Digital assets like cryptocurrencies and NFTs (Non-Fungible Tokens) are digital representations of value and are not physical like traditional currencies or tangible assets. Cryptocurrencies like Bitcoin or Ethereum exist on decentralized networks using blockchain technology, which is a distributed across a network of computers. This decentralized structure offers many benefits:
However, cryptocurrencies have their disadvantages, not the least of which is price volatility. Cryptocurrencies are prone to sudden drops and increases in price. Cryptocurrencies can fall with higher interest rates, rising inflation, uncertainty around laws and regulations affecting cryptocurrencies, and other factors that affect people's confidence in risky alternative assets.
There are many articles on cryptocurrencies, how they work, and their pro's & con's, so this article will take a different approach, focusing on the types of consumers who are most likely to invest in digital assets, or at least be interested in exploring the topic further as a potential investment.
To explore this angle further, Psympl partnered with Ipsos to conduct a national market research study among a representative population of adults ages 18+ (n=3,000). A comprehensive set of topics was included in the study, but specific to digital assets, the following were included:
One may make assumptions about the profile of consumers who are most interested in cryptocurrencies; for example, it may seem reasonable that younger people are familiar and/or interested in crypto, due to their comfort level with digital and new technologies. According to Psympl's research, this assumption would be correct:
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Gen Z and Gen Y/Millennials are significantly more likely to be familiar and interested in cryptocurrencies relative to other generations. However, it should be noted that this applies to less than half of Gen Z and Y. They are also less likely to be concerned with the risks involved with cryptocurrencies:
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Less than a fifth of Gen Z and less than a third of Gen Y express high levels of concern for cryptocurrencies. On the other hand, more than 40% of Baby Boomers and the Greatest Generation express high levels of concern for cryptocurrencies. What is driving these concerns?
The survey asked, Why are you concerned with investing in crypto currencies? Respondents were asked to choose all answered that applied:
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Reasons for Concern |
Gen Z |
Gen Y |
Gen X |
Boomer |
Greatest |
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Too risky |
49% |
42% |
52% |
66% |
60% |
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Stability of cryptocurrencies |
33% |
49% |
43% |
55% |
48% |
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Too volatile |
22% |
36% |
39% |
51% |
49% |
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Confusing/Difficult to understand |
25% |
25% |
34% |
43% |
51% |
|
Cryptocurrency isn't real; it's not tangible or based on legitimate/real value |
27% |
26% |
31% |
43% |
40% |
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Potential for government control of cryptocurrencies |
20% |
23% |
17% |
18% |
15% |
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Government/IRS scrutiny |
16% |
20% |
18% |
14% |
9% |
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Ethical considerations |
16% |
14% |
13% |
15% |
14% |
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Other |
1% |
1% |
2% |
2% |
2% |
Risk and volatility are the main concerns across the generations, although the feeling that cryptocurrency isn't "real" is pronounced among older generations.
The data above reinforces the assumption that younger investors are more likely to be interested in cryptocurrencies, but what about other demographic or socioeconomic factors? Do they stand up to preconceived notions about who is interested in cryptocurrencies? For expediency's sake, the rest of this article will focus on level of interest rather than familiarity or concern, though Psympl can offer these data to interested parties.
Interestingly, when looking at Race/Ethnicity, African Americans are the most likely to be interested in cryptocurrencies, with little difference among other groups:
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What roles do household income and wealth play regarding interest in cryptocurrencies? One might assume that a greater amount of money affords one the opportunity to test the waters with this form of investment. This may not necessarily be a safe assumption.
It is true that the group with the lowest household income (under $50,000 per year) is the least interested in cryptocurrencies, but the groups with the highest interest make between $50,000 and $149,000 per year. A slightly lower percentage of those making $150,000 or more are interested in this investment opportunity.
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When it comes to net investable assets, those who have between $500,000 and $999,000 are just as likely to be interested in cryptocurrencies as those with $10 million or more. People with the least amount of net investable assets (under $250,000) are nearly as likely as those with between $1 million and $4.9 million to be interested in cryptocurrencies. It does appear that the group who is most interested has between $5 million and $9.9 million in net assets, but it's not significantly higher.
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While wealth may not be a predictor of interest in cryptocurrencies, are there factors (other than age) that may help financial advisors anticipate client or prospect interest? This is where psychographics come in.
Psychographics pertain to people's attitudes, values, lifestyles, and personalities, which are core to their motivations and priorities. Psychographics help answer WHY people make decisions and behave the way they do. Psychographics transcend demographics and socioeconomics, which are physical or situational descriptors. Two people with similar age, ethnicity, income, or net assets can still behave in very different ways, and psychographics help identify the triggers of such behaviors.
A primary objective of Psympl's market research was to develop a financial psychographic model to predict and explain people's approach to investing, financial services, the role of financial advisors, and engagement preferences with RIAs, wealth managers, and financial institutions.
Psympl identified five distinct financial psychographic segments, each with unique motivations and communication preferences:
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Segment 1 (17%) |
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Segment 2 (22%) |
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Segment 3 (20%) |
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Segment 4 (25%) |
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Segment 5 (16%) |
There is little difference in average income and net assets among Segments 1, 2, and 3, but significant differences in risk tolerance and willingness to invest in new and innovative opportunities. On average, Segments 4 and 5 have less in financial assets, but there are members of these psychographic segments across all demographic and socioeconomic profiles.
Specific to cryptocurrencies, one psychographic segment stands out among all others in their interest and willingness to pursue this type of investment: Segment 2. More than half of Segment 2 are interested in cryptocurrencies and Segment 2 represents two-thirds of all people interested in this asset:
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Segment 2 has the highest risk tolerance among the segments and likes to take advantage of investment opportunities before the rest of the market catches up. Segment 2 actively researches investment opportunities and stays on top of the market and their portfolios.
Segment 3 is the second most likely psychographic segment to be interested in cryptocurrencies, but overall, they are more conservative in their investment approach, balancing risk and return. This is a very DIY segment when it comes to investing, and like Segment 2, they actively monitor their portfolios and avidly follow the market. However, while half of Segment 2 works with a financial advisor, only a third of Segment 3 has a financial advisor.
Again, Segment 1 has the same average net income and assets as Segments 2 and 3, but a very small percentage of Segment 1 cares about cryptocurrencies. This is a risk averse segment who does not follow the market closely, assuming their investments are wisely managed by their financial advisors.
Segment 4 is willing to take more risk than some of the other segments, but Segment 4 does not necessarily have the money to invest in cryptocurrencies, as their focus is staying on top of bills and living day-to-day with a short-term outlook.
A general illustration of Segment 5 is the proverbial person who stashes their money in a mattress. They do not trust or follow the stock market and only 6% have a financial advisor. They may have a traditional savings or checking account at a bank or credit union, but they avoid risk as best they can.
Net, Segment 2 is clearly the Prime Prospect target for cryptocurrencies, while Segment 3 is a secondary target. But what about for other types of digital assets?
Non-Fungible Tokens, or NFTs, are unique, digital tokens that represent ownership of a specific asset, whether physical or virtual. NFTs are stored on a blockchain, which is a decentralized ledger, providing a transparent, traceable record of property ownership and transactions.
Nearly any asset can be tokenized for fractional ownership, in which multiple investors can own a portion of that asset, rather than requiring full ownership. such as art, other collectibles, or even an airplane or yacht.
One market in which NFTs are quickly gaining a foothold is real estate. NFTs in real estate offer many benefits, including:
Psympl's market research looked at NFTs for commercial real estate. The survey described NFTs and their role in commercial real estate (e.g., office buildings, retail developments, hotels, resorts, etc.) and then asked respondents to indicate: 1) Their level of interest in NFTs for commercial real estate; and 2) Their likelihood to purchase NFTs for commercial real estate.
As with cryptocurrencies, Segment 2 is the psychographic segment most likely to show interest in NFTs for commercial real estate, more than twice as likely to be interested as the next segment, Segment 3. The other segments appear to show little interest in this investment type.
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More than a third of Segment 2 indicate they would purchase NFTs for commercial real estate and is the most likely psychographic segment to do so. Again, Segment 3 is the second most likely segment to indicate they would likely purchase NFTs for commercial real estate, but this segment is less than half as likely as Segment 2.
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If a financial advisor wanted to focus on the one group of investors to consider cryptocurrencies or NFTs, psychographic Segment 2 is the clear target. The key is the ability to target and identify Segment 2's among a population of clients or prospects. Since psychographics pertain to psychological and personality traits, it is not as easy as using demographic or socioeconomic data, which may be available in a client database or prospect call list. That is, until now.
The Psympl Motivation DecoderTM is a tool that identifies a person's psychographic profile with 90% accuracy after a brief series of questions that takes under two minutes to complete. The Motivation Decoder allows a financial advisor, wealth manager, or financial services firm to anticipate a client's or prospect's needs and potential reaction to marketing, outreach, and product/service offers.
In the case of digital assets like cryptocurrencies and NFTs, the Motivation Decoder can help financial advisors efficiently and accurately determine which clients or prospects would welcome this opportunity, which saves the advisor time, increases the likelihood of success, and enhances client satisfaction.
We welcome anyone to try the Psympl Motivation DecoderTM to discover their own financial psychographic segment.