Why Aren’t More Women Talking About Crypto?

At the 2022 Morningstar Investment Conference in May, Karla Paxton hosted a panel called “Why Aren’t More Women Talking About Crypto?” Paxton, a senior vice president of business development at Morningstar, is an individual cryptocurrency investor. She sat down with Morningstar experts Madeline Hume, a senior analyst who covers cryptocurrencies, and Jasmin Sethi, associate director of policy research. This excerpt from their discussion has been edited for length and clarity.

Karla Paxton: Can you describe your own journeys into crypto investing?

Madeline Hume: At this point, we don’t consider cryptocurrencies a viable investment vehicle using the traditional long-term lens that we apply to investing for concrete goals like retirement, saving for college, things of this nature. It’s a technology, and we’re still experimenting with it. That doesn’t necessarily make it a compelling business model.

In my own portfolio, I treat cryptocurrency as kind of an entrance fee to engage with the technology, understand how it works, and get acquainted with the pitfalls of it. I funded my cryptocurrency portfolio with gains from my retail stock portfolio, so that I wasn’t putting any of my own money at risk. Not everybody can do that. For people considering putting their wages in crypto or taking out loans to put their money in it, it’s not necessarily appropriate. But if you have enough that you could take to the casino or the racetrack and treat it as a sunk cost and a way to engage with the market, that’s typically the way to go with crypto.

Jasmin Sethi: I have been very nervous about investing in crypto. I’m also a lazy investor. I don’t like to research individual coins. I don’t even like to research individual stocks. I’m a mutual fund/ETF person. I felt more comfortable using a robo-advisor to invest in a diversified basket of crypto.

Paxton: Why do cryptocurrency investor demographics skew toward young, white, wealthy males?

Hume: Cryptocurrency investors are a pretty tribalistic bunch. A lot of these Reddit communities have stemmed from software programmers who have taken this on as a project. What do the demographics of coders look like? It skews male, younger, wealthier, and oftentimes there are fewer minorities represented.

When people use the term socioeconomic, they often really mean economic. But the socio part is equally important, especially with cryptocurrencies, because people rely on their networks of friends and neighbors. We see that social factor driving interest in and speculation in cryptocurrencies. That typically means a network of guys in their mid-20s. Other people get left out of that conversation.

Sethi: I do think that women are probably smarter in not having gotten into this speculative asset class that we’re not even sure is an asset class. To be clear, we’re not here as an advertisement for crypto. We’re not telling everyone to run out and start a crypto portfolio if you haven’t thought about doing so before. This is a way to broaden access to information and provide some different thoughts about it.

Hume: One of the potential reasons that women are not as engaged with cryptocurrency is that women are not as prone to taking risk, especially risks that they don’t understand. With cryptocurrency, there are still a lot of unknowns. We certainly aren’t recommending that more women get into crypto. But we know that more-diverse perspectives typically allow for better investment research and outcomes. We want more voices in the room, not necessarily more dollars in the Coinbase account.

Paxton: Fidelity is going to allow investing in cryptocurrency in 401(k) accounts. What are the potential pitfalls?

Hume: From an investor’s point of view, it is difficult to find parallels to another asset class in terms of the volatility of cryptocurrencies. Fidelity’s allowance of cryptocurrencies in 401(k)s runs up to 20%. Now, it’s up to plan sponsors whether they accept that maximum, but a 20% allocation to cryptocurrencies in a 401(k), in our view, is wildly inappropriate. If you have a 60/40 portfolio, and you have just a 2% allocation to bitcoin, that’s half your volatility budget right there.

It’s also hard to find parallels where a plan sponsor has allowed individual securities on a 401(k) lineup. For the most part, 401(k) lineups included diversified baskets of securities, commingled investments, mutual fund vehicles. Fidelity doesn’t have a lot on the line here—it’s the plan sponsors that bear the fiduciary responsibility.

Cryptocurrencies have interesting characteristics from an institutional investor’s perspective, given that they are relatively uncorrelated. But whether that translates to an actual investment is something we’re still analyzing in great detail. For individual investors, I would say there aren’t any shortcuts to retirement savings. That hasn’t changed with the advent of cryptocurrencies. There are three ingredients to saving for retirement: diversification, compounding returns, and time. Bitcoin is not going to allow you to circumvent any one of those.

Sethi: This announcement came very soon after the Department of Labor’s guidance on crypto in 401(k) accounts. Looking at that guidance, it’s very hard to imagine plan sponsors taking Fidelity up on this. Forget 20%—even 5% would put a lot of burden on plan sponsors in terms of their fiduciary duty, considering the valuation risks, the hacking risks, and so forth. If any plan sponsors do take Fidelity up on that, it will be interesting to see what safeguards they put in place. Will they allow only a very small percentage or put up some kind of financial acumen barrier? Time will tell.