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Editor’s Note: Tonantzin Carmona is a David M. Rubenstein Fellow at the Brookings Institution. Her recent work focuses on the risks and shortcomings of cryptocurrencies, especially their impact on the Black and Latino communities. Her views expressed here are her own. Read more opinions on CNN.
CNN
—
Just a few months ago, venture capital firms, celebrities, and even some elected officials hailed cryptocurrencies as the future of personal finance.
Among the benefits touted by its proponents are the claims that cryptocurrency could close the pernicious generational racial wealth gap for black and Latino investors to become. There was talk that cryptocurrencies were poised to “democratize finance.”
That’s not how things turned out.
If cryptocurrencies democratized anything, it was the hefty, even spectacular, economic losses endured by the thousands of investors who poured their savings. The downfall of Sam Bankman-Fried and his cryptocurrency exchange FTX has become the most famous symbol of cryptocurrency volatility, with personal financial assets large and small plummeting and burning out.
Fallout is being felt especially strongly in communities of color. A study earlier this year by Charles Schwab found that black Americans are much more likely to invest in cryptocurrencies than white Americans. , found that Latinos are more likely to own or trade cryptocurrencies than white Americans.
Blacks were one of the groups hardest hit by the cryptocurrency collapse, as they were at greater financial risk and later entered the cryptocurrency market. In the early days of Bitcoin and other digital currencies, black investors were hesitant to buy.
Studies have shown that black Americans are far less likely to invest in stocks than their white peers.Crypto appears to offer an attractive alternative. The lack of financial assets and, in many cases, intergenerational wealth makes this group of investors particularly vulnerable to sudden fluctuations in the value of cryptocurrencies.
Proponents argue that cryptocurrencies have enabled members of historically marginalized groups to bypass institutional and structural barriers such as racism, discrimination and prejudice to traditional investments. was doing. No more invasive credit checks or unattainable income requirements. Future investors will no longer be turned down because of their race or ethnicity.
Over time, crypto-focused, catering to Black and Latino audiences, similar to events such as the Black Blockchain Summit, an annual conference that encourages investment in cryptocurrencies by African-Americans. Dozens of clubhouses and Facebook groups have sprung up.
Celebrity endorsements and generally favorable media coverage have also made cryptocurrencies safe and trustworthy. Rarely, there was also little mention of how cryptocurrencies can be targets of scams, scams, or hacks.
Ultimately, many black Americans have put their hopes in cryptocurrencies as a means of building relatively accessible wealth. In a short time, there has been a noticeable increase in cryptocurrency adoption by communities of color, overcoming initial hesitation. Nearly 44% of Americans who own and trade cryptocurrencies were of color, according to his 2021 survey by his NORC at the University of Chicago.
But for many, cryptocurrencies have fallen short of their promise of access and opportunity. Not a financial haven, this is proving to be a colossal calamity for many investors of color.
Communities of color ultimately embraced cryptocurrencies due to racial and ethnic differences, reflecting decades of discriminatory practices that have impeded the ability of people of color to accumulate wealth. The wealth gap was the background.
Prior to the civil rights movement of the 1960s, white households benefited greatly from federal policies aimed at building and sustaining America’s middle class. However, blacks and many Latino households were excluded.
And while policies like the GI bill primarily helped white soldiers attend college, start businesses, and buy homes, black veterans, and to some extent Latino veterans, Access to these benefits was often barred. White Americans, on the other hand, had access to new federally-backed loans aimed at facilitating homeownership, and redlining practices allowed them to access these benefits. It excluded blacks and many Latinos from the same government-backed mortgages.
Civil rights laws were passed in the 1960s, outlawing racial discrimination and prohibiting employment discrimination and redlining practices. But just as communities of color finally seemed to be included in society’s wealth-building efforts, a backlash against the growing government broke out, and deregulation, union-busting, and tax cuts for high-income earners kicked into gear. Did.
This history of explicit exclusion was followed by a period of “predatory inclusion.” Blacks, Latinos, and other marginalized communities theoretically had access to historically excluded opportunities such as mortgages and credit. However, without significant government investment, this “access” often came with conditions that undermined its benefits. Anxiety was often replicated in these same communities.
For example, access to higher education offered by for-profit universities came with higher prices and riskier loans. And while homeownership was made more affordable by subprime mortgages, known as “the innovation,” the 2008 financial crisis and its aftermath plummeted black and Latino wealth. The cryptocurrency experience of many people of color has proven to be a continuation of an exploitative pattern of predatory inclusion.
Today, Bitcoin ATMs, which are notorious for charging high fees, are densely populated with Latinos and low-income people. Meanwhile, many people of color remain excluded from the financial system even though they need the opportunity to build wealth.
Cryptocurrencies are far from delivering on their promise of access and opportunity.
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