Study Finds Conviction Drives Crypto Investment Decisions

Why do some buy bitcoin while others prefer to stay away? A study by the Cleveland Federal Reserve points less to age or income than to a harder-to-measure factor: what each person thinks about the future return of crypto. And a few figures on past performance can sometimes be enough to tip the undecided.

Return expectations weigh more than age or crypto income

The Cleveland Federal Reserve published in July a working paper dedicated to American households and cryptos, based on quarterly surveys conducted since 2018 with 15,000 to 25,000 households.

Its authors, economists Michael Weber, Bernardo Candia, Olivier Coibion, and Yuriy Gorodnichenko, compare crypto holders with stock, bond, or gold holders. The finding echoes the recent debate about investors’ greed: psychology weighs at least as much as fundamentals.

Titled “Do You Even Crypto, Bro? Cryptocurrencies in Household Finance”, the paper establishes a first fact: in 2021, 87% of households without crypto said they did not know what return to expect over twelve months, compared to 54% of holders. Among those who dared to make a forecast, crypto owners expected on average a 22% return over the year, against 7% for others.

The gap is the largest among all assets studied, including stocks and gold. One additional percentage point of expected return is accompanied by a 0.8 point increase in the probability of holding crypto. Expected returns and perceived risk together explain about twice as much variation in holding as all observable characteristics combined, like age, income, or gender.

The demographic profile remains marked however. Those under 40 hold crypto 13 points more often than those over 60, and men 4 points more than women, all else being equal.

Information on past gains is enough to make people buy

The study includes a randomized controlled experiment, a setup that assigns participants by lottery to isolate the effect of given information. Conducted in the second quarter of 2025, it presented some households with bitcoin’s return over the previous twelve months (14.3%), and others with that of stocks, GameStop, or inflation.

Households informed of the bitcoin figure raised their desired crypto allocation by about 2 percentage points, or 47% more than the 4.3% targeted on average by the control group. Their actual purchases also increased by 2.5 points, a statistically significant result. Information on recent returns “induces some households to start buying crypto,” the authors write.

The effect is concentrated among those who did not hold crypto due to lack of information. Households who already considered it a bad investment did not react. For the researchers, the mechanism sheds light on bubble formation: “Positive returns attract new participants, which drives the price even higher“, and past performance is extrapolated without expected mean reversion. 

The recurring question after each price rise, namely whether it is too late to buy bitcoin, finds here a preliminary answer: information on past performance attracts new entrants.

Gains treated like lottery money

The paper also measures what households do with their gains. A doubling of bitcoin price makes a household fully invested in crypto 1.4 points more likely to buy a durable good, about a 7% increase compared to the average probability of such a purchase. The effect does not extend to current spending, unlike stocks or bonds.

The authors draw a sharp comparison: crypto gains are perceived “more like lottery winnings” than permanent enrichment, spent on a big purchase rather than spread out over time.

The study has limitations: expectation data is mostly from 2021, the sample is a panel of voluntary consumers, and the experiment covers only one quarter. Researchers nevertheless conclude that lack of information and common beliefs “suggest that price volatility will continue to be one of the most defining features of this new asset in the foreseeable future“. 

These behavioral readings do not equate to market forecasts. This reading is not financial advice.

The Cleveland Fed working paper shifts the question from price to information: retail demand depends as much on what investors hear about past performance as on price level. 

If the loop described by researchers works, each bullish phase carries within it the conditions for its extension, until an external shock, such as bond market tensions, breaks the mechanism. The next waves of inflows, measurable in flows to bitcoin ETFs, will show if the effect documented in 2025 repeats at current market scale.

Fenelon L.

Passionné par le Bitcoin, j’aime explorer les méandres de la blockchain et des cryptos et je partage mes découvertes avec la communauté. Mon rêve est de vivre dans un monde où la vie privée et la liberté financière sont garanties pour tous, et je crois fermement que Bitcoin est l’outil qui peut rendre cela possible.

DISCLAIMER

The views, thoughts, and opinions expressed in this article belong solely to the author, and should not be taken as investment advice. Do your own research before taking any investment decisions.