Letter to a Young Crypto Enthusiast (or the Merely Curious)

You were right. It’s not a passing fad.

For all of the legal trouble that entrepreneurs like Sam Bankman-Fried are in and the regulatory mess that companies like Binance find themselves in, people keep buying cryptocurrency.

Even as the price of Bitcoin fell precipitously in 2022, the percentage of people in the United States owning crypto grew to 11 percent from 3 percent in just a year. It’s at 12 percent this year, according to a National Bureau of Economic Research working paper, and Bitcoin’s price has risen more than 75 percent from its 2022 low.

Crypto conviction — or just curiosity — is not something that merits condescension from the olds and scolds of personal finance. It just requires you to ask a few questions about who you are and why you find crypto alluring.

It is true that younger adults are more open to this way of putting money to work. If you’re under 40, you’re more likely to own crypto than people over 60, according to the N.B.E.R. research. You’re also more likely to be male.

The gender split is noteworthy. This year, the Pew Research Center published an analysis showing that while 41 percent of men ages 18 to 29 reported having owned or used cryptocurrency, just 16 percent of women in that age range had done the same.

One possible explanation for the gender skew is chemical. “It’s testosterone poisoning,” said William Bernstein, 75, a retired neurologist and the author of “The Four Pillars of Investing.” “It does wonderful things for muscle mass and reflex speed, but it doesn’t do anything at all for judgment.”

Are you that quick-twitch trader guy? It’s not a rhetorical question. Ask a woman or someone else who may have better — or just different — judgment than you do.

Pew also reported that while 14 percent of white adults had owned crypto, 21 percent of Black or Hispanic adults had done so and 24 percent of Asian American adults had as well.

The racial wealth gap remains vast, and young adults who encounter its stark facts for the first time often vow to break the cycle. But any haste can make you an easier mark for influencers and celebrities hawking crypto schemes of questionable worth.

“There is a real desire to be able to play catch-up when it comes to wealth accumulation in America,” said Yanely Espinal, 33, director of educational outreach at Next Gen Personal Finance, an educational nonprofit. “So crypto is sold as this vision that if you do this, you can catch up if you’re willing to take a risk.”

The biggest attraction of crypto is often the possibility of high returns — the kind of tenfold payback that Bitcoin owners experienced if they bought in early 2019 and sold in early 2021.

But something like that may never happen again, and the small number of people who realized those gains may well have been lucky. Repeating a feat like that — both buying and selling at precisely the right time — requires extraordinary skill (or, more likely, something akin to lightning striking twice).

I’m not here to tell you not to try under any circumstances, though. Quite the contrary.

Consider the journey that Aadi Gujral has been on. Mr. Gujral, the 17-year-old founder of the Foundation for Financial Literacy, found his way to crypto during the early days of the pandemic. He purchased Bitcoin and then jumped aboard the hype train, dabbling in other currencies and mining coins, too.

“There were times when this was incredibly profitable and times where I was regretting every choice,” Mr. Gujral said. “With the volatility, my money would have probably been safer and better invested in a stock index fund.”

But would he have learned more in a boring basket of the 500 largest U.S. stocks? Gotten a better sense of his own tolerance for risk? Become a better teacher to others his age? No, no and no.

Ms. Espinal, who instructs educators how to teach about crypto and is the author of “Mind Your Money,” does worry about teenagers who put all of their savings into crypto and lose everything.

“They could walk away with a bad taste in their mouth and keep their money in savings accounts because they don’t want that feeling again,” she said. “That can turn them away from investing, which is such a huge opportunity for wealth building, especially for people of color.”

Ms. Espinal is right to worry, and many young adults who watched their parents’ retirement balances suffer deep losses in the wake of the 2008 economic meltdown were scared away from stocks for years. Avoiding them turned out to be the wrong choice during what became a roaring bull market.

For now, however, few crypto owners are suffering. Just 3 percent of them say their activity has hurt their finances a lot, according to the Pew research.

That could change, suddenly and without warning. All that means, however, is you shouldn’t put more money into crypto than you can afford to lose.

To Mr. Bernstein, whose oldest grandchild is 10 years old and will soon be ready to absorb his wisdom, a crypto enthusiast’s biggest mistake would be to think of owning it as actual investing. Investments, he said, either have earnings (like a company, whose stock you own) or create income (when the company pays a dividend on its stock). Crypto does neither, unless you sell it for a gain.

You might think of your months or years of crypto ownership as you would your hours at the theater or a concert, and spend only as much as you think the enlightenment or pleasure you’ll receive is worth.

But don’t dismiss people like Mr. Bernstein out of hand. “That’s the thing about being an old fogey,” he said. “Older people don’t put money into crypto as much as younger people not because they’re not with it, but because they’ve seen this movie before, and they know how it usually ends.”