Gen Z Invests in Cryptocurrency More Than Anybody; Here's Why Experts Say It's a Bad Thing

Cryptocurrency has zoomed in to become the ultimate investment choice among Gen Z investors, CNBC reports.

Experts point to an era bursting with technological breakthroughs, social media reign, and unparalleled access to investment prospects as the leading reasons for the noticeable trend.

This compelling revelation comes from a CFA Institute and the Investor Education Foundation of the Financial Industry Regulatory Authority report.

A Closer Look at the Numbers

The release of this report coincides with the recent lawsuits filed by the Securities and Exchange Commission (SEC) against Coinbase, the largest cryptocurrency exchange in the United States, and its rival, Binance. The SEC alleges that Coinbase was selling investment securities without proper registration.

According to the joint report, 55% of adult Gen Z investors currently engage in cryptocurrency investments, making it their most popular choice.

Individual stocks follow at 41%, while mutual funds account for 35% of their investment holdings. Nonfungible tokens (NFTs) and exchange-traded funds (ETFs) rank fourth and fifth, with 25% and 23% ownership, respectively.

In contrast, mutual funds dominate as the primary investment for Gen X investors, a cohort born between 1965 and 1980. Forty-seven percent of Gen X investors hold mutual funds, followed by individual stocks (43%) and then cryptocurrencies (39%).

Experts Warn Gen Z Crypto Investors

But hold on to your digital wallets! As much as the younger generation thrives on embracing daring investment ventures, unlike their older counterparts, experts offer a word of caution.

They urge restraint in relying too heavily on cryptocurrencies as the cornerstone of one's investment portfolio, citing the inherent rollercoaster-like volatility that comes hand-in-hand with these digital assets.

Gerri Walsh, president of the FINRA Investor Education Foundation, expresses concern regarding Gen Z's high concentration in cryptocurrencies and individual stocks.

She highlights the lack of diversification compared to mutual funds and most ETFs, emphasizing the importance of adequately considering and managing investment risks.

Ted Jenkin, a certified financial planner based in Atlanta, attributes Gen Z's preference for cryptocurrency to their upbringing in a technology-driven world, where platforms like TikTok and Instagram influence investment decisions.

Additionally, witnessing the success of technology giants like Alphabet, Apple, and Meta has instilled confidence in the continued growth of the digital economy among Gen Z investors.

Why Investing In Crypto Is Risky

Cryptocurrency remains a highly volatile asset class. For instance, Bitcoin has experienced significant value fluctuations, dropping more than 50% from its peak of around $69,000 in November 2021 and currently trading at approximately $27,000 - peaking at $30,000 back in April.

Jenkin acknowledges that cryptocurrencies can have a place in investors' portfolios, particularly for those with higher risk tolerance.

Nonetheless, he advises limiting exposure, suggesting that no more than 1% to 3% of a portfolio should be allocated to cryptocurrency investments.

The experts also explain that Gen Z investors view themselves as risk-takers, with 46% stating their willingness to take substantial or above-average financial risks.

However, this self-perception, combined with the fear of missing out (FOMO) that motivates approximately 50% of Gen Z investors, may not always lead to a comprehensive risk assessment, warns Walsh.

Financial Anxiety

There is an undeniable appeal to taking daring leaps and investing in the unpredictable realm of the market, especially for the emerging generation of crypto enthusiasts.

It is not hard to see why when the potential for a digital currency's value to soar sky-high in a matter of moments is on the table.

According to data from The London Institute of Banking and Finance's Young Persons' Money Index, a staggering 81% of young individuals find themselves grappling with financial anxiety.

As prices continue to surge and the cost of living rises, young people appear to be placing their bets on the dangerously enticing world of cryptocurrencies.

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