Samson Williams was working in the mortgage lending industry in 2014 when a colleague convinced him to invest in cryptocurrency.
At the time, Williams didn’t know much about cryptocurrency but decided to invest a little more than $200 to see where it would get him.
“No one knew what it was,” Williams said. “But it was going to change the world. So I was drinking a lot of crypto Kool-Aid.”
Cryptocurrency – decentralized digital money backed by bitcoin and ethereum – would gain momentum among Black investors in the years to come. As the hype grew, Williams cashed out in 2020 and bought his mom a house. He had learned enough about cryptocurrency to know it was time to get out.
“I was done gambling,” said Williams, now an adjunct law professor at the University of New Hampshire.
Despite his earnings, Williams worries that experienced investors are promoting cryptocurrency to Black Americans as the key to financial inclusion and closing the wealth gap without fully explaining the risks.
A study released earlier this year by Charles Schwab and Ariel Investments found that Black Americans were more likely than White Americans to invest in cryptocurrency. The study highlights data that shows Black investors are less likely than White investors to believe cryptocurrency is a risky investment, despite the extreme volatility of cryptocurrency, Black people, the study says, are also more likely to make investment decisions based on social media or other less credible sources.
The disparity leaves Black investors disproportionately vulnerable when the cryptocurrency market collapses. Critics argue that Black Americans lag behind their White counterparts in financial literacy which they say is key to making smart investment decisions with cryptocurrency. Still, social media influencers, Black celebrities, athletes and conference organizers continue efforts to lure more Black investors into cryptocurrency, touting their own financial gains.
“Cryptocurrencies don’t solve living wages, they don’t address unemployment,” Williams said. “Black folks are so eager and so thirsty for financial inclusion and economic opportunity that by default we are more ripe for being exploited.”
But experienced investors say cryptocurrency is appealing to Black people for many reasons. Among them are the low barriers to entry because there are no credit checks or income requirements; the equal opportunity for success regardless of race or generational wealth; and a lot of merchants accept cryptocurrency as a form of payment.
Successful Black investors say it’s important to educate potential investors on how cryptocurrency works so they can make smart decisions on how to invest their money.
Cryptocurrency is essentially money that is bought, sold and exchanged online. Unlike the U.S. dollar, cryptocurrency is not regulated by the government but instead operates in a decentralized system called a blockchain.
The goal is for cryptocurrency investors is to buy it at a low price, wait for the value to rise and then cash out their profit. When the demand for cryptocurrency increases, the value goes up. If values drop, or the market crashes, investors stand to lose money.
There are many different types of cryptocurrency. Bitcoin, which has been heavily promoted by celebrities and athletes, is one of the most popular because of its low transaction fees and ease of use.
Cryptocurrency has also gained popularity in the Black community because of success stories.
For example, Terrance Leonard invested $2,000 in 2019 and by 2021 his cryptocurrency investments grew to $1 million. The year prior, he was able to buy a house in Washington D.C. when he sold some of his cryptocurrency to pay the earnest money and make a down payment. He hopes to eventually sell more cryptocurrency and pay off the mortgage.
Leonard said becoming a millionaire does not happen overnight and it requires dedication and a willingness to study the market.
“It’s going to be scary and you’ll be nervous because there’s money at play and lot of times people are investing more money than they can afford to lose,” Leonard sad. “But you have to dive in. Treat it like you treat any of your other interests.”
Some researchers, however, are skeptical of cryptocurrency.
Algernon Austin, director of race and economic justice for the Center for Economic and Policy Research, called cryptocurrency a “get rich quick scheme.”
Austin said investing in cryptocurrency can be harmful for people who have no general experience with investing because the market is so volatile.
Austin said low income Black families should not gamble their money without receiving guidance from a financial adviser.
“Most African Americans got into cryptocurrency as the values were high so that means people are losing money,” Austin said. “And we are talking about a low wealth population losing wealth, that is not a good thing. It is the most risky investment that you can make.”
But cryptocurrency strategists and successful investors insist that investing will help Black people get ahead financially.
According to the Federal Reserve, the median net worth of a White family is $188,200 compared to $24,100 for a Black family.
Charlene Fadirepo, a Bitcoin adviser, said Black Americans have long been shut out of fair access to wealth due to systemic racism. Fadirepo pointed to homeownership which is lower in the Black community because banks have historically denied mortgages to Black families.
Fadirepo said cryptocurrency offers a leveled playing field for all investors.
“This is our shot at a fair financial ecosystem,” Fadirepo said.
Fadirepo, who plans to speak at a conference next month that educates attendees about cryptocurrency and connects Black investors, said she encourages potential investors to only invest what they can afford after paying for basic necessities. Part of that requires creating a budget of your additional funds, she said.
“This is about responsible and smart investing,” Fadirepo said. “If you are not in a position to invest, if you have significant debt, if you have credit challenges, maybe your first step is to focus on that.”
Leonard said many Black Americans feel empowered by cryptocurrency because they have an equal shot at wealth.
Leonard said there are fewer systemic barriers – such as credit checks – to obtaining crypto loans like there are with bank loans. Investors can use their crypto assets as collateral in exchange for liquid funds. As long as the investors maintain the collateral ratio and pay off the loans, they get their cryptocurrency back at the end of the term.
“It opens the door to equality,” Leonard said. “There are no longstanding cryptocurrency institutions setting the rules.”