Already, the frenzy over WallStreetBets and GameStop is beginning to fade. In its wake, financial markets should be reminded that the most enduring retail investing mania over the last few months has focused on bitcoin.
Much has been written about how institutional investors propelled bitcoin
BTCUSD,
to spectacular highs, with the crypto asset gaining as much as 400% from the beginning of 2020 to its peak in early January 2021.
Payments giant PayPal
PYPL,
now offers bitcoin services. BlackRock
BLK,
the epitome of institutional money, is set to offer clients exposure to crypto futures through new funds. But retail investors form a crucial part of the bitcoin trend.
It is retail investors targeted by tabloid headlines suggesting that bitcoin will hit $1 million. They are the same investors warned by regulators that they “should be prepared to lose all their money” from crypto investments.
And according to a bitcoin-focused U.K. fintech with tens of thousands of users, women and older investors are largely staying out of the crypto frenzy, leaving young men to be significantly overrepresented.
Mode
MODE,
which provided data on its user base to MarketWatch, allows users to buy and trade bitcoin as well as hold the crypto asset in an interest-generating account.
The overwhelming majority of people using its app are men, making up 79% of users to just 21% women. Compared with the most recent data from the U.K.’s Office for National Statistics, or ONS, this makes the gender divide among Mode’s bitcoin holders even wider than with other investments.
In the tax year 2017-2018, 2.3 million people had an Individual Savings Account, or ISA, with stocks and shares. ISAs are the popular tax-free account available to residents of the U.K. Of those, more than 1 million, or 44%, were held by women.
The data from the ONS are very consistent with investing demographics in the wider population, according to Lisa Kramer, a professor of finance at the University of Toronto and an expert in investor behavior. Mode’s demographics aren’t.
Kramer said that when she looks at the differences between the ISA numbers and Mode’s user base, she wonders “if part of what we’re seeing isn’t driven by investor overconfidence.”
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This is linked to gender, Kramer said, pointing toward a landmark piece of behavioral finance research from 2001 titled — very aptly — “Boys Will Be Boys: Gender, Overconfidence, and Common Stock Investment,” written by University of California professors Brad M. Barber and Terrance Odean.
Barber and Odean found that men trade stocks 45% more frequently than women, which is a symptom of overconfidence because overconfident investors trade excessively.
In 2001, these findings manifested in lower investment returns for men due to brokerage trading fees. In 2021, it may be extended to men getting involved in dangerously speculative rallies.
“If we see from that research study that men are, on average, more inclined to be overconfident, that overconfidence could be helping to drive the heavier representation of men in these much more speculative markets,” Kramer said.
“It really takes a bit of a hope and a prayer to believe that these assets are going to be long-term, reliable investment performers.”
Plus: Bitcoin and its ‘funny business’ should be regulated globally, says European Central Bank chief
Mode’s user base also reveals a stark age divide among bitcoin investors. People aged 30 years old and younger represent 64% of the app’s users, with 86% of Mode’s clients falling under the age of 41.
This makes young people grossly overrepresented in bitcoin trading. According to the ONS data, 563,000 people aged 44 years old and younger held…
Read More:‘Overconfidence’: Why it’s mostly men under 30 trading bitcoin
