Although the cryptocurrency market is infamous for its booms and busts, the most recent cycle has proven to be unique. More people than ever have entered the market, democratizing it more and more and bringing cryptocurrencies closer to becoming a common asset class. Young investors who are digital natives and will help to shape the future of finance are leading the charge.
According to new research, high-net-worth investors under the age of 54 are significantly more interested in investing in the asset class than older age groups are. They enjoy the excitement generated in the Reddit, Telegram, and Discord online communities and are willing to experiment and take more risks. These results are consistent with data compiled by wealth-X that wealthy individuals interested in cryptocurrencies are, on average, almost seven years younger than the general wealthy population.
Who are the young investors who are crypto-hungry?
A closer examination of the published data reveals that the majority of people with a cryptocurrency focus (90%) have an entrepreneurial mindset. These people include those who started or invested in companies with a focus on cryptocurrencies, like Vitalik Buterin, the creator of Ethereum, and affluent people with a general interest in cryptocurrencies, like Elon Musk.
These self-made millionaires appear to be more willing to invest in riskier and more volatile asset classes like cryptocurrency. The international wealth community is currently dominated (84%) by entrepreneurs who have amassed wealth on their own without relying on inheritance, and this trend is expected to continue.
A younger generation eschewing traditional finance
According to our research, traditional finance disillusionment is the main driver of young adults’ investment in digital assets. Interestingly, a similar percentage claimed that traditional financial players getting involved in cryptocurrency would deter them from investing more, even though the majority of investors in other age groups viewed this factor favorably. This group feels severely at a disadvantage in the traditional financial order because they are products of the post-2008 crash environment and believe that it is biased against them.
The appeal of cryptocurrency for young investors stems from their desire and ability to experiment without the use of traditional financial intermediaries. They are the most likely to use high-risk strategies in digital asset investing, and, unlike older investors, they are more likely to appreciate crypto’s lawlessness.
According to the Private Wealth in Digital Assets 2022 research, 64% of people between the ages of 18 and 25 say they have made investments without fully understanding what they were doing, compared to just 10% of people over the age of 65. More than any other group, 58% of respondents say that in the past year, regulatory changes have made it more challenging to access the market for digital assets.
Young investors looking for quick gains
While financial pressures and disillusionment are the main drivers driving investors into cryptocurrencies, in the most recent bubble, many young investors were drawn in by the possibility of huge returns.
NFTs and altcoins, which are the most speculative components of this asset class, are more likely to be dominated by younger people. This reflects the market’s characteristics at the time these young investors poured money in, which was during a time of hyper growth when the number of digital assets exploded.
The most challenging aspect at the time was the sheer number of investment opportunities, which made it difficult to determine how much of it was a scam, one high-net-worth investor says. This resulted in wild bets sometimes paying off without the need for research. “I’m more interested in the potential for price increases than I am in new coins or new technology,” says another wealthy investor.
Due to this speculative trend, investors are turning to new information sources through digital channels. Digital channels promote engagement but they also contribute to hype bubbles. A high-net-worth investor claims that because Discord is so popular, it’s easy to become overwhelmed by conflicting opinions. They view investing as more like “spending the weekend at the races” than as an investment. The 18 to 25 age group is the one that is most likely to be inspired to invest by a recommendation from a member of their network (35 percent).
Singapore and Hong Kong are gaining momentum
The study, which included 1,500 investors from Singapore, Hong Kong, Taiwan, Australia, and the United Kingdom, discovered that Singaporeans dominate the 18-25 age group (see Figure two). According to research conducted by advertising firm BBH Singapore, this reflects the country’s huge appetite for cryptocurrency, which has become the second most popular asset for investors after stocks.
This is true even though the Monetary Authority of Singapore (MAS) has intensified its efforts to protect retail investors’ rights when it comes to digital assets. Hong Kong came in second place behind Singapore, which is consistent with Visa research that showed Hong Kongers to be some of the biggest cryptocurrency investors worldwide. Currently, the territory is advancing its anti-money laundering (AML) and counter-terrorist financing (CTF) laws.
Prospects for digital assets are promising
Purely hype-based speculative investment strategies have been rendered ineffective by the shocks of the most recent market crash. The days of quick gains might not last as new regulations and advancing technological maturity help to stabilize the market. Adam Goldberg, co-founder of Standard Crypto, he thinks that is something we are going to look back on as transient, rather than something that underlies the structure of the cryptocurrency market.
However, young investors are still committed to this asset class that will influence investing in the future. More than any other age group in the study, 18 to 25-year-olds (53%) anticipate having 75 to 100 percent of their portfolio in digital assets within the next three years. The majority of assets, according to about half of the respondents, will likely be digital in the future.
Longer-term strategies based on the underlying value of the asset class are likely to prosper as we come out of the current crypto downturn, in part due to the dedication of a new breed of investors.
