Editor’s note: Tonantzin Carmona is a David M. Rubenstein Fellow at the Brookings Institution. his most recent to work has focused on the risks and drawbacks of cryptocurrencies, particularly its impact on Black and Latino communities. The opinions expressed here are my own. Read more opinion on CNN.
Just a few months ago venture capital firms, Famous and even some elected officials they were hailing cryptocurrency as the future of personal finance, an investment vehicle that could turn modest savings into massive fortunes.
Among the advantages touted by his followers was the claim that crypto had the potential to close a pernicious generations-long racial wealth gap for would-be black and Latino investors. Cryptocurrencies, the narrative ran, were poised to “democratize finance.”
That is not the way things have turned out.
If cryptocurrencies have democratized anything, it has been considerable, even spectacular, financial losses suffered by many thousands of investors who invested their savings in them. The Fall of Sam Bankman-Fried and his FTX cryptocurrency exchange has become the best-known symbol of cryptocurrency volatility, wiping out personal financial holdings large and small as it crashed and burned.
The consequences are particularly felt in communities of color. A study earlier this year by Charles Schwab found that black Americans were much more likely than white Americans to invest in cryptocurrency. A Pew Research study it also found that African-Americans, Asians, and Latin Americans were more likely than white Americans to say they owned or traded cryptocurrency.
African-Americans have been among the groups most affected by the cryptocurrency implosion due to their increased financial exposure and subsequent entry into the cryptocurrency market. In the early days of bitcoin and other digital currencies, Black investors were hesitant to buy
Research has shown that African Americans are much less likely than their white counterparts for investing in stocks, cryptocurrencies seemed to offer an attractive alternative. But that lack of assets in traditional financial instruments, and in many cases the absence of generational wealth, has made this group of investors particularly vulnerable to sharp value swings with cryptocurrencies.
Its supporters had argued that cryptocurrencies allowed members of historically marginalized groups to circumvent institutional barriers to traditional investment and structural ones such as racism, discrimination and bias. No more need for invasive credit checks or unachievable income requirements; No longer would a potential investor be turned away because of his or her race or ethnicity.
Over time, dozens of crypto-focused Clubhouses and Facebook groups catering to Black and Latino audiences sprang up, as did events like the Blockchain Black Summitan annual conference that encourages investment in cryptocurrency by African-Americans.
Celebrity endorsements and generally favorable media coverage also made cryptocurrencies appear safe and credible. Its proponents rarely mentioned how the volatility of cryptocurrencies compares to traditional financial products and services, and little mention was made of how cryptocurrencies can be targets of scams, fraud or hacks.
Eventually, many black Americans pinned their hopes on cryptocurrency as a comparatively affordable wealth creation vehicle. Before long, there was a noticeable uptick in cryptocurrency adoption by communities of color, overcoming their initial reluctance. According to one 2021 survey conducted by NORC at the University of Chicagonearly 44% of Americans who owned and traded cryptocurrency were people of color.
But for many, cryptocurrencies have not come close to fulfilling their promise of access and opportunity. Far from being a financial haven, it has proven to be an absolute disaster for many investors of color.
The eventual rush by communities of color to adopt cryptocurrencies occurred against a backdrop of racial and ethnic wealth gaps that reflect decades of discriminatory practices that impede the ability of people of color to accumulate wealth.
Before the civil rights movement of the 1960s, white households benefited greatly from federal policies designed to build and sustain America’s middle class. However, many Black and Latino households were left out.
And while policies like the GI Bill predominantly helped white soldiers attend college, start a business, or buy a home, black veteransand to some extent latino veterans, they were frequently prevented from accessing these benefits. Meanwhile, white Americans agreed to new federally backed loans aimed at promoting home ownership, underlining practices it excluded Black and Latino neighborhoods from these same government-backed mortgages.
The passage of civil rights legislation during the 1960s outlawed segregation and prohibited employment discrimination and red-lining practices. But just when it seemed that communities of color might finally be included in society’s wealth-creation efforts, a backlash erupted against sprawling government, deregulation, union busting, and tax cuts for the people. High-income earners were in full swing.
This history of explicit exclusion was followed by an era of “predatory inclusion”: Black, Latino and other marginalized communities could theoretically access opportunities, such as mortgages and credit, from which they were historically excluded. But without significant federal investment, this “access” often came with strings attached that undermined its benefits, in many cases reproducing insecurity for these very communities.
For example, access to higher education offered by for-profit colleges it came with a higher price tag and riskier loans. And homeownership was made more accessible through subprime mortgages billed as “innovations” but decimating Black and Latino wealth during the 2008 financial crisis and its aftermath. The cryptocurrency experience for many people of color has proven to be the continuation of a pattern of exploitation of predatory inclusion.
Today, bitcoin ATMs, known for charging high fees, are clustering in low-income and Latino neighborhoods, just as payday lenders and check cashing services, targeting vulnerable populations. Meanwhile, many people of color continue to be shut out of the financial system, even as their need for wealth-building opportunities persists.
Crypto hasn’t come close to delivering on its promise of access and opportunity.