As social media expands, so does the public’s awareness of cryptocurrencies. This growing familiarity could influence individuals’ investment behaviours, as recent research from the University of Georgia suggested. Cryptocurrencies, often abbreviated to ‘crypto,’ represent digital currencies that serve dual purposes: as mediums of payment and as investment opportunities. Their popularity has surged over the last decade, fuelled significantly by discussions on social media platforms.
The study highlighted that approximately 50% of social media users surveyed had invested in cryptocurrencies. Interestingly, an individual’s likelihood of investing increased with their presence on multiple social media platforms. In stark contrast, only about 10% of individuals not using social media had made crypto investments. Platforms such as YouTube, Reddit, Twitter, and Clubhouse emerged as the most common among those investing in digital currencies, whereas Instagram users showed less inclination towards crypto investments.
The researchers propose that the nature of content on platforms like YouTube and Reddit, which often involves extended discussions in videos and threads, may facilitate more profound engagement with the topic of cryptocurrencies. Conversely, platforms such as Instagram, which are more visually oriented, may not encourage the same level of detailed discussion. Lu Fan, an associate professor at UGA’s College of Family and Consumer Sciences, noted, “Cryptocurrency is a frequent topic of conversation on social media, underscored by its rising popularity and the discussions surrounding it by celebrities. This leads many to think, ‘If my friends, family, and admired celebrities are investing, perhaps I should consider it too.'”
This social buzz surrounding cryptocurrencies drives investment patterns significantly. The study also found that men and individuals with a higher tolerance for risk were more inclined to invest in crypto. Conversely, those with higher educational levels were less likely to invest. Age also played a role, making older individuals less likely to engage with cryptocurrencies.
The interest in cryptocurrencies has been rapidly accelerating. Data from the National Financial Capability Study and Investor Survey 2018 indicated that only 15% of participants had invested in cryptocurrencies. By 2021, this figure had almost doubled to 28%. The 2021 survey data also showed that cryptocurrencies were becoming a more prominent consideration in people’s minds, even among those who hadn’t invested.
However, investing in digital currencies is not without risks. Cryptocurrencies are known for their volatility and unpredictability. “When considering an investment in crypto, it’s crucial not to merely follow the crowd,” advised Fan. “Prospective investors should evaluate whether such investments align with their financial goals and whether they can accommodate the associated risks.”
The findings underscore the importance of discerning fact from opinion, particularly given the prevalence of misinformation and fraud on social media platforms, which are often not ideal sources for investment advice. The research pointed out that many social media users might overestimate their understanding of investments, and younger investors, in particular, are susceptible to online scams and poor advice.
Fan highlighted, “Our study revealed that younger adults are now more likely to invest in cryptocurrencies, and form the largest social media user group. As such, providing guidance to these young adults, who often lack financial literacy gained through life experience and age, is essential.” This calls for a structured approach to improve financial literacy and critical evaluation skills among potential investors, particularly younger and more active on social media.
More information: Lu Fan et al, Beyond the hashtags: social media usage and cryptocurrency investment, International Journal of Bank Marketing. DOI: 10.1108/IJBM-12-2023-0665
Journal information: International Journal of Bank Marketing Provided University of Georgia