OBSERVATIONS FROM THE FINTECH SNARK TANK

Trading of Bitcoin, Ethereum, and other cryptocurrencies increased sharply at the beginning of 2020, then jumped to a new high in February—a level that was sustained for the height of the Coronavirus crisis from March through May.




Cryptocurrency Monthly Trading Volume SOURCE:

CRYPTOCOMPAREAccording to Coin Metrics:“If historical growth rates can be maintained, Bitcoin’s current daily volume would need fewer than 4 years of growth to exceed daily volume of all US equities and fewer than 5 years to exceed daily volume of all US bonds.”Where is this Coronavirus-fueled trading volume coming from and who will drive the future growth?


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Who’s Buying Bitcoin?

A new study from Cornerstone Advisors revealed that 15% of American adults now own some form of cryptocurrency—a little more than half of whom invested in cryptocurrency for the first time during the first six months of 2020.





Percentage of Consumers Holding Cryptocurrency Assets SOURCE: CORNERSTONE ADVISORSOn average, these new investors obtained roughly $67.5 billion in cryptocurrencies, roughly $4,000 per person.

The self-reported value of cryptocurrencies like Bitcoin and Ethereum for Americans who owned these assets prior to this year is about $111 billion, or close to $7,000 per person.

At 15% penetration, the US cracks the top 10 countries with the highest adoption of cryptocurrencies according to data from September 2019 (although a lot has changed since then).





Cryptocurrency Adoption SOURCE: STATISTA

The Demographics of Bitcoin Buyers

Who fueled this Bitcoin buying binge during the crisis?

• High income, well-educated men. Nearly eight in 10 of 2020 crypto buyers were men with an average annual income of $130,000. Four in 10 have a Master’s degree or higher (70% have a Bachelor’s degree or higher).
• Millennials and Gen Xers. Millennials (26 to 40 years old) comprised 57% of the consumers buying cryptocurrency in 2020 with Gen Xers (41 to 55 years old) accounting for 30%. Overall, 27% of Millennials and 21% of Gen Xers now hold some form of cryptocurrency, in contrast to 7% of Gen Zers, and 3% of Baby Boomers.
• Bank of America customers. Overall, 21% of all consumers call Bank of America their primary bank. Of the consumers buying cryptocurrencies during the Bitcoin binge, almost half—47%—are customers of Bank of America. You’d think Bitcoin buyers would be customers of the digital banks, but only 6% of them call a digital bank their primary bank—in line with the population as a whole.

The Bitcoin Benefit

It’s hard to prove that holding cryptocurrencies is the cause of this, but 44% of Americans who have already invested in Bitcoin and other cryptocurrencies said that their financial health is “much better” since the beginning of the Covid crisis. That’s in contrast to just 5% of all other US consumers.




Change in Financial Health Since Covid 

SOURCE: CORNERSTONE ADVISORS

First Time Investors

From a demographic perspective, the first-time investors are very similar to the previous group of crypto holders, but they’re different in at least one significant way: They’re changing up the financial institutions they do business with.

Among the consumers who invested in cryptocurrency for the first time in 2020, half of them switched their primary banking relationship in the past six months—one-third did so in the past three months alone.

The Apple Effect

Apple Card holders only comprise 5% of all credit card customers, but among those that do have the card, 47% own some form of cryptocurrency—two-thirds of whom purchased crypto in 2020.

The Next Wave of Investors

The 11% of Americans who expect to invest in Bitcoin and other cryptocurrencies are somewhat different, demographically, from the current set of investors. Specifically, they are:

• Women. Women only make up 22% of current cryptocurrency investors. In the next wave of investors, they account for 35% of the total.
• Minorities. African-American and Hispanic consumers, who comprise 28% of all Americans, account for 23% of current crypto investors. Among those that anticipate investing in the next 12 months, 37% are from these two ethnic groups.
• Younger and older. Just 6% of Gen Zers and Baby Boomers already have cryptocurrencies. In the next wave of investors, 17% are Gen Zers and 11% are Baby Boomers.
• Less educated. Among current crypto investors, just 18% have not earned at least an Associate’s college degree. Among the consumers expecting to invest in cryptocurrencies in the next 12 months, that percentage rises to 36%.

One area of concern regarding the next wave of investors: Just 30% consider themselves to be “very financially literate,” in comparison to 54% of those who already hold cryptocurrencies.

The Crypto Opportunity For Banks

The surge in cryptocurrency investing has been a boon for Square. Bitcoin revenue for its Cash App for Q1 2020 was $306 million, up from $65 million in Q1 2019.

Not surprisingly, reports indicate that PayPal intends to offer crypto purchasing through its PayPal and Venmo apps.

While many banks prevent their customers from buying cryptocurrencies using the cards they issue, the mainstreaming of crypto investing raises new questions for banks—not just regarding allowing their cards to be used, but whether or not they should provide more cryptocurrency investment-related services altogether.

A new announcement from the Office of the Comptroller of the Currency (OCC) may be opening the door to that. According to an article here in Forbes, the OCC letter:

“Clarifies that national banks have the authority to provide fiat bank accounts and cryptocurrency custodial services to cryptocurrency businesses. This clarification may open the doors for larger financial institutions to provide bank accounts to cryptocurrency companies, as well as actually provide custodial services for customers’ private keys.

”Among the large banks, a few appear to have a head start over the others. A site called Moon Banking provides a “crypto friendliness” score for banks, with USAA and Ally Bank leading the way in the US.





Crypto Friendliness Score SOURCE: MOON BANKINGAll banks—in particular, community banks and credit unions—should look at opportunities to provide Bitcoin wallets and other cryptocurrency trading services as a way to differentiate their services.


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Ron Shevlin

Ron Shevlin is the Managing Director of Fintech Research at Cornerstone Advisors. Author of the book Smarter Bank and the Fintech Snark Tank on Forbes, Ron is ranked… Read More