Fed study finds crypto investors swayed by beliefs and returns
A new Fed study finds crypto investors hold sharply different beliefs about returns and risk than non-owners, and that information about Bitcoin's past gains can increase both desired allocations and actual purchases—offering a fresh explanation for crypto's persistent volatility and rally-driven feedback loops. Published by the Federal Reserve Bank of Cleveland, the working paper suggests digital assets behave unlike traditional markets.
Researchers Michael Weber, Bernardo Candia, Olivier Coibion and Yuriy Gorodnichenko surveyed as many as 25,000 US households per wave. Their findings imply the next wave of retail demand may depend on what investors are told about past prices. For ongoing coverage, see our Fintech & Crypto Alerts hub.
Key Takeaways
- Expectations about crypto returns explain more variation in ownership than age, income or gender.
- Crypto owners expected 22% one-year returns in 2021 surveys, versus 7% among non-owners.
- A randomized experiment found Bitcoin return information raised desired crypto allocation by roughly 47%.
- Most non-owners (87%) and many owners (54%) said they did not know what return to expect.
- Researchers warn disagreement and learning—not just fundamentals—may keep crypto volatility high.
Why does the Fed study find crypto investors behave differently?
The Cleveland Fed paper argues Americans who buy crypto do not simply have different risk appetites—they hold radically different beliefs about digital assets' future returns. Using repeated household surveys, the authors found that expected returns and perceived risk together explained considerably more variation in who owns cryptocurrency than observable characteristics such as age, income and gender.
That pattern reverses what researchers see with traditional assets. For stocks, bonds and gold, demographics and financial traits generally matter more than differences in expected returns. Crypto stands out as an outlier where beliefs dominate.
How much do return expectations sway crypto ownership?
Among those willing to forecast, the gap was enormous. Crypto owners expected an average 22% return over the following year, compared with just 7% among non-owners. Owners also tended to view crypto as less risky than non-owners did.
A one-percentage-point increase in an individual's expected crypto return was associated with a 0.8-percentage-point increase in the probability of owning cryptocurrency. Demographics still matter: people under 40 were 13 percentage points more likely to own crypto than those over 60, men were about 4 points more likely than women, and higher-income households participated more.
Can information about past Bitcoin gains change investor behavior?
In a 2025 randomized experiment, households shown Bitcoin's previous 12-month return increased their desired crypto portfolio allocation by roughly 2 percentage points—a 47% jump relative to the 4.3% desired allocation in the control group. Actual subsequent crypto purchases rose by about 2.5 percentage points.
The effect concentrated among people who said they did not own crypto because they lacked sufficient information. Those who already believed crypto was a bad investment generally did not respond. The authors write that providing information about recent Bitcoin returns induces some households to start buying cryptocurrency.
What does this mean for crypto market volatility?
The researchers point to a potential mechanism behind speculative bubbles: positive returns attract new participants, which raises prices further and may pull in still more buyers. In their 2021 survey, 87% of non-owners and 54% of owners said they did not know what return to expect from crypto over the following year.
The paper also finds crypto wealth can spill into consumption. A doubling in BTC's price made a household whose entire portfolio was in crypto 1.4 percentage points more likely to buy a durable good—roughly a 7% increase—though the effect did not persist for ordinary spending. Gains appear treated more like gambling income than permanent wealth.
The full working paper, titled "Do You Even Crypto, Bro? Cryptocurrencies in Household Finance," is available from the Federal Reserve Bank of Cleveland. The authors conclude that the absence of common information and beliefs across investors suggests price volatility will remain one of crypto's defining characteristics.