Federal Reserve study reveals what drives crypto investors and market swings
Fed research uncovers why crypto markets behave differently
A new study by the Federal Reserve Bank of Cleveland explains why cryptocurrency markets often move in ways that traditional financial assets do not. The research found that Americans who invest in crypto hold sharply different beliefs about future returns and risks compared to those who do not. These beliefs, rather than just demographics or risk tolerance, play a major role in driving crypto ownership and market swings.
The study suggests that rising prices can attract new buyers, creating a cycle where more investors enter the market, pushing prices higher and drawing even more participants. This feedback loop may contribute to the persistent volatility seen in crypto markets.
Key findings from the Fed study
- Crypto investors expect much higher returns than non-investors—22% on average over a year, compared to 7% for non-owners.
- Crypto owners view digital assets as less risky than non-owners do.
- Younger people, men, and higher-income households are more likely to own crypto, but beliefs about returns explain ownership better than demographics.
- Showing people Bitcoin’s past price gains increased their desired crypto investments by about 47% and led to more actual purchases.
- When Bitcoin’s price doubles, households with crypto-heavy portfolios are 1.4 percentage points more likely to buy durable goods, similar to how people spend gambling winnings.
How beliefs shape crypto ownership
The study, titled “Do You Even Crypto, Bro? Cryptocurrencies in Household Finance,” analyzed surveys of up to 25,000 U.S. households. Researchers found that expectations about crypto returns were the strongest predictor of who owns cryptocurrency—more so than age, income, or gender. For traditional assets like stocks or bonds, demographics usually matter more than return expectations, but crypto reverses this pattern.
In 2021, 87% of non-owners said they didn’t know what return to expect from crypto in the next year. Even among owners, 54% were unsure. However, those who did make predictions showed a wide gap: crypto owners expected 22% returns, while non-owners expected only 7%.
Experiment shows past gains attract new investors
In 2025, researchers conducted an experiment where they randomly showed some households information about Bitcoin’s past 12-month returns. Those who saw this information increased their desired crypto investments by about 2 percentage points—nearly a 50% jump compared to a control group. Actual crypto purchases also rose by about 2.5 percentage points.
The effect was strongest among people who said they didn’t own crypto because they lacked information. Those who already believed crypto was a bad investment did not change their behavior after seeing the price data.
What the study confirms about crypto markets
- Crypto ownership is strongly linked to beliefs about future returns, not just demographics.
- Past price increases can attract new investors, potentially fueling further price rises.
- Crypto investors treat gains differently than traditional wealth, spending them more like windfalls (e.g., lottery winnings) than long-term savings.
- Most people, including many crypto owners, lack clear expectations about crypto returns.
What remains unclear
- The study does not predict whether this investor behavior will change as crypto becomes more mainstream.
- It does not explain how regulatory changes or major market events might alter these patterns.
- The long-term effects of this feedback loop on market stability are not addressed.
Why this matters for crypto investors and markets
The study suggests that crypto’s volatility may stem from deep disagreements among investors about its value and risks. Since many people lack clear information about crypto, past price movements can heavily influence their decisions. This could mean that future retail demand depends not just on Bitcoin’s current price but also on how its past performance is communicated to potential investors.
The authors conclude that “the absence of common information and beliefs about crypto across investors suggests that price volatility will continue to be one of the most defining characteristics of this new asset for the foreseeable future.”
