Cryptocurrency has been touted as the key to building black wealth.  But critics are skeptical

Cryptocurrency has been touted as the key to building black wealth. But critics are skeptical

At the time, Williams didn’t know much about cryptocurrency, but he decided to invest a little more than $200 to see where it would take him.

“No one knew what it was,” Williams said. “But it was supposed to change the world. So I drank a lot of crypto Kool-Aid.”

Cryptocurrency—decentralized digital money like Bitcoin and Ethereum—would gain traction among black investors in the coming years. As the hype grew, Williams cashed in and bought his mother a house in 2020. He learned enough about cryptocurrency to know it was time to get out.

“I’m done gambling,” said Williams, now an adjunct professor of law at the University of New Hampshire.

Despite his earnings, Williams worries that savvy investors are promoting cryptocurrency to black Americans as the key to financial inclusion and closing the wealth gap without fully explaining the risks.

A study published earlier this year by Charles Schwab and Ariel Investments found that black Americans are more likely than white Americans to invest in cryptocurrencies. The study highlights data showing that black investors are less likely than white investors to believe cryptocurrency is a risky investment, despite the extreme volatility of cryptocurrency, blacks are also more likely to make investment decisions based on social media or other less trusted sources, the study says.
This disparity leaves black investors disproportionately vulnerable when the cryptocurrency market crashes. Critics say black Americans lag behind their white counterparts in financial literacy, which they say is key to making smart cryptocurrency investment decisions. Yet social media influencers, black celebrities, athletes, and conference organizers continue to try to lure more black investors into cryptocurrency and tout their own financial gains.

“Cryptocurrencies don’t solve living wages, they don’t solve unemployment,” Williams said. “Black people are so eager and so thirsty for financial inclusion and economic opportunity that by default we are more ripe for exploitation.”

However, seasoned investors say cryptocurrency is attractive to black people for a number of reasons. Among them are low barriers to entry because there are no credit checks or income requirements; equal opportunity for success regardless of race or generational wealth; and many merchants accept cryptocurrencies as a form of payment.

How does cryptocurrency work?

Successful black investors say it’s important to educate potential investors about how cryptocurrency works so they can make smart decisions about how to invest their money.

Cryptocurrency is basically money that is bought, sold and exchanged online. Unlike the US dollar, cryptocurrency is not regulated by the government, but operates on a decentralized system called blockchain.

The goal for cryptocurrency investors is to buy it at a low price, wait for the value to rise, and then cash out your profit. When the demand for a cryptocurrency increases, the value increases. If values ​​fall or the market collapses, investors can lose money.

There are many different types of cryptocurrencies. Heavily promoted by celebrities and athletes, Bitcoin is one of the most popular due to its low transaction fees and ease of use.

The cryptocurrency has also gained popularity in the black community due to its success stories.

For example, Terrance Leonard invested $2,000 in 2019, and by 2021, his investment in cryptocurrencies grew to $1 million. He managed to buy a house in Washington DC a year ago by selling some of his cryptocurrency to pay serious money and pay a down payment. He hopes to eventually sell more cryptocurrency and pay off his mortgage.

Leonard said becoming a millionaire doesn’t happen overnight and requires determination and a willingness to study the market.

“It’s going to be scary and you’re going to be nervous because there’s money involved and people often invest more money than they can afford to lose,” Leonard lamented. “But you have to immerse yourself in it. Treat it like you would any other interest of yours.”

“risky investment”

However, some researchers are skeptical of cryptocurrencies.

Algernon Austin, director of racial and economic justice at the Center for Economic and Policy Research, called cryptocurrencies a “get-rich-quick scheme.”

Austin said investing in cryptocurrencies can be harmful for people who have no general investment experience because the market is so volatile.

Austin said low-income black families shouldn’t gamble with their money without getting advice from a financial advisor.

“Most African-Americans got into cryptocurrencies because the values ​​were high, so that means people are losing money,” Austin said. “And we’re talking about a low-wealth population losing wealth, that’s not a good thing. It’s the riskiest investment you can make.”

“A Fair Financial Ecosystem”

But cryptocurrency strategists and successful investors insist that investing will help black people get a financial edge.

According to the Federal Reserve, the median net worth of a white family is $188,200, compared to $24,100 for a black family.

Charlene Fadirepo, a Bitcoin consultant, said black Americans have long been excluded from fair access to wealth due to systemic racism. Fadirepo pointed to home ownership being lower in the black community because banks have historically denied mortgages to black families.

Fadirepo said the cryptocurrency offers a level playing field for all investors.

“This is our attempt at a fair financial ecosystem,” Fadirepo said.

Fadirepo, who plans to speak at a conference next month that educates participants about cryptocurrencies and connects black investors, said she encourages potential investors to invest only what they can afford after paying for the basics. Part of that requires budgeting your extra funds, she said.

“This is about responsible and smart investing,” Fadirepo said. “If you’re not able to invest, if you have significant debt, if you have credit issues, maybe your first step is to focus on that.”

Leonard said many black Americans feel empowered by cryptocurrency because they have an equal shot at wealth.

Leonard said there are fewer systemic barriers — such as credit checks — to getting crypto loans like there are with bank loans. Investors can use their crypto assets as collateral in exchange for liquid funds. As long as investors maintain the collateral ratio and repay the loans, they will get their cryptocurrency back at the end of the term.

“It opens the door to equality,” Leonard said. “There are no long-term cryptocurrency institutions that set the rules.”

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