptocurrencies in Household Finance," the document establishes a first fact: in 2021, 87% of households that did not hold crypto said they did not know what return to expect over twelve months, compared to 54% of holders. Among those who venture a prediction, crypto owners expected an average return of 22% for the year, compared to 7% for others.

The gap is the largest among all studied assets, including stocks and gold. An additional percentage point of expected return is associated with a 0.8 point increase in the probability of holding crypto. Expected returns and perceived risk together explain about twice as much variation in ownership as all observable characteristics combined, including age, income, or gender.

The demographic profile remains marked. Those under 40 hold crypto 13 points more often than those over 60, and men 4 points more than women, holding characteristics equal.

Information on Past Gains is Enough to Drive Purchases

The study includes a randomized controlled experiment, a setup that randomly assigns participants to isolate the effect of given information. Conducted in the second quarter of 2025, it presented some households with bitcoin's return over the previous twelve months (14.3%), and others with that of stocks, GameStop, or inflation.

Households informed of the bitcoin figure raised their desired crypto allocation by about 2 percentage points, or 47% more than the 4.3% aimed for by the control group. Their actual purchases also increased by 2.5 points, a statistically significant result. Information on recent returns "induces some households to start buying crypto," the authors write.

The effect concentrates on those who did not hold crypto due to lack of information. Households that already viewed it as a bad investment did not react. For the researchers, the mechanism sheds light on bubble formation: "Positive returns attract new participants, which drives the price up further," and past performances are extrapolated without a return to the expected mean.

The question that arises after every price surge, namely whether it is too late to buy bitcoin, finds a preliminary answer here: information about past performance attracts new entrants.

Gains Treated Like Lottery Money
The paper also measures what households do with their gains. A doubling of the bitcoin price makes a household fully invested in crypto 1.4 percentage points more likely to purchase a durable good, about a 7% increase compared to the average probability of such a purchase. The effect does not extend to current spending, unlike stocks or bonds.

The authors draw a stark comparison: crypto gains are perceived "more like lottery winnings" than as permanent wealth, spent on a big purchase rather than spread out over time.

The study has limitations: the expectation data mostly dates back to 2021, the sample is a panel of voluntary consumers, and the experience is confined to a single quarter. Nevertheless, the researchers conclude that the absence of information and common beliefs "suggests that price volatility will continue to be one of the most determining characteristics of this new asset in the foreseeable future".

These behavioral readings do not equate to market predictions. This reading does not constitute financial advice.

The working paper from the Cleveland Fed shifts the question from price to information: retail demand would depend as much on what investors hear about past performance as on the price level.

If the loop described by the researchers works, each bullish phase would carry within it the conditions for its extension, until an external shock, such as tensions in the bond market, disrupts the mechanism. The next waves of entries, measurable in the flows to bitcoin ETFs, will indicate whether the documented effect in 2025 is replicated on the scale of the current market.

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