On the Portfolio Choice of Crypto Asset Class: Meet the Gentlemen Investors

We utilize a unique data from the recent wave of Survey of Consumer Finance 2019 to analyze the portfolio choice of a new and raising asset class: cryptocurrency. Specifically, we study who owns crypto and why? We first analyze how key households’ demographic (age, gender, race, etc.) and household’s traits/preferences (time horizon, financial literacy, optimism, etc.) influence crypto ownership. We find that crypto owners are more of college white male; with generational gap as mostly millennials. Moreover, they are financially literate; social; pessimistic; with longer time horizon and employ high research when investing. We then turn to study the relationship between crypto asset class with other asset classes (stock equity, bonds, home and business), and find that only direct holding of stocks increase the propensity to own crypto, while other asset classes negatively influence the likelihood to own crypto. We then zoomed in this subgroup of direct stockholders to draw inference on their portfolio properties that impact crypto ownership, and find that these investors consider crypto asset class to be a part of portfolio diversity. Furthermore, we analyze what are the key motives for investing in crypto and find that consumption smoothing and hedging against rainy days and emergencies are the key motives to invest crypto, while retirement motive has no impact. Collectively, we are able to profile crypto owners, who exhibit a unique personality and call them as gentleman investors: social, intensively search, less overconfident, less claiming financial knowledge and financially literate.