The crypto collapse is resonating with black American investors

The widespread losses caused by the cryptocurrency’s crash are even greater among Black investors.

According to a survey by Ariel Investments and Charles Schwab, a quarter of Black Americans own cryptocurrencies, compared to just 15 percent of white investors. Black Americans are more than twice as likely to purchase cryptocurrencies as their first investment.

The value of these investments has imploded. The total market capitalization of cryptocurrencies has fallen to under $1 trillion from more than $3.2 trillion last year. The decline in digital assets coincides with a bear market in US stocks.

Black Americans' greater exposure to cryptocurrencies has made them more vulnerable to the financial downturn, even if their households have less wealth on average.

The marketing-enhanced appeal of wealth creation drew many Black investors into cryptocurrencies. Bitcoin's dollar price rose 9,300 percent in the five years to its peak in November.

Jefferson Noel, 27, said he first encountered crypto in January 2019 when he accidentally invested $5 in Bitcoin while using Cash App, a payment service.

“I had no idea what it was and I don’t even remember doing it,” he said.

Last May, his unintentional investment was worth $70. The astronomical gain inspired him to take a friend's advice and invest $20,000 of his savings in other cryptocurrencies like Dogecoin instead of more traditional investments like index funds.

“[Black Americans] don’t want to be left behind again,” Noel said. “As far as I can tell, the black community sees crypto as a way to level the playing field and get in the game before the gatekeepers stop others from participating.”

But he is now reconsidering this decision. Sustained losses have wiped out more than 20 percent of his crypto investment. He researches mutual funds on his uncle's advice, but still buys more crypto.

Historically, black investors have tended to be conservative, putting more money into low-risk assets like insurance and savings bonds. According to the Ariel Schwab survey, black Americans trust the stock market and financial institutions less than white Americans. Further research has linked their fears to decades of discrimination in the financial system.

Jatali Bellanton, the author of a personal finance curriculum aimed at young black Americans called Kids Who Bank, sees cryptocurrencies as a way to offset wealth-building opportunities that have historically not been available in the real estate and stock markets.

“We don’t want to be left behind when it comes to new technologies,” she said.

The promise of cryptocurrencies as wealth builders has been supercharged by celebrity endorsements, sponsorships and advertising.

Prominent Black Americans, including musicians Jay-Z and Snoop Dogg, boxer Floyd Mayweather, actor Jamie Foxx and filmmaker Spike Lee, have promoted crypto in their communities.

Appearing in commercials for crypto ATM operator Coin Cloud last year, Lee said that "old money isn't going to come for us; it's pushing us down" and "systematically oppressed" while digital assets are "positive, inclusive."

Last month, Jay-Z announced a partnership with former Twitter boss Jack Dorsey to launch a “Bitcoin Academy” literacy program in the Brooklyn public housing complex where he grew up.

Such celebrity backers have been heavily criticized for being paid to sell high-risk investments to people who may not have the resources to weather crypto's volatility.

“Ninety-eight percent of these cryptocurrencies were designed for nothing more than withdrawing money from people’s bank accounts,” said Najah Roberts, a former financial advisor and founder of cryptocurrency education center Crypto Blockchain Plug.

“This isn’t ‘get rich quick,’” Roberts added. “There are massive targeting ads targeting our community.”

Bellanton said it's not advertisements, but the prospect of financial freedom, the lack of minimum investments common to mutual funds and the sense that the blockchain's distributed ledger is more transparent than big banks that is attracting first-time investors.

“The reason minorities are more likely to adopt crypto than others is precisely because if you're not already rich, it's much cheaper to send it [USD Coin, a stablecoin asset] than to send a message,” Brian Brooks, chief executive of blockchain company Bitfury, said at the Aspen Ideas Festival last month. "It's just cheaper. The whole system is cheaper and faster. It doesn't have all these barriers to entry where you can only get it if you're already rich."

Despite the risk of loss, many black investors remain invested in the market. Dennis McKinley, 41, bought the dip against the advice of his financial advisor. He said his crypto coins now make up about 30 percent of his overall portfolio, held alongside stocks.

“Young black America is reaching a point where we have the freedom to invest in alternative strategies beyond real estate,” said McKinley, a small business owner in Atlanta. “I think it’s important to learn and get out there.”