When Eric Sullivan first bought the cryptocurrency, he bet it all. Sullivan is from Denver, Colorado and was attending the University of Denver in the spring of 2020 when he invested all of his earnings from an accounting internship, $20,000, into digital assets including Bitcoin, Ethereum, and XRP. “I had saved up a good amount of money, and I just threw it all away,” he explained. “I totally bought it, and it was like okay, that’s cool. I just liked the idea.
Sullivan, along with the rest of the Gen Z crypto investors, watched with excitement as his investment climbed day by day, until it didn’t. The crypto market implosion began in May when the TerraUSD coin crashed, setting off a chain reaction of various cryptocurrencies collapsing and businesses laying off staff, or shutting down altogether. What was a three trillion dollar industry in November 2021 is now a billion dollar industry.
Sullivan, who is now 25 and works at a distillery in Crested Butte, Colorado, made no profit and estimates he lost hundreds of thousands of dollars in valuation when the crypto market crashed. collapsed. “I was like, well, f–k it, you know, I kind of blew that, but whatever,” he said. “Overall, it’s like water under the bridge.” Despite the initial disappointment, he is still a true believer in crypto.
Reflecting on the crash, he explained that he didn’t feel like he had lost “real” money, since he still owned the assets that had fallen in value. He added that since he is young and has no financial responsibilities related to supporting a family, he does not think money is a necessity. Going forward, he still plans to place the majority of his investments in digital assets – for him, it’s a no-brainer move. “I think that’s absolutely the future,” he said. “I think the technology is there.”
Gen Z, which includes people born between the mid-1990s and early 2000s, in many ways drove the crypto boom, and they fell the hardest when it crashed. Beyond the allure of making a quick buck, social factors have also pushed young people into crypto. “Crypto history was really born out of people who didn’t trust central banks and financial institutions that were basically bailed out for what they did in the 2008 recession,” explained financial adviser Douglas. Boneparth. “Crypto [represented] freedom to many people,” he said.
The volatility of digital assets also provided an opportunity to earn money outside of wage labor. “The economic opportunities that our parents had and our grandparents had for social and economic mobility just aren’t there for young people. [today]. This means that you have to take risks if you want to try to get ahead. I think a lot of people have seen crypto through that lens,” said Lee Reiner, director of policy at Duke Financial Economics Center.
How much have young investors lost?
As the cryptocurrency market imploded last spring, seasoned pundits weren’t shocked given the asset’s inherent volatility. Yet for many young investors, some of whom are still in school or working part-time, the scale of their losses came as a surprise.
“They were lied to by sophisticated actors, by people who knew better,” Reiner said. “It’s always those who can least afford it who end up holding the bag whenever there’s one of these bubbles or scams because the smart money comes out before it crashes,” said Reiner. Indeed, several platforms that have copiously announced themselves as secure, such as Celsius and Voyager Digital, declared bankruptcy and froze customer deposits this summer. Voyager is now facing legal action from customers who claim the platform is misleading investors and Celsius is to be prosecuted for engaging in fraudulent activities by a former investment manager.
For many, the crash showed that the crypto market is not truly independent of the stock market and is susceptible to the same setbacks that made many young Americans wary of Wall Street. Yet the young investors I spoke to were still heavily invested in crypto, both literally and figuratively.
Don’t Give Up Crypto
Josten Perez started buying cryptocurrency in his freshman year at Hamilton College in 2018. His first exposure to digital assets was the Dogecoin meme. He and some friends from Posse, which is a college entrance program, bought some Dogecoins when the coin was in its infancy. As he sold his Dogecoin for a few hundred dollars before the coin really exploded in value, the experience was thrilling. “The mission [of digital assets] is to give people this notion of agency and to promote this environment of decentralization. I am Puerto Rican, me and my parents, we grew up in poverty all my life. So when you see something that can drastically change different financial institutions and instruments, that for me is why I love crypto,” Perez explained.
Throughout college, he used funds from his school work to invest in cryptocurrency. When he crashed, he said he lost around $15,000. Yet unlike Sullivan, he withdrew much of his money into Ethereum before the crash and was therefore able to save a substantial portion of his earnings.
Courtesy of Josten Perez
As in most crashes, even the most prominent investors were not immune. Brian Jung, 23, has 1.5 million subscribers on his YouTube channel which covers a range of personal finance topics, including cryptocurrency. He is also an investor and started buying cryptocurrency in 2015. He explained that he had lost several six figures in the valuations of his digital assets since the crash. He had also placed $30,000 in Celsius before it went bankrupt in mid-June. “When it happened I felt like a viewer or any other investor. This is money I’ve worked hard for and can’t get out. I know for my viewers that this happened to them too,” he explained.
Jung explained that about four weeks before Celsius crashed, founder Alex Mashinsky contacted him to ask to be interviewed on Jung’s channel. At the time, Jung declined because he doesn’t usually promote specific business ventures on his channel, but not because he thought anything was wrong with Celsius. “When he reached out, I didn’t think he was reaching out because he wanted to save the name or try to contain the damage before it happened,” Jung explained.
Yet for Jung, who has made millions of YouTube, the crash does not affect his access to cash or his daily life. While he understands why many of his viewers are devastated by the crash, he advises them to hold on to their assets and wait for the market to recover. “Although we had this huge crash, I think the crash is still overall good for the market. If we are going to grow the potential of crypto, we need all these scams and pyramid schemes gone. It’s unfortunate because at the end of the day the people who really suffer are the investors, the retailers,” Jung said.
Jung said his cryptocurrency content on YouTube has been getting fewer views in the past few months since the crash, which he interprets as many retail investors losing interest after suffering losses. Still, the viewers who stayed are “bullish fools” according to Jung. “If I even say something semi-bearish or even neutral, they’ll step in and say, ‘No, Brian, like the crypto is going to stay. They are strong believers,” Jung said.
What role does crypto play in a responsible investment strategy?
The question that remains for many: is investing in crypto a good idea? Left unprotected without comprehensive regulation, young crypto investors are prime targets for widespread scams, misinformation, and Ponzi schemes. Even with the improved regulation that many are hoping for, the asset is inherently volatile.
Reiner doubts that a cryptocurrency is a worthwhile investment. “For cryptocurrency to have long-term value, it must provide real economic utility to people. It needs to improve some product process services in the real economy and we just haven’t seen it yet,” Reiner explained.
Although not all cryptocurrencies will survive, Boneparth believes that digital assets as a whole are here to stay. Boneparth said a 5-10% allocation in a diversified portfolio would make sense for many people interested in gaining exposure to digital assets. According to Boneparth, Bitcoin is the option that seems to have the most resistance. Reiner said he wouldn’t advise anyone interested in cryptocurrency to allocate more than 5% of their portfolio. “If you have the financial capacity to take risks and the willingness to go on a wild ride, then of course go ahead and allocate,” Reiner said.
Yet despite the chaos that accompanies the asset, many young investors are more engaged than ever. “There is still a lot of money, talent and interest in this space. These people will continue to build and maybe at the other end you will see something that is really useful economically. I just don’t see that happening,” Reiner said.
Perez is not only investing money in crypto now, but has made space the first step in his career. Perez now works as a client services manager in the cryptocurrency workspace in SoHo, Empire DAO. He still invests in cryptocurrency, and while he is critical of the hypercapatalist mindset he sees in the industry, overall he is still optimistic. “You know, now that the money is gone and I have a job, I’m going to buy a lot more,” he explained. “I still think the real money in crypto hasn’t even been made yet,” he said. “And for me, again, it’s not really about the money.”