NEW YORK — A software developer twice invested his savings in cryptocurrencies, only to lose it all. But he still promotes it to the black community and would like to come back to himself.
A recent college graduate and single mom is hopefully dabbling in bitcoin after attending a crypto workshop sponsored by rapper Jay-Z at the public housing complex where the hip-hop star grew up.
But a former executive at a cryptocurrency exchange feels disillusioned by the false promise that crypto will help her family in Ethiopia’s war-torn Tigray region.
All were drawn to the idea of crypto as a path to wealth building outside of traditional financial systems with a long history of racial discrimination and indifference to the needs of low-income communities. But crypto’s meltdown over the past year has dealt a blow to that narrative, fueling a debate between those who continue to believe in the future and skeptics who say misleading advertising and celebrity-driven hype have drawn vulnerable people into a risky and unproven asset class.
The collapse of two crypto-friendly banks this month, Silvergate Capital Corp. and Signature Bank, complicates the picture.
Their failure was a setback for crypto companies that relied on banks to convert digital currencies into US dollars. Still, the crisis strengthened Bitcoin, the oldest and most popular digital currency, by reinforcing a distrust of the banking system that helped give rise to cryptocurrencies in the first place.
Mariela Regalado, 33, and Jimmy Bario, 22, neighbors at the Marcy Houses complex in Brooklyn, began depositing $20 or $30 in bitcoin every two weeks or so after attending the “Bitcoin Academy,” a workshop sponsored last summer by Jay-Z and Jack Dorsey, co-founders of Block Inc., the parent company of the mobile payment system Cash App.
“I don’t look at it as something that, you know, is going to take me out of Brooklyn and buy me a $2 million mansion in Texas,” said Regalado, an educational consultant and mother of young children. “But if it happens, I’m all for it.”
Only a small minority of the US population owns cryptocurrency, but adoption surged during the coronavirus pandemic as low interest rates made it more attractive to borrow money and invest in risky assets. Prices peaked in 2021, and a constellation of apps, exchanges, and even ATM-like crypto machines made it easy to buy digital coins.
But the downsides of crypto played out dramatically after prices crashed in 2022, wiping out millions in investments and leading to a cascade of bankruptcies and layoffs at crypto exchanges, lenders and other companies. Along with volatility, crypto lacks protections like deposit insurance since it is not controlled by any single institution. The industry is largely unregulated and is prone to scams, hacks and scams.
Cryptocurrencies are built on decentralized ledgers — usually blockchain — that allow peer-to-peer transactions without an intermediary such as a bank or government. It continues to appeal to many people who face obstacles to traditional wealth-building paths such as home ownership, college education or the stock market, said Terri Bradford, a payments specialist at the Kansas City Federal Reserve who has researched crypto’s popularity among many black investors. .
“It doesn’t seem like a lot of people are being discouraged from crypto even though we’ve observed what’s happened,” Bradford said.
According to 2021 and 2022 Pew Research Center polls, about 20% of black, Hispanic, and Asian adults in the United States have bought, traded, or used cryptocurrency, compared to 13% of white adults. Bradford’s research, which examined data from the Pew Research Center and the Board of the Federal Reserve System, found that black investors are more likely to own crypto than stocks or mutual funds, while the opposite is true for white investors.
Black and Latino crypto enthusiasts have formed social media groups, written books and organized summits to promote minority developers in the space and champion blockchain technology’s potential to create fairer systems in finance and beyond.
But crypto companies also sought to capture a broader market of retail investors through lucrative sponsorship deals with celebrities and sports teams, many aimed directly at black and Hispanic consumers by touting crypto as an economic equalizer.
Coin Cloud, a cryptocurrency ATM maker that has filed for bankruptcy, released an ad featuring film director Spike Lee mocking “old money” as “exploitative,” “oppressive” and “white” and crypto as “positive” and ” inclusive.”
Tonantzin Carmona, a Brookings Institute fellow who researches crypto’s impact on minority communities, said that for inexperienced investors, this kind of high-profile hype easily masks crypto’s downsides.
Carmona considers crypto’s marketing to racial minorities part of a legacy of “predatory inclusion” in the tradition of payday loans and subprime loans — risky services that promise access to financing that would otherwise be out of reach.
“You’ll have a marginalized group, a community that has historically been excluded from accessing products, services, opportunities, and all of a sudden they’re being told they’re going to have access to maybe some type of option,” Carmona said. “But this access often comes with conditions that undermine the benefits or that will reproduce insecurity for those same communities.”
Rahwa Berhe first started investing in crypto while studying alternative financial products during a master’s program at the University of Washington in Seattle. Born in Chicago and raised in Seattle, Berhe tried to forge a career in crypto, leading a digital asset listing team on an exchange for four years, only to feel isolated as a black woman.
“It’s like you took all the tech and finance bros and put them together. I didn’t know where I fit in, Berhe said.
Her disillusionment deepened when crypto could not help her family in Tigray during the conflict there from 2020 to 2022 because the lack of infrastructure and access to electricity made transfers impossible. When she tried to point out these realities to some in the crypto community, she was dismissed as “negative” by social media posters who readily celebrated that the hashtag #eth, for Ethiopia, introduced people to the digital coin Ether.
Berhe is now working with a research lab founded by Stanford University and the USC Shoah Foundation, exploring how decentralized online tools can be used to archive Africana artifacts. As for cryptocurrency, she’s done for now.
“It was great until it wasn’t,” Berhe said.
Crypto advocates argue that minority communities deserve access to a potentially lucrative asset class that isn’t going away. Many believe another boom is inevitable and compare last year’s collapse to the dotcom bust of the 2000s, which, far from dooming the tech industry, only weeded out bad actors and strengthened winners like Amazon.
Andre Mego, Bitcoin Academy’s program manager, said crypto is an accessible way to teach financial literacy to a community where many find concepts like value-creating investments abstract and out of reach. At the end of the summer workshop, participants were each gifted $1,000 in bitcoin, most of them through Cash App, which launched bitcoin trading in 2018.
“When we talk about accessibility, it gives motivation. For anyone who thinks about investments, can think: ‘There is a big thing in the future. It’s something I have to save so much money for. I don’t know if I’m allowed to do this. Am I even part of this conversation?” Mego said.
Bario said Bitcoin Academy’s workshop at the Marcy Houses complex was his first meaningful introduction to personal finance, even though he graduated last spring with a degree in economics from Lafayette University. Growing up, he said, investing wasn’t a realistic possibility in his family, which depended on income from his father, who worked as a taxi driver back in Honduras.
“I’ve always thought that as soon as you get your money, it’s time to spend it — as soon as you get your Friday paycheck,” said Bario, who now works as a football coach.
Omid Malekan, who teaches a blockchain and cryptocurrency course at Columbia Business School, said he hopes the latest crash will disabuse people of the idea that crypto is a reliable get-rich-quick path. But Malekan said the crypto industry needs more diversity, not less, and that young black and Hispanic people should be encouraged to pursue careers in developing a technology he believes will be the future of finance.
“The people who are attracted to crypto because of the way the technology works and because of the promise of a more global, more accessible financial system — those people, it’s going to take more than just the prices going down to scare them away,” Malekan said .
Tyrone Norris, the software developer, said he learned to be careful about how to buy crypto the hard way.
Growing up in Washington, DC, Norris studied computer programming in high school and took college courses, but never graduated because he couldn’t afford to go full-time. He has worked as a contractor, moved around the country and never owned a home or had access to a workplace pension scheme.
When Norris first decided to invest in crypto, he looked around exchanges and chose MANA, a token that powers the 3D virtual world Decentraland, because it shared his ex-girlfriend’s name, and he saw it as a sign.
He went all in and emptied his bank account of $4,000. When his MANA investment doubled, he started betting on the coins he thought would be the most lucrative. But one exchange turned out to be a scam, and another based in New Zealand lost millions in a hack. Norris’ investment went to zero, but two years later he was back in the game with another $5,000. Again he saw it soar, then crash as the “crypto winter” of 2022 set in.
“I was a novice — I didn’t understand what I was doing. I was putting my crypto in dangerous places,” Norris said.
For now, he’s taking a break from software development to focus on building a crypto-backed hip-hop game project. Norris said he has no regrets because investing introduced him to the possibilities of blockchain.
“I come from nothing,” he said. “I don’t expect anything to be fair.”
