Cryptocurrency has been touted as the key to black wealth creation. But critics say the investment is too high a risk.


At the time, Williams didn’t know much about cryptocurrency but decided to invest just over $200 to see where it would take him.

“Nobody knew what it was,” Williams said. “But it was going to change the world. So I was drinking a lot of crypto Kool-Aid.”

Cryptocurrency – decentralized digital currency such as bitcoin and ethereum – would gain popularity among black investors in the coming years. As the hype grew, Williams cashed in on 2020 and bought her mom a house. He had learned enough about cryptocurrency to know it was time to get out.

“I was done playing,” said Williams, now an adjunct law professor at the University of New Hampshire.

Despite his earnings, Williams worries that experienced investors are promoting cryptocurrency to black Americans as the key to financial inclusion and closing the wealth gap without fully explaining the risks.

A study published earlier this year by Charles Schwab and Ariel Investments found that black Americans were more likely than white Americans to invest in cryptocurrency. The study highlights data that shows black investors are less likely than white investors to believe cryptocurrency is a risky investment, despite the extreme volatility of cryptocurrency, black people, according to the study, are also more likely to make investment decisions based on social media or other less credible sources.
The disparity makes black investors disproportionately vulnerable when the cryptocurrency market crashes. Critics claim that black Americans lag behind their white counterparts when it comes to financial literacy, which they say is key to making smart investment decisions with cryptocurrency. Yet social media influencers, black celebrities, athletes and conference organizers continue their efforts to attract more black cryptocurrency investors, touting their own financial gains.

“Cryptocurrencies don’t solve living wages, they don’t solve unemployment,” Williams said. “Black people are so eager and thirsty for financial inclusion and economic opportunity that, by default, we are more ripe for exploitation.”

But experienced investors say cryptocurrency appeals to black people for many reasons. Among them are the low barriers to entry as there are no credit checks or income requirements; equal opportunity for success regardless of race or generational wealth; and many merchants accept cryptocurrency as a form of payment.

How does cryptocurrency work?

Successful black investors say it’s important to educate potential investors about how cryptocurrency works so they can make smart decisions about where to invest their money.

Cryptocurrency is basically money that is bought, sold, and traded online. Unlike the US dollar, cryptocurrency is not regulated by the government, but rather operates in a decentralized system called blockchain.

The goal for cryptocurrency investors is to buy it low, wait for the value to rise, and then cash out their profit. When the demand for cryptocurrency increases, the value increases. If values ​​fall or the market crashes, investors may lose money.

There are many types of cryptocurrencies. Bitcoin, which has been heavily promoted by celebrities and athletes, is one of the most popular due to its low transaction fees and ease of use.

Cryptocurrency has also gained popularity in the black community due to success stories.

For example, Terrance Leonard invested $2,000 in 2019 and in 2021 his cryptocurrency investments grew to $1 million. The previous year, he was able to buy a house in Washington DC when he sold some of his cryptocurrency to pay the down payment and make a down payment. He hopes to eventually sell more cryptocurrency and pay off the mortgage.

Leonard said becoming a millionaire doesn’t happen overnight and it takes dedication and a willingness to study the market.

“It’s going to be scary and you’ll be nervous because there’s money involved and often people invest more money than they can afford to lose,” Leonard lamented. “But you have to dive into it. Treat it like you treat any of your other interests.”

A “risky investment”

Some scholars, however, are skeptical of cryptocurrency.

Algernon Austin, director of race and economic justice for the Center for Economic and Policy Research, called cryptocurrency a “get-rich-quick scheme.”

Austin said investing in cryptocurrency can be harmful for people who have no general investing experience because the market is so volatile.

Austin said low-income black families shouldn’t gamble their money without receiving advice from a financial advisor.

“Most African Americans got into cryptocurrency because the values ​​were high, which means people are losing money,” Austin said. “And we’re talking about a low-wealth population losing wealth, that’s not a good thing. It’s the riskiest investment you can make.”

“A fair financial ecosystem”

But successful cryptocurrency strategists and investors insist the investment will help black people advance financially.

According to the Federal Reserve, the median net worth for a white family is $188,200, compared to $24,100 for a black family.

Bitcoin advisor Charlene Fadirepo said black Americans have long been excluded from fair access to wealth due to systemic racism. Fadirepo pointed out that home ownership is lower in the black community because banks have historically refused mortgages to black families.

Fadirepo said cryptocurrency provides a level playing field for all investors.

“This is our chance to have a fair financial ecosystem,” Fadirepo said.

Fadirepo, who plans to speak at a conference next month that educates attendees about cryptocurrency and connects black investors, said she encourages potential investors to only invest what they can. afford after paying for the basic necessities. Part of that requires creating a budget of your extra funds, she said.

“These are responsible and smart investments,” Fadirepo said. “If you’re not in a position to invest, if you have significant debt, if you have credit issues, maybe your first step is to focus on that.”

Leonard said many black Americans feel empowered by cryptocurrency because they have an equal chance at wealth.

Leonard said there are fewer systemic barriers — such as credit checks — to getting crypto loans like there are with bank loans. Investors can use their crypto assets as collateral in exchange for liquid funds. As long as investors maintain the collateral ratio and repay the loans, they get their cryptocurrency back at the end of the term.

“It opens the door to equality,” Leonard said. “There are no long-standing cryptocurrency institutions setting the rules.”

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