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

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

“Nobody knew what it was,” Williams said. “But I was going to change the world. So I was drinking a lot of crypto Kool-Aid.”

Cryptocurrency, decentralized digital money like bitcoin and ethereum, would gain traction among black investors for years to come. As the publicity grew, Williams cashed in 2020 and bought his mother a house. She had learned enough about cryptocurrencies to know it was time to get out.

“He wasn’t playing anymore,” said Williams, now an adjunct professor of law at the University of New Hampshire.

Despite his gains, Williams worries that savvy investors are touting cryptocurrencies to African-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 were 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 that cryptocurrency is a risky investment, despite the extreme volatility of cryptocurrency, black people, the study says, are also more likely to make investment decisions based on social networks or others. Less credible sources.
The disparity leaves black investors disproportionately vulnerable when the cryptocurrency market crashes. Critics argue that black Americans lag behind their white counterparts in financial literacy, which they say is key to making smart investment decisions with cryptocurrencies. Still, social media influencers, black celebrities, athletes, and conference organizers continue their efforts to attract more black investors to cryptocurrencies, touting their own financial gains.

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

But seasoned investors say that cryptocurrency appeals to blacks for many 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 cryptocurrency as a form of payment.

How does cryptocurrency work?

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

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

The goal for cryptocurrency investors is to buy it at a low price, wait for the value to rise, and then collect their profits. When the demand for cryptocurrencies increases, the value goes up. If values ​​fall or the market crashes, investors can lose money.

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

Cryptocurrency has also gained popularity in the black community due to success stories.

For example, Terrance Leonard invested $2,000 in 2019 and by 2021 his cryptocurrency investments increased to $1 million. The year before, he was able to buy a house in Washington DC when he sold some of his cryptocurrency to pay the deposit and make a down payment. He hopes to eventually sell more crypto and pay off the mortgage.

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

“It’s going to be scary and you’re going to be nervous because there’s money at stake and a lot of times people invest more money than they can afford to lose,” Leonard said sadly. “But you have to dive in. Treat it like you treat any of your other interests.”

A ‘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 cryptocurrency a “get-rich-quick scheme.”

Austin said that investing in cryptocurrencies can be detrimental for people who don’t have general investment experience because the market is so volatile.

Austin said low-income black families shouldn’t gamble away their money without guidance from a financial advisor.

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

‘A fair financial ecosystem’

But cryptocurrency strategists and successful investors insist that investing will help black people get ahead financially.

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 adviser, said that black Americans have long been excluded from fair access to wealth due to systemic racism. Fadirepo noted that homeownership is lower in the black community because banks have historically denied mortgages to black families.

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

“This is our opportunity for a fair financial ecosystem,” Fadirepo said.

Fadirepo, who plans to speak at a conference next month that educates attendees about cryptocurrency and connects Black investors, said he encourages potential investors to invest only what they can afford after paying for basic necessities. Part of that requires creating a budget for your additional funds, he said.

“This is a responsible and smart investment,” Fadirepo said. “If you’re not in a position to invest, if you have significant debt, if you have credit problems, maybe your first step is to focus on that.”

Leonard said that many black Americans feel empowered by cryptocurrencies because they have equal possibilities for wealth.

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

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

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