On the Portfolio Choice of Crypto Asset Class: Why the Millennials Own Crypto?

Abstract

We utilize a unique data from the recent wave of Survey of Consumer Finance 2019 to analyze the portfolio choice of a new and raising asset class: cryptocurrency. Namely, who owns crypto and why? We first analyze how key households’ demographic (age, gender, race, etc.) and household’s traits/preferences (time horizon, financial literacy, optimism, etc.) influence crypto ownership. We find that crypto owners are more of college white male; financially literate; social; pessimistic and employ high research when investing. Moreover, the saving motive for crypto owners is more to protect against emergency and less of retirement motives. We then turn to study the relationship between crypto asset class with other asset classes (stock equity, bonds, home and business), and find that only direct holding of stocks increase the propensity to own crypto, while other asset classes negatively influence the likelihood to own crypto. Focusing in this subgroup of direct stockholders, we draw inference on their portfolio properties that impact crypto ownership, and find that these investors consider crypto asset class to be a part of their portfolio diversity. The paper has a theoretical theme to analyze the generational gap, as greater fraction of millennials own crypto. The model provides some insight as showing that since millennials exhibit shorter time horizon than other generation, they more likely to invest in speculative assets (crypto), whereas other generations with greater time horizon, invest more in productive asset.

Keywords: Crypto currency, Bitcoin, demographics, saving motive, gentleman investor; social investor

JEL Classification: G10, G12