Why Are Millennials Turning to Cryptocurrencies?
Stacey Keagan stands in front of the chilled foods section at the Walgreens across the street from her office. Keagan, a liberal arts graduate from Smith College has to make her biggest decision of the day, how to spend the five dollars which she’s budgeted for her lunch.
There are days when Keagan busts her budget, but she’s determined that today won’t be one of those days.
Maybe the Jimmy Deans sausage muffin at US$3.49 will do the trick.
But if you think that the 25-year-old Keagan is saving money and budgeting to splurge on expensive vacations or some new clothes, you’d be sorely mistaken.
Keagan, who works for a non-profit wants to save up to build a comfortable household with her fiancee, who’s working at a technology startup based out of Boston.
And although money is tight between the two, they still manage to squirrel away small pockets of their salaries in the hopes of making some small investments to grow their wealth.
Unfortunately, when it comes to small pockets of investing, their options are limited.
The Bills Are All The Same Size
Like millions of average metropolitan Millennials across the world, the investment industry has turned their backs on one of the world’s most significant and important demographic.
Arguably, Millennials need greater financial advice than perhaps any generation before them.
With student debt hanging like the Sword of Damocles over their heads, a collapse in home ownership thanks to runaway property prices and the advent of the gig economy, Millennials are increasingly finding their economic futures less certain and in many cases less rosy than their forebears.
Just dial up any independent financial adviser and speak in a youthful voice (have a couple of sips of Red Bull) and describe how you’d like investment advice but stress how you have very little money and close to no assets (the Pokemons on your phone don’t count) you have and wait for the reaction.
Unless you have a huge paycheck (in which case you probably already work for a financial institution and likely do not require any financial advice) or are at the outset of a financially lucrative career, it’ll be unlikely that the financial adviser will ever earn a dime off of you.
And even if they did take you on, it’s even more unlikely that you’d be able to dole out their fees.
Millennial Investment Needs Require Millennial Investment Solutions
Which is why companies such as Robinhood as well as low-fee investments have been so popular among Millennials. After all, if you can’t afford to pay for good quality advice, might as well just ride the markets.
In a world where financial and investment advice is increasingly geared towards the already affluent, low-fee investing and mobile push notifications suggesting that users check out the day’s “top movers” can make virtually any Millennial their own hedge fund manager.
But merely slashing trading fees won’t do anything to reduce inequality or lift Millennials out of their debilitating debt.
According to Edward Wolff, a New York University economist and author of A Century of Wealth in America, the cause of inequality isn’t the low rate of stock ownership, it’s that people don’t make enough money to save.
“Lowering investment fees is not going to bump up ownership.”
“If you really want to do something about inequality, you have to do something about income.”
And last January, Millennials signed up en masse onto Robinhood’s trading platform for a shot of increasing their incomes by trading cryptocurrencies.
When Robinhood announced trading of Bitcoin and Ethereum on January 25, 2018, it’s mobile app shot up 150 places overnight on Apple’s App Store, roaring ahead of even cryptocurrency trading staple Coinbase.
By the end of that week, over a million people (almost all of them Millennials) had signed up to trade cryptocurrencies in a trial program on Robinhood, many of whom were already existing users of the Millennial-friendly mobile trading platform.
Speaking to Bloomberg last February, co-CEO of Robinhood Baiju Bhatt explained that Bitcoin, like stocks, could weather hype cycles without completely losing its value.
“It has a resiliency to it. It has characteristics in common with the stock market.”
Over a year later, with the price of cryptocurrencies collapsing as much as 80% and many initial coin offerings (ICOs) nothing more than thinly-veiled instances of fraud, there may yet be some truth to Bhatt’s views.
For one, Bitcoin and Ethereum did fall precipitously but have since stayed stubbornly above US$4,000 and US$130 respectively.
If You Can’t Beat Them
Institutional investor interest (albeit in a low-key manner) has returned, as have trading volumes.
Even JPMorgan Chase, led by long-time Bitcoin skeptic Jamie Dimon has issued its own cryptocurrency, JPM Coin for internal trade settlements.
But for people like Anna Dawson, a 28-year-old self-employed casting director who rents a tiny apartment in the Scottish city of Edinburgh, (home to Harry Potter writer J.K. Rowling) even saving for her first home on her own has been a “slow and hard” process.
“I have never thought about (financial advice) because I can’t afford it.”
“If I don’t work in a month, savings have to be put towards rent.”
With more Millennials than any other generation working in the gig economy, irregular incomes from freelance work play havoc with their ability to contribute to a 401(k) or to save for a home.
The old “80/20” adage of investing 80% of your portfolio in stocks with the remainder 20% in bonds or fixed income for a “growth-oriented” portfolio seems as foreign a concept as ever to an entire generation of young, cash-strapped Millennials.
Starved of financial education but drowning in online resources, most Millennials just need a nudge in the right direction.
Take Finimize for instance, a London-based financial information app, founded by 31-year-old Max Rofagha on the belief that most Millennials in fact don’t need financial advice.
“(Young people) tend to have fairly similar, rather straightforward financial setups.”
“Most haven’t bought a house yet, most aren’t married or divorced yet.”
“Their (young people) situation is simpler than somebody who is older.”
To this end, Finimize sends cheeky, emoji-laden emails every day to over 300,000 subscribers, explaining what’s going on in the financial world — everything from the capital markets to cryptocurrencies and anything in between.
With typical subject lines like “How do you spell recession?” Finimize is currently free, but could in time become the Bloomberg Businessweek or Forbes for Millennials.
Finimize and other companies like it, threaten the information asymmetry that has sustained the financial advice industry for decades — namely that financial matters are so complex that you must pay a middleman to explain them for you.
Money For Nothing & Your Chicks for Free
Which is why Millennials poured into cryptocurrencies more than any other generation of investor — the democratization and decentralization of information.
With whitepapers readily available and next to zero formal blockchain courses available for audit in colleges until recently, early forays into the cryptocurrency realm by Millennials (in particular young men) was through decentralized-learning.
In many cases, that early foray proved to be highly lucrative.
Which is why unlike more traditional media sources, Finimize provides links to an array of investment options including cryptocurrency platforms such as eToro and stock-trading apps such as Freetrade.
In fact, according to data from Finimize, cryptocurrencies are the most popular topic on the platform, dominating the league table of users’ reviews.
Hayley Ard, a 32-year-old manager at King’s College London’s Entrepreneurship Institute and a Finimize suggests,
“A lot of (young) people are priced out of financial advice unless it’s a big decision.”
“There are so many options now that democratize information.”
Gramps Can’t Grasp Grin Coin
And that Millennials are investing in cryptocurrencies is reason enough for everyone else to pay attention.
According to the Center for Economics and Business Research, over the next three decades, Millennials will inherit an estimated US$7.3 trillion from Baby Boomers — the largest inter-generational shift of wealth in history.
Even if today, their parents’ money is looked after by some 50-something in a gray suit with a receding hairline who likens Bitcoin to “rat poison,” there’s no guarantee that Millennials will prolong that custom or assimilate such opinions.
According to research by Kings Court Trust (an investment advisory firm based in the United Kingdom), as much as a quarter of inheritance beneficiaries are already walking away from their parents’ or grandparents’ financial advisers, taking on average US$380,000 with them.
Uppermost in the minds of most Millennials when it comes to investing? Cost, convenience and time.
And because it takes around 30 seconds to set up a cryptocurrency wallet, already tech-savvy Millennials, accustomed to digital money and electronic payments, naturally took to cryptocurrencies with far greater aplomb than their parents or even their grandparents for that matter.
For many older generations, cryptocurrencies seem unwieldy and complicated and financial markets, the source of much of their wealth seems far easier to navigate.
Yet the irony is that for a majority of Millennials, fed on YouTube videos explaining blockchain technology and cryptocurrencies, the converse is true — financial markets are complex and daunting, cryptocurrencies are ironically far easier to understand.