A new working paper from the Federal Reserve Bank of Cleveland offers an unexpected explanation for why cryptocurrency behaves differently from traditional financial assets: Americans who buy crypto are distinguished not just by demographics or risk appetite — their views on the future returns of digital assets diverge radically.
This finding may explain the persistent volatility of cryptocurrencies and how rallies attract new buyers, creating a feedback loop where rising prices reinforce bullish expectations and draw more investors into the market.
Using repeated surveys of up to 25,000 US households in each wave, researchers Michael Weber, Bernardo Candia, Olivier Coibion, and Yuriy Gorodnichenko found: expectations of crypto returns better explain the differences between crypto owners and non-owners than a wide range of demographic characteristics.
The paper, titled "You Into Crypto, Bro? Cryptocurrencies in Household Finance," also presents a randomized information experiment. It shows that simple information about the recent performance of Bitcoin ($BTC) can increase the desired share of crypto assets and subsequent purchases.
Perceived risk of cryptocurrency by ownership. Source: Federal Reserve Bank of Cleveland
The researchers argue that the results point to a possible mechanism for speculative bubbles: past growth attracts new investors, whose purchases push prices higher and attract even more buyers.
"Positive returns attract new entrants, which further drives up the price," the authors write.
This dynamic is particularly notable: a significant portion of the population still has a poor understanding of cryptocurrency. In a survey conducted by the researchers in 2021, 87% of people who did not own crypto said they did not know what returns to expect from it in the coming year. Among crypto owners, this figure was still 54%.
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Ownership Linked to Expectations of Double-Digit Returns
However, among those willing to make a forecast, the gap was enormous. Crypto owners expected an average 22% return in the next year, while non-owners expected only 7%. Owners also tended to view cryptocurrency as less risky than non-owners.
The researchers found that expected returns had an unusually strong influence on crypto ownership. A one-percentage-point increase in an individual respondent's expected crypto return was associated with a 0.8 percentage point increase in the probability of owning crypto. Expected returns and risk together explained a significantly larger portion of the differences in crypto ownership than observed characteristics such as age, income, and gender.
For cryptocurrency, this is unusual compared to stocks, bonds, and gold. For traditional assets, demographic and financial characteristics typically explain differences between investors much better than their return expectations. For cryptocurrency, the ratio is reversed.
Source: Federal Reserve Bank of Cleveland
Meanwhile, the demographic profile of crypto investors remains distinct. People under 40 were 13 percentage points more likely to own crypto than people over 60, even accounting for other characteristics. Men were about 4 percentage points more likely than women to own crypto, and households with higher incomes and greater wealth were also more likely to participate in this market.
The experiment revealed what is perhaps the article's most significant finding for the crypto market.
In 2025, the researchers randomly assigned households to groups provided with information about $BTC, stocks, GameStop, or inflation. Participants who were shown Bitcoin's performance over the previous 12 months increased their desired share of cryptocurrency in their portfolio by about 2 percentage points — roughly a 47% increase relative to the 4.3% desired share in the control group. Subsequent actual purchases of cryptocurrency also rose by about 2.5 percentage points.
The authors describe this result as follows: "Providing information about Bitcoin's recent returns prompts some households to start buying cryptocurrency."
The effect was concentrated among people who stated they did not own crypto due to a lack of information. Those who already considered cryptocurrency a bad investment typically did not respond to the provided information.
The paper states that crypto wealth may translate into household consumption. A doubling of the price of $BTC increased the likelihood of a household purchasing a durable good by 1.4 percentage points — equivalent to about a 7% increase relative to the unconditional probability of such a purchase — if its entire financial portfolio consisted of cryptocurrency. This effect did not extend to everyday expenses.
This led the researchers to a sharp comparison: the increase in crypto value appears to be perceived more as "gambling income" or a lottery win rather than a permanent increase in wealth.
The broader conclusion: crypto volatility may be partly driven by disagreement and learning, not just fundamental market factors. The authors conclude that cryptocurrency stands out due to weak investor understanding, sharply differing views on its prospects, and the fact that new information about past performance can alter both expectations and behavior.
"The lack of common information and shared beliefs about cryptocurrency," they write, "suggests that price volatility will remain one of the most defining characteristics of this new asset for the foreseeable future."
The conclusion is uncomfortable for the crypto market: the next wave of retail demand may depend not only on the price of Bitcoin but also on what information investors receive about its past price.
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