Rage Against the Investing Machine
The cryptocurrency industry markets itself as a panacea for the history of systemic racism in traditional investing. Is it though?
After leaving Wall Street in 2012, I consulted for a few years as a subject-matter expert for a capital markets research firm in New York. My main area of focus was fintech, a portmanteau for “finance” and “technology.” My job was to examine the impact of disruptive financial services start-ups and write research detailing my conclusions for use by traditional bulge-bracket investment banks. Since I was remote, I could do it all in shorts and flip-flops.
An after-effect of the massive finance layoffs after the housing crisis was that scores of brilliant people decided to become entrepreneurs rather than work for traditional Wall Street banks again. The combination of this mass exodus of brainpower from global investment banks — and the rise of smartphones — spawned a reimagining of conventional financial services.
In the years since the crisis, a host of fintech start-ups challenged how we think of finance. Companies like Chime, an online pseudo-bank, and Betterment, a provider of robo-advisory services, are a couple of examples. For regular folks, this meant financial democratization; instead of physically visiting a bank or an investment firm, now we can invest in markets or instantly move money via a smartphone app.
One of my last projects for my New York client was constructing a directory of relevant players in blockchain, the supporting technology underpinning cryptocurrencies. As I interviewed the heads of the dozen or so blockchain start-ups around at the time, I took note of the complete lack of diversity within these companies. Ironically, this emerging financial sector was just as homogeneous as the traditional investment banks they claimed to disrupt.
Fast forward to today. According to a 2020 survey by Coinbase, the most valuable US cryptocurrency start-up, more Black Americans have shown an interest in understanding cryptocurrencies (70%) than white Americans (42%). What’s driving this trend? For one thing, throughout history, traditional finance has not been favorable to Black folks. It’s so bad for people of color a Black superhero can’t get a bank loan.
All joking aside, nearly half of Black Americans surveyed in the Coinbase study felt negatively impacted by the traditional financial system due to their race or gender. Less than a quarter of whites surveyed felt similarly. Blacks in the survey held this view not only in their inability to get bank loans but in other areas, from the stock market to currencies.
A recent USA Today/Harris Poll found only 11% of white Americans reported owning cryptocurrencies, compared with 23% of Black Americans and 17% of Hispanic Americans. A 2014 report by Zillow and the National Urban League seems to lend credence to the BIPOC community’s feelings of exclusion from the traditional financial system:
Fewer minorities apply for conventional mortgages. Although Hispanics and blacks make up 17 percent and 12 percent the U.S. population, respectively, they represented only 5 percent and 3 percent of the conventional mortgage application pool. Blacks experience the highest loan application denial rates. 1 in 4 blacks will be denied their conventional loan application, as opposed to 1 in 10 whites.
Long story short, the structural racism embedded in traditional finance is a significant factor in the outsized minority interest in cryptocurrency investing. According to the research, the migration of Blacks and other minorities to digital currencies is due primarily to the economic discrimination in traditional finance. The crypto industry writ large facilitates this notion at every turn, billing itself as a cure-all for the shortcomings of centralized finance.
The industry’s marketing narrative is that the pseudo-anonymous nature of cryptocurrency transactions alleviates financial racism concerns. They argue that this accounts for the industry’s overwhelming appeal among Blacks and other minorities. Indeed, the Coinbase survey referenced here was part of an extensive advertising campaign featuring prominent Black crypto entrepreneurs — launched during Black History Month.
Unsurprisingly, Black celebrities of every stripe are on the bandwagon. This summer, actor Harper Hill, of CSI: NY fame, launched The Black Wall Street app, a digital wallet targeting Black and Latinx investors. Rapper Megan Thee Stallion collaborated with Cash App, a mobile payment service developed by Twitter and Square CEO Jack Dorsey, to publish “Bitcoin for Hotties” ostensibly to educate her followers on the benefits of bitcoin investing. This month, Spike Lee, the Oscar-winning filmmaker, dropped “The Currency of Currency,” a short film developed in conjunction with Coin Cloud’s national ad campaign.
The cryptocurrency industry is keen to seize on the tremendous revenue potential of the BIPOC market. That said, the industry’s record of racial inclusiveness within its ranks leaves a lot to be desired. Cryptocurrency start-ups predominantly employ white cis males in lockstep with the broader tech sector.
For example, despite its efforts to market itself as a champion of social justice, according to Bureau of Labor Statistics data, only 3% of Coinbase employees were Black as of last year. In a New York Times article published around the time, several of the company’s Black employees recounted chilling stories of racially discriminatory behavior.
With increased calls for regulatory oversight, several cryptocurrency companies now require photo ID registration due to global “Know Your Customer” regulations requiring due diligence regarding customer financial suitability. As this requirement becomes commonplace, a vital component of the industry’s racial anonymity narrative may soon disappear.
With each passing day, the cryptocurrency industry appears less and less different compared to traditional investing. The combination of racial tone-deafness and regulation could soon require a recalibration of its marketing strategy.
What began as a disruption of the financial status quo may end like the final scene of George Orwell’s Animal Farm. Soon, it may be impossible to tell the disrupters of traditional investing from those they disrupted.