The adoption of cryptocurrencies is proceeding rapidly, as evidenced by all the different companies that have taken the plunge into accepting them as payment. All this shows us that the people are listening, and more than just a few of us are familiar with the cryptocurrency market.
But who exactly belongs to this market we keep talking about? The U.S. Federal Reserve recently released a report analyzing the economic well-being of domestic households in 2021. This report can give us an idea of the buildup of the cryptocurrency space—taking a closer look to see if we can find a pattern of what the demography of the market is like.
A quick overview
On the surface, the numbers may look small. Three percent of adults were seen to use cryptocurrencies for purchases or money transfers. Of this three percent, 13 percent had no registered bank accounts. In particular, lower-income adults showed a higher likelihood of using cryptocurrencies in their transactions. 2021 would also find that the majority of holders did so with investments in mind. 12 percent of these cryptocurrency holders would also report that they already had or had used cryptocurrencies the year before.
All in all, 11 percent of all adults holding cryptocurrencies report that they had acquired them for the sake of investment. A much smaller two percent acquired cryptocurrencies with the aim of using them for their transactions while one percent would use them to send money to friends and family.
Who’s in the club?
The majority of cryptocurrency holders intending to use them as investment tools would come from high-income backgrounds, with most also having a registered bank account and holding savings in other accounts. Of these individuals, 46 percent would report an income of more than 100,000 USD or morewith 26 percent reporting an income of under 50,000 USD.
99 percent, the vast majority, of those using cryptocurrencies for investment with no plans on using them for transactions had a relationship with traditional banks. 89 percent of non-retired investors would report having at least some retirement savings.
As for those who did use cryptocurrencies for transactions, the story would be a little different. 6 out of 10 adults using cryptocurrencies for their purchases would report an income of fewer than 50,000 USD. Meanwhile, less than 24 percent of these users would report an income of more than 100,000 USD. This would be developed further in the study, with 13 percent of transactional users lacking a bank account. 27 percent of these transactional users would also report not having a credit card. This can be compared to the six percent of adults without bank accounts and the 17 percent of credit card-less users who do not use cryptocurrencies.
Cryptocurrencies as the alternative
So what does this all tell us about the cryptocurrency space? While the study might have focused on the U.S., the numbers would show us how cryptocurrency adoption would be focused on those who are underbanked and disadvantaged in certain aspects of their financial lives.
An easy point to look into would be those of the cryptocurrency investors. Looking at the data from the analysis of the Federal Reserve, we can see that most of those investing in cryptocurrencies are those who can afford the risk. This makes sense because having a safety blanket in some form will undoubtedly help in motivating investors to shell out more money. The difference is palpable, particularly when we look at their usage of cryptocurrencies for transactions. Cryptocurrency utility is much lower in their income bracket, pointing to signs that they simply don’t need the advantages offered by cryptocurrency use.
When compared to those who do use cryptocurrencies for more than just investment, we can see how the decentralized approach is helping the underbanked. The largest portion of users who do use cryptocurrencies for transactions would be made up of people with no retirement savings. The closes to that share would be those who have no credit cards, with those lacking bank accounts having the least.
What would also help with the growth in adoption would be the continued additions to the blockchain and the features offered on trading platforms. For example, these days, it’s pretty easy to convert ETH to BTC, making it easier for users to jump from one blockchain to another. Another example would be the Lightning Network, a Layer 2 addition that allows for cheaper and faster microtransactions (like the kind you will need to buy coffee with cryptocurrencies).
It would make sense, then, why more companies are joining the cryptocurrency space. The market is well and alive and continues to do what it set out to do—give the people full ownership of their money. If people had their money when they needed it, it stands to reason that they could spend it whenever they wanted. Businesses will want to make the most of this opportunity by allowing payments to be made with cryptocurrencies then.
Decentralizing finance
Gone are the days when simply acquiring cryptocurrencies comes with a long and tedious process—as long as you’ve done your research, getting your first cryptocurrencies is as simple as signing up for an account and choosing a payment method to buy Bitcoin.
When Bitcoin was first introduced, it came with the idea of spreading the wealth around by giving people direct access to their money, absent all the extra paperwork and middlemen in the process of registering, depositing, and even withdrawing money when people need it. A by-product of this decentralized model would turn out to be fewer fees to pay since fewer agencies would be involved. This might be a good motivation for those underbanked individuals to consider cryptocurrencies as an alternative to traditional financial institutions.
