At the time, Williams didn’t know much about cryptocurrencies but decided to invest just over $200 to see where it would take him.
“Nobody knew what it was,” Williams said. “But it would change the world. So I drank a lot of crypto Kool-Aid.”
Cryptocurrency — decentralized digital money like Bitcoin and Ethereum — would gain momentum among black investors in the years to come. As the hype grew, Williams cashed out in 2020 and bought his mother a house. He had learned enough about cryptocurrency to know it was time to exit.
“I was done playing,” said Williams, now an associate law professor at the University of New Hampshire.
Despite his earnings, Williams worries that veteran investors are promoting cryptocurrency among black Americans as a 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 cryptocurrency. The study highlights data showing that black investors are less likely than white investors to believe that cryptocurrency is a risky investment, despite cryptocurrency’s extreme volatility, black people are also more likely to make investment decisions based on social media or social media, the study found others meet less credible sources. Inequality makes black investors disproportionately vulnerable when the cryptocurrency market collapses. Critics argue that black Americans lag behind their white peers in financial literacy, which they say is key to making smart cryptocurrency investing decisions. Still, social media influencers, black celebrities, athletes, and conference organizers continue their efforts to attract more black investors to the cryptocurrency and tout their own financial gains.
“Cryptocurrencies don’t solve living wages, they don’t fight 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.”
But veteran investors say cryptocurrencies are attractive to black people for many reasons. These include the low barriers to entry as there are no credit checks or income requirements; equal opportunity for success regardless of race or generational wealth; and many merchants accept cryptocurrencies as payment.
How does cryptocurrency work?
Successful black investors say it’s important to educate potential investors about how cryptocurrency works so they can make wise decisions about how to invest their money.
Cryptocurrency is essentially money that is bought, sold and exchanged online. Unlike the US dollar, the cryptocurrency is not regulated by the government but operates on a decentralized system called the blockchain.
The goal for cryptocurrency investors is to buy them at a low price, wait for the value to increase, and then cash out their profit. When the demand for cryptocurrency increases, the value increases. When values fall or the market collapses, investors risk losing 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.
Cryptocurrencies have 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 grew 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 serious cash and put down a down payment. He hopes to eventually sell more cryptocurrency and pay off the mortgage.
Leonard said becoming a millionaire doesn’t happen overnight, and it takes 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 involved and people often invest more money than they can afford to lose,” Leonard lamented. “But you have to dive in. Treat it like you treat any of your other interests.”
A “risky investment”
However, some researchers are skeptical about cryptocurrencies.
Algernon Austin, director of racial and economic justice at the Center for Economic and Policy Research, called cryptocurrencies “get-rich-quick.”
Austin said that investing in cryptocurrency can be harmful for people who don’t have a general investment experience because the market is so volatile.
Austin said low-income black families should not gamble their money without getting guidance from a financial advisor.
“Most African Americans got into cryptocurrency because values were high, which 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 investing will help black people thrive financially.
According to the Federal Reserve, the average net worth for a white family is $188,200 compared to $24,100 for a black family.
Charlene Fadirepo, a bitcoin advisor, said black Americans have long been excluded from fair access to wealth because of systemic racism. Fadirepo pointed to home ownership being lower in the black community because banks have a history of denying mortgages to black families.
Fadirepo said cryptocurrency offers a level playing field for all investors.
“This is our chance for a fair financial ecosystem,” Fadirepo said.
Fadirepo, who plans to speak at a conference next month that will educate attendees about cryptocurrency and connect black investors, said she encourages potential investors to invest only what they can afford after paying for basic needs. Part of that requires creating a budget for your additional 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 problems, maybe your first step is to focus on that.”
Leonard said that many black Americans feel empowered by cryptocurrency because they have an equal chance at wealth.
Leonard said there are fewer systemic barriers — like credit checks — to getting crypto loans as there are with bank loans. Investors can use their crypto assets as collateral against cash. As long as investors comply with the collateral level 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 longstanding cryptocurrency institutions that set the rules.”