Key Points
- A Federal Reserve Bank of Cleveland study found that differences in expected crypto returns and perceived risk explain crypto ownership more strongly than many demographic characteristics.
- Crypto owners expected an average 22% annual return, compared with 7% among non-owners, while owners generally perceived crypto as less risky.
- An information experiment found that showing households Bitcoin’s recent performance increased both their desired crypto allocation and subsequent crypto purchases.
Crypto Ownership Closely Tied to Return Expectations
A new Federal Reserve Bank of Cleveland working paper suggests that cryptocurrency investors differ from traditional investors not simply because of demographics or risk tolerance, but because they hold substantially different expectations about future returns.
The paper, titled “Do You Even Crypto, Bro? Cryptocurrencies in Household Finance,” draws on repeated surveys of as many as 25,000 US households per wave. The researchers found that expectations about crypto returns explain more of the variation in cryptocurrency ownership than a broad range of observable demographic characteristics.
The findings offer one possible explanation for crypto’s historically high volatility. When investors hold sharply different expectations about future performance, changes in information can produce substantial shifts in demand.
The researchers also examined whether information about Bitcoin’s previous performance could influence investment decisions. Their randomized information experiment found that exposure to recent Bitcoin returns increased both desired allocations to crypto and actual subsequent purchases.
Crypto Owners Expect Higher Returns
The difference in expectations between crypto owners and non-owners was substantial.
Among respondents willing to provide a forecast, cryptocurrency owners expected an average return of approximately 22% over the following year, compared with 7% among non-owners.
Crypto owners also generally considered cryptocurrency less risky than non-owners did.
The researchers found that 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.
Expectations about returns and risk together explained considerably more variation in crypto ownership than characteristics such as age, income and gender.
This contrasts with traditional financial assets such as stocks, bonds and gold, where demographic and financial characteristics typically provide greater explanatory power than differences in expected returns.
Lack of Information Remains Significant
Despite the influence of expectations, the study found that cryptocurrency remains poorly understood by a significant portion of the population.
In the researchers’ 2021 survey, 87% of non-crypto owners said they did not know what return to expect from cryptocurrency over the following year. Among crypto owners, the figure was still 54%.
The demographic profile of crypto investors was also distinctive. People under 40 were 13 percentage points more likely to own cryptocurrency than people over 60, even after controlling for other characteristics.
Men were approximately 4 percentage points more likely than women to own cryptocurrency, while higher-income and wealthier households were also more likely to participate.
However, the study suggests these characteristics were less important in explaining crypto ownership than expectations surrounding returns and risk.
Bitcoin Performance Information Changed Investor Behavior
The study’s randomized information experiment provides a particularly notable finding.
In 2025, researchers randomly assigned households to receive information about Bitcoin, stocks, GameStop or inflation.
Households shown Bitcoin’s previous 12-month return increased their desired crypto portfolio allocation by approximately 2 percentage points.
That represented roughly a 47% increase relative to the 4.3% desired allocation reported by the control group.
Actual subsequent cryptocurrency purchases also increased by approximately 2.5 percentage points.
The effect was concentrated among people who said they did not own cryptocurrency because they lacked sufficient information.
By contrast, respondents who already believed cryptocurrency was a poor investment generally did not respond to the information treatment.
The findings suggest that information about previous performance can influence prospective investors who remain uncertain rather than investors who have already formed strongly negative views.
Past Returns Could Create a Feedback Loop
The researchers identify a potential mechanism through which cryptocurrency markets could develop speculative feedback loops.
Positive returns can attract new participants. New participants increase demand, potentially pushing prices higher. Those higher prices can then provide additional information that attracts further investors.
Under this framework, price appreciation itself can become an important factor influencing future participation.
The dynamic does not necessarily mean that investors are acting irrationally. Rather, it suggests that investors may learn from recent market performance while holding very different beliefs about what those returns imply for future performance.
The lack of common information and beliefs could therefore contribute to larger price movements than would occur in markets where investors have more closely aligned expectations.
Crypto Wealth Can Influence Large Purchases
The study also examined whether cryptocurrency gains translate into household spending.
Researchers found that a doubling in Bitcoin’s price made a household whose entire financial portfolio was invested in cryptocurrency 1.4 percentage points more likely to purchase a durable good.
That represented roughly a 7% increase relative to the unconditional probability of making such a purchase.
However, the effect did not persist into ordinary spending.
The researchers consequently compared the behavior associated with crypto gains to the way households may treat gambling income or lottery winnings rather than a permanent increase in wealth.
This distinction suggests that cryptocurrency gains can influence specific discretionary decisions without necessarily producing a broad or persistent increase in household consumption.
Investor Disagreement May Remain a Source of Volatility
The Federal Reserve study points toward investor beliefs as an important factor in understanding cryptocurrency markets.
Crypto remains an asset class in which investors can hold dramatically different views about future returns, risk and the significance of recent price movements.
That disagreement can make new information particularly influential. A strong Bitcoin rally may be interpreted by some investors as evidence of further upside, while others may view the same move as a sign that valuations have become excessive.
The study therefore suggests that cryptocurrency volatility is driven not only by changes in underlying market conditions but also by how investors learn and update their expectations.
For the crypto market, the implication is significant: future retail demand may depend not only on Bitcoin’s price trajectory, but also on how investors interpret and respond to information about its previous performance.
Closing Insights
The Federal Reserve Bank of Cleveland study provides evidence that crypto ownership is unusually connected to investor beliefs about returns and risk. The large gap between expected returns among owners and non-owners, combined with the experimental response to information about Bitcoin’s past performance, suggests that expectations can materially influence participation.
That dynamic may help explain why cryptocurrency markets can experience rapid changes in demand. As investors receive new information and revise their expectations, buying behavior can change quickly, potentially reinforcing both rallies and declines.
The study does not establish that recent returns alone determine cryptocurrency prices. Instead, it highlights the importance of beliefs, information and learning in an asset class where investors remain substantially divided over future prospects.
As cryptocurrency becomes more integrated into household portfolios, understanding those behavioral differences may become increasingly important for explaining market participation and volatility.
Comparison, examination, and analysis between investment houses
Leave your details, and an expert from our team will get back to you as soon as possible
