A new Federal Reserve Bank of Cleveland working paper offers a provocative explanation for why cryptocurrencies behave so differently from traditional financial assets: Americans who buy crypto don’t just have different demographics or risk appetites, they have radically different beliefs about the future returns of digital assets.
The finding could help explain how crypto’s continued volatility and rallies can attract new buyers, potentially creating a feedback loop in which rising prices reinforce bullish expectations and draw more investors into the market.
Using repeated surveys of nearly 25,000 US households per wave, researchers Michael Weber, Bernardo Candia, Olivier Coibion, and Yuri Gorodnichenko found that expectations about crypto returns explain more of the variation in cryptocurrency ownership than a wider range of demographic characteristics.
D paperTitled “Do You Even Crypto, Bro? Cryptocurrency in Household Finance,” also used a randomized data experiment to show that informing people about the recent performance of Bitcoin (BTC) could increase both their desired crypto allocation and their subsequent purchases.
Perceived crypto risk by ownership. Source: Federal Reserve Bank of Cleveland
The researchers say the findings point to a possible mechanism behind speculative bubbles: Past gains can attract new investors, whose purchases push prices higher and potentially attract more buyers.
“Positive returns attract new participants, which further drives up prices,” the authors wrote
This dynamic is particularly interesting because cryptocurrency is poorly understood by a large segment of the population. Researchers in 2021 Survey87% of people who don’t own crypto say they don’t know what returns to expect from it in the next year. Among crypto owners, the figure was still 54%.
Related: Canadian Crypto Ownership Grows 25%: Ontario Survey
Ownership is associated with double-digit return expectations
For those willing to forecast, however, the gap was huge. Crypto owners expected an average return of 22% over the next year, compared to just 7% among non-owners. Owners also tend to view crypto as less risky than non-owners.
The researchers found that expected returns were unusually strong in determining ownership. 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 return and risk together explain significantly more variance in crypto ownership than observable characteristics such as age, income, and gender.
This makes crypto an outlier compared to stocks, bonds and gold. For traditional wealth, demographic and financial characteristics typically have much greater explanatory power than expected income differences. Crypto reverses that relationship.
Source: Federal Reserve Bank of Cleveland
The demographic profile of crypto investors remains distinct. People under 40 were 13 percentage points more likely to own cryptocurrency than those over 60, even after controlling for other characteristics. Men were about 4 percent more likely to own crypto than women, while higher-income and wealthier households were also more likely to participate.
The experiment provides perhaps the paper’s most fruitful exploration of the crypto market.
In 2025, researchers randomly assigned households to receive information about BTC, stocks, GameStop, or inflation. Participants who were shown the previous 12-month returns to Bitcoin increased their desired crypto portfolio allocation by roughly 2 percentage points, or about 47% compared to the 4.3% desired allocation among the control group. Actual subsequent crypto purchases also increased by around 2.5 percentage points.
The authors describe the result as “providing information about recent bitcoin returns prompts some households to start buying cryptocurrency.”
The effect was concentrated among people who said they did not own crypto because they lacked sufficient information. Those who already believed that crypto was a bad investment generally did not respond to the information treatment.
The paper also found that crypto wealth can spread at the expense of households. Doubling the price of BTC makes a household whose entire financial portfolio is crypto 1.4 percentage points more likely to purchase a durable good, roughly equivalent to a 7% increase in the unconditional probability of such a purchase. But its effect did not last on general expenditure.
This leads researchers to a stark comparison: crypto profits are considered more than permanent increases in wealth, such as “gambling income” or winning the lottery.
The broader implication is that crypto volatility may be partly rooted in disagreement and learning rather than market fundamentals. The authors conclude that cryptocurrency stands out because it is poorly understood, investors form sharply different opinions about its potential, and new information about past returns can change both expectations and behavior.
“The general absence of information and belief about crypto among investors,” they write, “suggests that price volatility will continue to be one of the most defining characteristics of this new asset for the foreseeable future.”
For the crypto market, this suggests a potentially uncomfortable conclusion: The next wave of retail demand may depend not just on the price of Bitcoin, but on what investors are told about the price that came before it.
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