Crypto May Be the Future of Investing, Says Bank of America Survey

In Brief

• Younger people have lost faith in the stock market to provide above-average returns on their investments.
• A recent BoA survey revealed that millennials are choosing to allocate up to 15% of their portfolios to crypto.
• The quantitative easing during the pandemic as well as easy to use apps like Robinhood may have been the catalysts for this shift.

Bank of America has revealed a new study stating that millennials allocate less of their portfolios to traditional equities and more to alternative assets like cryptocurrencies.

The survey was conducted amongst 1,052 individuals with more than $3 million in investable assets.

Crypto allocation still low, says BoA exec
According to Jeff Busconi, chief operating officer of private banking at Bank of America, millennials are not buying into the narrative that an equities-based portfolio is a road to an above-average investment payout. Instead, the younger demographic has allocated up to 15% of their portfolios to digital assets, while the older demographic has only allocated 2%.

“We’ve had a very strong run in the stock market over the last decade and are now living through volatile times,” Busconi said.

In Sep. 2022, Forbes reported that investors with a 2.5% quarterly-rebalanced Bitcoin allocation between Jan. 2014 and Sep. 2020 saw almost 24% in improved returns from a traditional portfolio. But this was correlated with a 2,875% Bitcoin price increase, suggesting that timing is crucial to reaping substantial returns in conventional portfolios. If, for example, Bitcoin was added in Dec. 2020, the returns on that investment in mid-2022 would have been almost nothing.

Zero-commission stock brokerage Robinhood, whose app surged in popularity during the pandemic, may very well have been the catalyst for the surge in interest among younger investors. The company, which popularized fundamentals-based securities and crypto trading during the Covid-19 global pandemic, said its average investor age is 32.

During the pandemic, investors piled into Bitcoin, Ethereum, Dogecoin, and Litecoin using Robinhood’s mobile app. At the height of the 2021 bull market, this meant huge gains and enormous revenues for the company. Recently, the company added Shiba Inu (SHIB), Compound (COMP), Polygon (MATIC), and Solana (SOL).

Effects of quantitative easing on portfolio allocation
Another contributing factor to the rise in crypto interest among young investors could have been the current quantitative easing program introduced by the Federal Reserve in the United States. In general, quantitative easing is a strategy used by central banks like the Federal Reserve to stimulate economic growth through the bank purchasing securities like government bonds and securities from banks. This buying spree injects more money into the economy during times of uncertainty and lowers interest rates.

This added stimulus, in turn, causes some investors to invest in assets they believe will provide higher returns.

During the early stages of the pandemic in 2020, the Federal Reservelaunchedquantitative easing without announcing when it would end or how much the bank would spend, putting more cash in the hands of investors and causing the stock market to surge.

While the Bitcoin price was highly volatile, especially on March 12, 2022, when it fell 39%, the price soon touched $10,000 in May 2020. Eventually, it rallied to $20,000 in Nov. 2020, an uptrend that may have encouraged Americans to flush with cash to invest in cryptos, setting a precedent for future investment strategies.

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