•Press Release Inequality United States
Crypto Has Largely Underperformed the Stock Market Over the Past Five Years
Washington, DC — New analysis from the Center for Economic and Policy Research (CEPR) shows that, contrary to much of the hype, Black investors and others would have done far better investing in the traditional stock market over the past five years, rather than buy cryptocurrency. The CEPR analysis compares the five-year growth of randomly selected cryptocurrencies with two stock market index funds and shows that the index funds far outperformed the median cryptocurrency. While the S&P 500 grew by almost 61 percent from 2017 to 2022, and the total stock market grew by over 56 percent, the median cryptocurrency declined by over 46 percent in value in the same period.
“The risks of investing in crypto go far beyond FTX and Sam Bankman-Fried,” coauthor Algernon Austin said. “This simple comparison with stock market indexes shows that crypto has failed to deliver to its investors. It’s often a money-loser, and there are many other risks and pitfalls as well. Yet, we continue to see crypto touted as a boon to the Black community.”
The analysis, by Algernon Austin, Julia Tache, and Timi Iwayemi, shows that someone purchasing $1,000 worth of a cryptocurrency from the top 1,000 currencies five years ago would likely have seen the value of their investment drop to a little over $500 today. In contrast, if someone had purchased $1,000 worth of a total stock market or S&P 500 index fund, this would have increased to about $1,600.
The analysis likewise shows that the stock market index funds outperformed cryptocurrencies in the four-year period 2018 to 2022, and the two-year period 2020 to 2022. Cryptocurrencies only outperformed the stock market in the three-year period 2019 to 2022. In the year 2021 to 2022, both the stock market and cryptocurrencies experienced significant declines. The value of Bitcoin, for example, declined by 60 percent from the start of 2022 to the middle of the year, but the stock market declined by less than 20 percent..
Cryptocurrencies Black Crypto A and Black Crypto B, started by Black entrepreneurs and marketed to Black investors, likewise have significantly underperformed compared to the stock market index funds since their creation.
The CEPR analysis shows that while it is possible to gain significant wealth from cryptocurrencies in a short amount of time, it is more likely for a cryptocurrency investor to lose money. In addition, cryptocurrencies are subject to corruption, overprinting, excessive control over investors’ accounts by exchanges, excessive fees, and especially slow transaction rates, among other pitfalls.
“Cryptocurrencies have yet to prove they are anything but another get-rich-quick scheme,” Austin said. “Looking at crypto’s track record so far, it doesn’t look good.”