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Crypto: Declining comfort levels are 'testament to belief' in short-term trading, analyst says

Bankrate.com Analyst James Royal joins Yahoo Finance Live to explain why millennials are less interested in crypto and why just 21% of adults are comfortable investing in crypto overall.

Video transcript

RACHELLE AKUFFO: After plummeting in value in the first and second quarters, cryptocurrencies are in the green today and holding fairly steady as we come to the end of the third quarter. However, according to a new Bankrate survey, most millennials aren't as comfortable investing in crypto as they once were back in 2021. Well, James Royal, bankrate.com analyst, joins us now to break some of this down. So, pretty understandable, given, obviously, the shock to the system that the crypto has had. But are you surprised that the dropoff has been so much?

JAMES ROYAL: Well, what we found in our survey was that last year, Americans said 35% of Americans said that they were very comfortable or somewhat comfortable investing in cryptocurrency. This year, that number fell to 21%, so a sizable dropoff in the number of Americans. Is that surprising? Well, you've had Bitcoin and Ethereum drop by 70% from their all-time highs in November last year. That's a huge drop. Is it really any surprise that a momentum driven risky asset like this has fair-weather fans? I wouldn't say so.

DAVE BRIGGS: Do you get a sense of, though, why the dropoff was the steepest among millennials?

JAMES ROYAL: Well, we dug into a few of the reasons. Some of it is simply inexperience and not understanding what they're invested in. For younger investors, whether that's Gen Z or millennials, the second highest source of financial information for them, according to a creditcards.com survey, was social media. So they're getting a lot of information from what most Americans see rightly as an unreliable source.

So when they're being promised riches, wealth, cards, stacks of large, large bills, is it really surprising that they're jumping in? So I think the social media aspect is huge here in drawing younger generations toward these assets.

RACHELLE AKUFFO: And obviously, we saw big names, even during the Super Bowl, really promoting crypto, but obviously, that not matching a lot of the losses that people saw. But then you also have some investors saying, look, this is a longer term investment here. Do you think millennials see that in the same way, or did a lot of them really start pulling out as soon as things started to get tough?

JAMES ROYAL: Well, I think the price action drives so much of the interest here. And I think that what you see here, the decline and the comfort levels of Americans with cryptocurrency, is a testament to not their belief in the long-term, but their belief in a trade, in a short-term trade, trying to make money. And when that evaporates, they run for the hills. I don't think that reaction is that surprising. In fact, I'm a little bit more surprised that more people have not fled from it, given the complete lack of a fundamental investment basis.

DAVE BRIGGS: And when you compare it to, say, equities-- well, let's look at the NASDAQ, down 32% year to date. So would you assume that number in terms of dropoff in interest and trading equities or the NASDAQ, would it be a similar drop?

JAMES ROYAL: Well, what we're seeing with the Federal Reserve raising interest rates, that's creating a lot of volatility and risk assets. And there's nothing more risky out there, really, than cryptocurrency because there's no fundamental base case for investing in. Even with-- so cryptocurrency trades like a risk asset, like your high growth, super high growth, unprofitable stocks. We've seen a number of those drop, even more than the NASDAQ as a whole.

So, cryptocurrency is trading like that, especially in an environment where the Federal Reserve is rapidly raising interest rates and driving a lot of speculative fear out of the market.

RACHELLE AKUFFO: So, James, what do you think it will take to actually get more crypto investors in? And when you look at some of these other crypto related stocks, the underlying blockchain, are you seeing that same pullback as well?

JAMES ROYAL: Well, what's it going to take to get people investing in cryptocurrency? How about a fundamental investment case, right? It's important to understand that cryptocurrency is not backed by hard assets or cash flow of a company, right, of an underlying company. So what is there to invest in? This is why you've got investors, such as Warren Buffett or Charlie Munger, who are calling this stuff rat poison [INAUDIBLE]. There's no fundamental investment case. It's just uninvestment.

So if millennials are going to be attracted to that, they need to understand what they're investing in-- or any Americans. It's not just millennials. They're need to understand what they're investing in and what's going to drive their return going forward. And for cryptocurrency, that's the only sentiment. Sentiment is the only thing holding this stuff up.

DAVE BRIGGS: Yeah, Jamie Dimon calling it a decentralized Ponzi scheme, certainly ranks among the better quotes. The returns are obviously pivotal. But the process to get involved to buy cryptocurrency, is that an obstacle? Is that a problem keeping some of these millennials out of the process?

JAMES ROYAL: Well, the thing is, it's actually easier than ever to buy cryptocurrency, especially you don't have to do the kind of machinations that you had to do five or seven years ago. You can go to a Robinhood, a Webull, or interact with brokers. You can go to a lot of mainstream brokers here or mainstream app here and buy cryptocurrency. So it's really never been easier to get involved.

RACHELLE AKUFFO: Indeed. Well, a big thank you there, James Royal, for your insights this afternoon. Have a great weekend.