Crypto Investor Behavior: Research Summary

At Ryze, we set out to learn more about people who invest in Bitcoin and other cryptocurrencies. We surveyed 400 individuals that invest in crypto to obtain a better understanding of the market demographics, investment processes, and pain points. Outlined below are the results of our market research.

Demographics

As expected, crypto investors are predominantly single males. Half of them are between the ages of 18 and 30, and a little over 40% are between 31 and 45 years old. Less than a third of crypto investors are married, which can be attributed in part to the relatively young average age. In our research, we did not encounter any individuals over the age of 65 that have invested in crypto.

Annual household income was less than $50K for 25% of respondents, which may also be a result of the young average age. Crypto investors have a higher household income than average Americans, likely due to the fact that disposable income is a prerequisite for investments. One in eight (12.5%) respondents had an annual household income greater than $250K, considerably higher than the national 7% of households in the same income bracket.

General Investment Behavior

The investment behavior of those who invest in crypto differs vastly from that of the general public. Over a quarter of crypto investors invest in nothing other than crypto. Roughly half invest in stocks, a little over a quarter of crypto investors also invest in ETFs and Mutual Funds, and a quarter of them invest in real estate.

One in three crypto investors has over 50% of their investments in crypto, contrary to the 1–2% recommended allocation for general investors and 5–10% for crypto enthusiasts.

Over 90% of crypto investors make investment decisions themselves. A small portion invests with investment advisors and wealth managers, but even members of this subset tend to self-direct their investment in crypto.

Crypto Investment Behavior

The most common exchange used by crypto investors is Coinbase, with Binance being a close runner-up. These metrics have changed in favor of Coinbase, as this data was collected before Binance banned US customers.

Although investors trade on a variety of exchanges, there is a lack of unbiased information sources that investors use to make their investment decisions. Information and opinions from similar sources are recirculated amongst narrow audiences through a defined set of channels.

Crypto enthusiasts get the majority of their information about the market from Twitter and Reddit, through subreddits such as r/Bitcoin. It’s worth noting that this data was initially collected on Reddit, which is a source of bias. However, a significant portion of respondents still indicated that Twitter was their main source of information.

Pain Points

Though investing in crypto can be lucrative, the industry has its fair share of problems that plague investors. The three crucial pain points we have identified are exchanges, volatility, and a lack of education.

Exchanges

Exchanges provide value by enabling investors to buy and sell crypto-assets, but investors have always been wary of trusting centralized exchanges to be custodians of their assets. Exchange hacks have been a problem since the infamous Mt. Gox hack of 2014, and $1.1 Billion worth of cryptocurrency has been stolen in 2019 alone. One respondent stated:

“Practically speaking, I don’t like the fact that I only feel safe with my [crypto-assets] in separate locations off the exchange.”

This illustrates the paranoia that investors face in regards to keeping their crypto on an exchange, as opposed to cold storage.

In addition, funding your account can be an arduous process. Overzealous AML/KYC processes can cause lengthy delays for investors opening accounts at exchanges, and fiat onramps dependent on legacy systems can take weeks to deposit funds into an investor’s exchange account. The exchange experience for investors is further worsened by non-transparent fee structures at every step, from deposits into accounts to trading fees.

Volatility

Once investors overcome barriers to entry such as AML/KYC and deposit times, they are now faced with tremendous volatility and unpredictable price action. One investor stated:

“Following the prices daily can lead to anxiety. Especially with large price movements. Going from 20k to over 100k then back down to 30k net worth within 1 year was a ride. I face constant fear of missing the top and riding the bottom.”

This is a pervasive theme in cryptocurrency investing. Though high volatility may benefit active traders, who tend to be more risk-tolerant, it is detrimental to longer-term investors. Volatility in crypto is higher than that of other asset classes due to market immaturity, relatively lower liquidity, unclear regulations, and high speculation. Since the crypto market is still in its nascent stages, there are fewer institutional players and sophisticated market participants than in well-established, time-tested investment classes. Crypto markets have lower overall volume than established markets such as stocks or gold, allowing large holders of crypto to single-handedly move market prices by placing comparatively large orders.

These factors, in tandem with the speculative nature of crypto as an investment, cause high market instability. High intraday volatility. This causes crypto investors to check their portfolios more often than people who invest in other markets. Our research found that over half of crypto investors check their investments in crypto daily.

Education

A lack of education among investors, coupled with misinformation and manipulative market participants, make crypto a uniquely difficult market to invest in. In a space with few regulatory investor protections, investors must educate themselves and stay vigilant. This is difficult, however, when there are few trusted sources of information. Here’s what one investor said:

“There are a lot of uninformed people in the space who don’t know what they’re doing and don’t know where to learn. There’s no trusted source of information. There’s no Bloomberg Terminal for crypto. Instead, people listen to the huge amount of sockpuppet/shill accounts on Reddit and Twitter.”

One respondent didn’t know that Bitcoin.com was owned by the creators of Bitcoin Cash, and is biased towards Bitcoin Cash over Bitcoin. Another wasn’t aware that during the ICO boom of 2017 and 2018, upcoming projects could pay to have favorable ratings on seemingly independent sites such as ICOBench. The “pay-to-play” ecosystem created by paid exchange listings and influential Twitter personas which became known as “paid shills,” combined with the lack of trustworthy unbiased arbiters of truth, significantly hamper investors as they try to differentiate between high and low-quality investments.

The Bottom Line

Crypto investors, regardless of age and income, self-direct their investments in a 24/7 market with high volatility, a lack of trusted information, and exchanges with their own interests ahead of those of consumers. To combat this, we’ve built Ryze, with the mission of democratizing access to quality investment products for Bitcoin.