Cleveland Fed Study: Crypto Investors Driven by Beliefs and Return Expectations

A new study published by the Federal Reserve Bank of Cleveland sheds light on investor behavior in cryptocurrency markets. Titled “Do You Even Crypto, Bro? Cryptocurrencies in Household Finance,” the working paper suggests that cryptocurrency ownership is driven less by demographics or general risk appetite and more by sharply differing beliefs about future returns.

The research, conducted by Michael Weber, Bernardo Candia, Olivier Coibion, and Yuriy Gorodnichenko, utilized repeated surveys of as many as 25,000 US households. The study found that expectations about crypto returns explained more of the variation in ownership than a broad set of demographic characteristics such as age, income, or gender. Researchers also included a randomized information experiment, demonstrating that providing individuals with information about Bitcoin's (BTC) past performance increased both their desired crypto allocation and subsequent actual purchases.

These findings point to a possible mechanism behind speculative bubbles, where past gains attract new investors, their buying pushes prices higher, and still more buyers are drawn in, creating a self-reinforcing feedback loop. According to the 2021 survey results, 87% of non-owners and 54% of owners did not know what return to expect over the following year. Among those willing to make a forecast, crypto owners expected an average 22% return over the next year, compared to 7% for non-owners. Owners also tended to view crypto as less risky. The study further revealed that a one-percentage-point increase in expected crypto return was associated with a 0.8-percentage-point increase in the probability of owning cryptocurrency.

These developments suggest that price rallies can draw in additional retail buyers by lifting return expectations, thereby reinforcing volatility in digital asset markets. The paper argues that digital assets differ from stocks, bonds, and gold because expectations play an “unusually strong role” in participation decisions. This implies a self-reinforcing cycle where positive returns attract new participants, which in turn lifts prices further.

In a broader economic context, the study underscores that cryptocurrency remains poorly understood by many households. Earlier reports from the Federal Reserve (May 2026) indicated that crypto primarily functions as an investment vehicle rather than being widely used for everyday payments. In 2025, only 2% of US households used cryptocurrency for making payments and just 1% for peer-to-peer transfers. Mainstream payment systems like FedNow, RTP, Venmo, and Zelle have largely replicated crypto's core payment advantages while offering fraud protection and regulatory safeguards, which consumers tend to trust more.

Analysts and market observers note that this study reaffirms the speculative nature of cryptocurrency markets and the critical role of investor psychology in price movements. The authors of the study suggest that their findings highlight the potential mechanism behind speculative bubbles. Looking ahead, it is anticipated that crypto markets may continue to be driven more by investor return expectations and market sentiment than by broader macroeconomic conditions, indicating that market cycles will likely continue to influence crypto adoption.