Fed Study Finds Crypto Investors Driven by Beliefs and Influenced by Returns

A Federal Reserve Bank of Cleveland study finds that crypto investors hold sharply different views on returns and risk, while information about Bitcoin’s past gains can increase both desired allocations and actual crypto purchases.

A new working paper from the Federal Reserve Bank of Cleveland offers a striking explanation for why cryptocurrency behaves so differently from traditional financial assets: Americans who invest in crypto are not merely distinguished by demographics or risk tolerance, but also hold vastly different expectations about future digital asset returns.

The finding could shed light on crypto’s persistent volatility and explain how rallies attract new buyers, potentially creating a feedback loop in which rising prices strengthen bullish expectations and draw more investors into the market.

Using repeated surveys of up to 25,000 US households per wave, researchers Michael Weber, Bernardo Candia, Olivier Coibion and Yuriy Gorodnichenko found that expectations for crypto returns explain more variation in cryptocurrency ownership than a wide range of demographic factors.

The paper, titled “Do You Even Crypto, Bro? Cryptocurrencies in Household Finance,” also uses a randomized information experiment showing that providing people with information about Bitcoin’s (BTC) recent performance can raise both their preferred crypto allocation and their subsequent purchases.

The researchers say the findings suggest a possible mechanism behind speculative bubbles: past gains can draw in new investors, whose purchases may drive prices higher and potentially bring even more buyers into the market.

“Positive returns attract new participants, which raises the price further,” the authors write

The pattern is particularly notable because a large portion of the population still has limited understanding of cryptocurrency. In the researchers’ 2021 survey, 87% of non-crypto owners said they did not know what return to expect over the following year, while the figure remained at 54% among crypto owners.

Ownership linked to double-digit returns expectations#

For those willing to make a forecast, however, a substantial gap was observed. Crypto owners expected an average 22% return over the following year, compared with just 7% among non-owners. Crypto holders also generally viewed digital assets as less risky than non-owners did.

The researchers found that expected returns played an unusually strong role in determining ownership. A one-percentage-point rise in an individual’s expected crypto return was linked to a 0.8-percentage-point increase in the likelihood of owning cryptocurrency. Together, return and risk expectations explained considerably more variation in crypto ownership than observable factors such as age, income and gender.

That sets crypto apart from traditional assets such as stocks, bonds and gold. For conventional investments, demographic and financial traits generally provide far more explanatory power than differences in expected returns. In crypto markets, that pattern is effectively reversed.

The demographic makeup of crypto investors remains notably distinct. People under 40 were 13 percentage points more likely to own cryptocurrency than those over 60, even after other characteristics were taken into account. Men were about 4 percentage points more likely than women to hold crypto, while participation was also higher among wealthier and higher-income households.

The experiment delivers what may be the paper’s most significant finding for crypto markets.

In 2025, households were randomly assigned by researchers to receive information about BTC, stocks, GameStop or inflation. Participants shown Bitcoin’s previous 12-month return raised their desired crypto portfolio allocation by roughly 2 percentage points, or about 47% relative to the control group’s 4.3% target allocation. Actual crypto purchases afterward also increased by around 2.5 percentage points.

The authors characterize the finding as evidence that information about Bitcoin’s recent returns can encourage some households to begin purchasing cryptocurrency.

The effect was largely concentrated among people who said they avoided crypto because they lacked enough information. Those who already viewed cryptocurrency as a poor investment generally showed little response to the information treatment.

The paper also finds that crypto wealth can influence household consumption. When BTC’s price doubled, a household with its entire financial portfolio in crypto became 1.4 percentage points more likely to purchase a durable good, equivalent to roughly a 7% increase from the unconditional probability of such a purchase. However, the effect did not carry over to regular spending.

That prompted the researchers to draw a stark comparison: crypto gains appear to be treated more like “gambling income” or lottery winnings than as a lasting increase in household wealth.

The broader implication is that crypto’s volatility may stem partly from disagreement and learning rather than market fundamentals alone. The authors conclude that cryptocurrency stands apart because it remains poorly understood, investors hold sharply different views of its prospects, and new information about past returns can change both expectations and behavior.

The researchers write that the lack of shared information and beliefs among crypto investors suggests price volatility will remain one of the asset’s most defining features for the foreseeable future.

For crypto markets, the finding points to a potentially uncomfortable conclusion: the next wave of retail demand may depend not only on Bitcoin’s price, but also on how investors are informed about its previous performance.