Cryptocurrency owners without sufficient financial literacy and risk tolerance may be financially vulnerable, as the cryptocurrency market is highly volatile and lacks consumer protections. Our study divides cryptocurrency owners into three groups based on their purpose for holding cryptocurrencies-for investment only (investors), for transactions only (transactors), and for a mix of investment and transactions (mix users)-and examines how each group correlates with financial literacy and risk tolerance compared to consumers who do not own cryptocurrencies (nonowners). Using the 2022 Survey of Household Economics and Decisionmaking, we find that investors and mix users are significantly or moderately more financially literate and risk tolerant than nonowners, but transactors are less financially literate and slightly more risk tolerant than nonowners. We also find that the three groups of cryptocurrency owners vary by demographic and financial characteristics. Our findings highlight that transactors could be particularly financially vulnerable in the absence of consumer protections in the cryptocurrency market.
Life cycle investment models predict much higher participation and investment in cryptocurrencies than found empirically. We reconcile these differences by introducing information costs for cryptocurrency market participation to a standard consumption-investment life cycle model. Only with increasing per-period cryptocurrency market participation costs, are we able to simulate the observed cryptocurrency market participation patterns. The fact that neither fixed entry nor non-increasing per-period costs are able to replicate the survey findings suggests that other reasons, besides information costs, should be considered to explain lower-than-predicted investing in cryptocurrency.
Daniela Balutel, Walter Engert, Christopher S. Henry, Kim P. Huynh ยท 6 authors
Abstract We measure crypto and financial literacy using microdata from the Bank of Canadaโs Bitcoin Omnibus Survey. Our crypto literacy measure is based on three questions covering basic aspects of Bitcoin. The financial literacy measure we use is based on three questions covering basic aspects of conventional finance (the โBig Threeโ). We find that a significant share of Canadian Bitcoin owners have low crypto knowledge and low financial literacy. We also find gender differences in crypto literacy among Bitcoin owners, with female owners scoring lower in Bitcoin knowledge than male owners. We do not, however, find significant gender differences in financial literacy amongst Bitcoin owners. In contrast, non-owners show gender differences in both crypto and financial literacy.
Sergio Luis Nรกรฑez Alonso, Miguel รngel Echarte Fernรกndez, Konrad Kolegowicz, David Sanz Bas ยท 5 authors
Los paรญses de la regiรณn del Caribe, Centroamรฉrica y Sudamรฉrica han irrumpido con fuerza e indiscutible liderazgo en la adopciรณn del dinero digital, ya sea apostando por las monedas digitales emitidas y respaldadas por un banco central (CBDC) o por las monedas virtuales descentralizadas (DEFI), lideradas por Bitcoin y Ether. El objetivo del artรญculo es identificar las razones que llevan a un paรญs o zona monetaria a decantarse por alguno de estos sistemas. Una vez estudiadas las ventajas y desventajas del uso de las divisas virtuales centraremos el anรกlisis en doce variables sobre el uso de dinero mรณvil extraรญdas del GFI (Global Findex Indicator) de los aรฑos 2011, 2014, 2017 y 2021 de todos estos paรญses. El presente artรญculo demuestra, entre otras cuestiones, que la apuesta por un dinero digital basado en CBDC o DEFI depende mรกs de la elecciรณn polรญtica de los dirigentes del paรญs en cuestiรณn que de criterios socioeconรณmicos.
Relatively narcissistic people are attracted to cryptocurrencies, though it is unclear whether they are differentially attracted to cryptocurrencies over other investments. Furthermore, theoretically, only narcissistic admiration, rather than narcissistic rivalry, would be expected to associate with attitudes toward cryptocurrencies. Intelligence and financial literacy are also proposed individual difference predictors of attitudes toward investments. Consequently, we administered measures of narcissistic admiration and rivalry, a financial literacy test, and a battery of intelligence tests to a sample of young adults (N = 372). Based on a structural equation model, narcissistic admiration and narcissistic rivalry differentially predicted attitudes toward cryptocurrencies (admiration, positively; rivalry, negatively), but both failed to associate significantly with attitudes toward stocks. Furthermore, financial literacy was a unique, positive predictor of attitudes toward stocks, whereas intelligence was a unique, negative predictor of attitudes toward cryptocurrencies. Our findings support the notion that narcissism is differentially associated with attitudes toward cryptocurrencies, though only narcissistic admiration (positively), consistent with the hypersensitivities to reward theory. Finally, higher levels of intelligence, controlling for financial literacy and narcissism, associated negatively with attitudes toward cryptocurrencies, perhaps due to the influence of scepticism.
Decentralized finance (DeFi) was not well understood when it came into the spotlight in 2019. In 2020, it scaled fast and increased from $700 million at the beginning of 2020 to $15 billion by the end of 2020, and as of June 2022, the total value locked (TVL) reached a high of $256 billion. What explains this remarkable increase? The current financial system has left 1.7 billion people unbanked. The barriers to entry are high, the costs are high, transparency is low, and a small group of powerful elites dominates it. DeFi offers an accessible alternative to the current financial system. It explains its exponential borrowing, lending, yield farming, and insurance growth. Early results suggest that DeFi will redefine the financial system. This chapter provides an overview of DeFi, an analysis of its ecosystem, and its likely trajectory.
Since 2016, the Bank of Canada has conducted annual surveys to monitor awareness, adoption and usage of Bitcoin and other cryptocurrencies. This report incorporates results from the 2019 Bitcoin Omnibus Survey and the November 2020 Cash Alternative Survey. We find that between 2018 and 2020, the level of Bitcoin awareness and ownership among Canadians remained stable: nearly 90% of the population were aware of Bitcoin, while only 5% owned it. We find that about half of Bitcoin owners stated they usually obtained their bitcoins through mobile or web exchanges, while one-fifth used mining. Bitcoin owners were susceptible to certain risks, as evidenced by the fact that about half of current and past owners stated they had been affected by events such as price crashes, losing access to funds, scams or data breaches. The most commonly cited reasons for owning Bitcoin were related to its use for investment or based on interest in the technology. Bitcoin owners displayed greater knowledge about the Bitcoin network than nonowners, yet they scored lower on questions testing financial literacy.
Alexander Suriadi, Andreas Dongan Wibawa, Setiani Putri Hendratno
Investment is a financial activity known by many people. With the advance of technology, people can now invest in digital currency. The purpose of this study is we would like to know the factors affecting mental accounting. Whether financial literacy, investment decision, and overconfidence affect mental accounting regarding investment activities in cryptocurrency. To do this, we use a quantitative method with six-point Likert scale questionnaires as a measurement to collect samples. The questionnaires are shared with individuals from different regions that have or do not have an experience in investing activities. In addition, the demographic is further categorized into age, gender, and education level. We got 279 samples, mainly from Southeast Asia and a few from East Asia, Europe, and North America. The data will be processed using SEM-PLS software to conduct the result. The finding implies that investing in cryptocurrency is strongly affected by the investorโs behaviour, such as mental accounting. Overconfidence is a significant factor contributing to investorsโ mental accounting and investment decisions, while financial literacy is only associated with decision-making and not related to mental accounting.
Purpose The existing literature offers various perspectives on integrating cryptocurrencies into investment portfolios; yet, there is a gap in understanding the behaviours, attitudes and cross-investment links of individual investors. This study, grounded in the modern portfolio theory and the random walk theory, aims to add empirical insights that are specific to the UK context. It explores four hypotheses related to the influence of socio-demographics, digital adoption, cross-investment behaviours and financial attitudes on cryptocurrency owners. Design/methodology/approach This study uses a logistic regression model with secondary data from the Financial Lives Survey 2020 to assess the factors impacting cryptocurrency ownership. A total of 29 variables are used, categorized into four groups aligned with the hypotheses. Additionally, hierarchical clustering analysis was conducted to further explore the cross-investment links. Findings The study reveals a significant lack of diversification among UK cryptocurrency investors, a pronounced inclination towards high-risk investments such as peer-to-peer lending and crowdfunding, and parallels with gambling behaviours, including financial dissatisfaction and a propensity for risk-taking. It highlights the influence of demographic traits, risk tolerance, technological literacy and emotional attitudes on cryptocurrency investment decisions. Originality/value This study provides valuable insights into cryptocurrency regulation and retail investor protection, underscoring the necessity for tailored financial education and a holistic regulatory approach for investment products with comparable risk levels, with the aim of minimizing regulatory arbitrage. It significantly enhances our understanding of the unique dynamics of cryptocurrency investments within the evolving financial landscape.
When entering into a tontine, the value of the tontine for the participant highly depends on its composition (e.g. the age of the participants, the amount invested by each of them already invested in the tontine). However, participants subscribe to the scheme without any knowledge of either the composition of the tontine, or, in some cases, its exact payout scheme. Herein, we quantify the value of this information using certainty equivalents in the expected utility setting and a measure for model risk that allows us to obtain bounds on the tontine value subject to uncertainty in certain characteristics. We then propose a smart contract that offers full disclosure of information in a tontine. We discuss the practical implementation of such a tontine and present some new risks that could arise.
Darren Aiello, Tetyana Balyuk, Marco Di Maggio, Mark J. Johnson ยท 6 authors
This paper uses transaction-level data across millions of accounts to identify cryptocurrency investors and evaluate how fluctuations in individual crypto wealth affect household consumption, equity investment, and local real estate markets.We estimate an MPC out of unrealized crypto gains that is more than double the MPC out of unrealized equity gains but smaller than the MPC from exogenous cash flow shocks.This MPC is mostly driven by increases in cash/check spending and mortgages.Moreover, households sell crypto to increase both discretionary as well as housing spending.As a result, crypto wealth causes house price appreciation-counties with higher crypto wealth see higher growth in home values following high crypto returns.Our results indicate that cryptocurrencies have substantial spillover effects on the real economy through consumption and investment into other asset classes.
Michael Weber, Stephen Sheflin, Olivier Coibion, Yuriy Gorodnichenko
Using repeated large-scale surveys of U.S. households, we study the cryptocurrency investment decisions and motives of households relative to other financial assets.Cryptocurrency holders tend to be young, white, male and more libertarian relative to non-crypto holders.They expect much higher rates of returns for crypto and perceive it as relatively safer than do other households.They also view it as a better hedge against inflation.For those holding cryptocurrencies, changes in Bitcoin prices translate into their purchases of durable goods.Finally, exogenously-provided information about historical returns of cryptocurrencies leads individuals to increase their desired crypto holdings and makes them more likely to actually purchase cryptocurrency subsequently.We compare these views and behaviors to those of households toward other financial assets and argue that cryptocurrency is unique in many of these respects.
Purpose The purpose of this study is to discuss the role of central bank digital currency (CBDC), Fintech and cryptocurrency for financial inclusion and financial stability. Design/methodology/approach This study used critical discourse analysis to identify the benefits and risks of CBDC, Fintech and cryptocurrency for financial inclusion and financial stability. Findings Fintech, CBDC and cryptocurrency can increase financial inclusion by providing an alternative channel through which unbanked adults can access formal financial services. CBDC and Fintech services have the potential to preserve financial stability, while cryptocurrency presents financial stability risks that can be mitigated through effective regulation. This paper also identified some problems of CBDC, Fintech and cryptocurrency for financial inclusion and financial stability. This paper offered some insight about the future of financial inclusion and the future of financial stability. Practical implications Although CBDC, Fintech or cryptocurrency can extend financial services to unbanked adults and offer cost-efficient advantages, there are risk considerations that need to be taken into account when using CBDC, Fintech and cryptocurrency to increase financial inclusion and to preserve financial stability. Originality/value The literature has not identified the combined role of CBDC, Fintech and cryptocurrency for financial inclusion and financial stability. To the best of the authorโs knowledge, this paper is the first paper to assess the combined role of CBDC, Fintech and cryptocurrency for financial inclusion and financial stability.
Most of the literature on life cycle investment portfolio analysis focuses on the allocation between risky stocks and safe bonds. We introduce a new risky asset class, cryptocurrency, to a standard consumption-investment life cycle model. Our model suggests that the optimal investment profile in cryptocurrencies declines with age. Young investors mainly invest in cryptocurrency. As age and wealth increase, investors transition to mostly stocks mid-career and mostly bonds in retirement. A welfare analysis shows significant utility losses from not participating in the cryptocurrency market or not adjusting cryptocurrency portfolio shares throughout the life cycle.
This article contributes to the limited empirical literature on the impact of decentralization on psychological wellbeing by investigating the hypothesis which signifies that shifts toward more fiscal decentralization in health services would be accompanied by improvements in health outcomes. Formulating a conventional public finance model applied to health care, this hypothesis is tested on a panel data of the Pakistan's provinces during the period 1990 to 2015. The empirical underpinning of the article suggested that the economic reforms of 2001 in Pakistan's healthcare sector, through fiscal decentralization, have imposed a substantial and positive influence on the effectiveness of the public policy in improving the healthcare outcomes over the examined period.
Blockchain technology, perhaps the most revolutionary invention of the 21st century, was popularized by introducing the world's first cryptocurrency 'Bitcoin.' However, despite many purported advantages offered by cryptocurrencies, they eluded mass adoption due to their extreme volatility. This flaw led to the ideation of an alternate cryptocurrency, 'stablecoin' which have seen their popularity surge almost 10x within a year. Further, the world has also witnessed the evolution of new business structures in decentralized autonomous organizations ('DAOs') where ownership and management intermingle with the help of smart contracts driven blockchain technology.
The profoundness of these new-age concepts could see them become the inherent elements of the global economy soon. This development would also necessitate devising new tax policies to cater to the crypto and blockchain-driven world. So far, not much has been discussed or debated around the income-tax implications for these concepts. With this background, the authors have deep-dived into the concept of stablecoins, their mechanics and explored the possible income tax implications throughout the lifecycle of different stablecoins. The authors have also discussed the concept of DAO along with a real-world case study, examine conceivable income tax offshoots that could arise due to DAO's unique nature, and sign-off with a suggestion on the probable solution.