Professor Vikramaditya Khanna (University of Michigan Law) shares findings from a new study exploring U.S. attitudes toward cryptocurrency—what people think crypto is for, what motivates them to pay attention, and what holds them back. The conversation breaks down the gap between hearing “about crypto” and truly understanding the underlying tech.
Jeffrey Snyder, Broadcast Retirement Network
Joining me now is Professor Vikramaditya Khanna of University of Michigan Law.
Vik, it’s so great to see you. Thanks for joining us this morning.
Vikramaditya Khanna, University of Michigan Law
Thanks, Jeff. Delighted to be here. Thanks for having me.
Jeffrey Snyder, Broadcast Retirement Network
I think this is, I’m very interested in cryptocurrency and I know we’ll get into kind of the different brands. And you and the team at University of Michigan Law did a lot of work at this, did a survey. Let me back up and ask you, why did you do the survey?
What drove you to create the survey?
Vikramaditya Khanna, University of Michigan Law
Thanks, Jeff. So we got interested in cryptocurrencies because we had sort of noticed the quite volatile growth and decline of cryptos over the last decade. And we wanted to better understand what’s leading people to want to invest in crypto?
What are the sort of factors that might be driving them? And are there any things in there for regulatory policy or for, frankly, understanding how financial innovation occurs? For many people, cryptocurrencies are the most sort of noticeable and salient financial innovation in the last 20 years.
Jeffrey Snyder, Broadcast Retirement Network
So, you know, I guess just from doing this show and from my own background, I know people get a lot of ideas around the water cooler. They may also see it on television and also social media. Do you think that those things maybe helped drive the interest?
And is there like specific demographics that maybe have an interest in this type of currency versus others?
Vikramaditya Khanna, University of Michigan Law
Certainly. And so what we found in our survey, which was a nationally representative sample, was that the advice of friends and family and social media were probably the two biggest sort of drivers of where people got their information from in terms of how they invested in crypto. They typically were not getting advice from their financial advisors on this, which we thought was quite interesting.
Also, one of the things that was perhaps intriguing to us and we hadn’t expected was the level of overall interest in cryptos. So in our survey, we found that approximately 30 percent of the respondents expressed an interest in either currently owning crypto or doing so in the near future. Roughly about half of the 30 percent were currently owning crypto and another half were interested in owning it soon.
That’s quite a large percentage when you think about a nationally representative sample. We did find that there were certain factors or certain characteristics that tended to lead people to invest in crypto more than others. Typically, they were young, male, often very financially sophisticated, reasonably well off, and on various metrics, you could view them as being somewhat risk takers.
Indeed, one of the sort of amusing findings was that a large percentage of people who invest in crypto also played a fantasy sports league and we thought that was quite interesting. So we did see actually certain kinds of traits, but we will say this, there were marked differences between those who had already bought crypto and those who were thinking of buying it. So those who had already bought it were the types of people I’ve just described to you.
They also often had an anti-institution bias, but those who were thinking of buying it often had somewhat different characteristics.
Jeffrey Snyder, Broadcast Retirement Network
So just, we’ll finish your thought and I have a follow up question.
Vikramaditya Khanna, University of Michigan Law
Sure. The people who are sort of the next set of adopters, let’s say, or the next set of investors, they’re often not necessarily as much male. They were often not as financially sophisticated and they were often much more sort of concerned about understanding the regulatory environment and what were sort of the potential downsides of investing in crypto.
They seemed a little bit more risk averse than the first set of people who invested in crypto, which perhaps is not surprising. One thing that was intriguing was that virtually, I’d say the vast majority of people had not invested a big chunk of their portfolio in crypto. They were investing smaller amounts, suggesting to us that they were treating crypto as a complement to their stock market investments rather than as a substitute for them.
Jeffrey Snyder, Broadcast Retirement Network
So I’m glad you got to finish those thoughts. So I apologize for interrupting you, I guess. And that leads me to my next question, which is, do you think people understand what cryptocurrency is?
And I get the whole how it’s been branded as it’s not government fiat currency. I get that. But do people understand, based on the survey, what is underlying?
For US currency, the dollar, for example, it is backed by the presumption that the sovereign will pay the debt, right? It used to be backed by gold. That’s no longer the case.
We went off the gold standard, I think, in the early 70s. So do people understand what cryptocurrency is?
Vikramaditya Khanna, University of Michigan Law
That’s a great question. And in fact, we found in our survey that a lot of the people who own crypto had heard of at least Bitcoin and maybe one or two other cryptocurrencies. But when it came to whether they understood what cryptocurrency was and how it ran on a blockchain, there, there was a much more marked gap in knowledge.
Almost above 90% of the people who owned Bitcoin didn’t know what blockchain was. And so that suggested to us that there were significant knowledge gaps in terms of what people knew about crypto and what they were investing in. And indeed, it’s interesting, the people who were interested in crypto, but not yet owning it, they expressed concern that they didn’t know that much about it.
And in fact, they often said, we’re not really sure what it’s being used for, besides, you know, as a currency, potentially. So yeah, there does seem to be a gap in knowledge there.
Jeffrey Snyder, Broadcast Retirement Network
And with any investment, there’s education. I mean, we harp on this all the time. There are so many people that harp on this, you got to know what you’re investing in before you invest in it.
What I liked, one of the comments you made earlier, I want to kind of pick up on that is people were buying crypto as an additional, like a diversifier. So they weren’t going 100% all in, maybe there are some, but they were kind of like layering a little crypto, getting a little taste, if you will, to diversify the portfolio. That sounds to me, just anecdotally, like a prudent investment, right?
You want to try some of these additional things and see how they will add to your return.
Vikramaditya Khanna, University of Michigan Law
That was the impression we got was that a lot of people were not betting the house on crypto. Instead, they were taking sort of getting a little bit of exposure, let’s say to a riskier asset class. And since their knowledge of crypto was more limited, perhaps it makes some sense that they sort of just, you know, put their toe in the water to sort of feel what it’s like a little bit.
We did also notice that, especially amongst a group of people who were thinking of adopting or investing, they were very interested in knowing what were other big institutions in society doing with respect to crypto? For example, were banks using crypto? Were they accepting crypto as payment?
Were retailers like Amazon using crypto? And indeed, might the government accept crypto as payment for your taxes or something like that? That suggested to us that they were looking for some greater assurances about what this would be used for, rather than just simply saying, let’s bet the house on the thing that’s rising quickly or showing some kind of volatility in its movement in price movements.
Jeffrey Snyder, Broadcast Retirement Network
Yeah, that is pretty, you look, it’s kind of what I’ll call the herd mentality. I don’t know if that’s the correct economic term, but you know, people tend to follow what other people do. And in the sense that from what I’ve read, you know, banks are looking at the blockchain as a way to facilitate the transactions.
Even public pension funds, you know, that I’ve seen have had to sliver allocations. So I guess that’s a good thing. Although, you know, Vic, there is a difference between what the individual does and, you know, obviously what a big institution can do because the individual probably can’t afford the volatility and the losses.
Vikramaditya Khanna, University of Michigan Law
That’s absolutely right. And in fact, it’s really interesting that unlike a lot of other financial innovations or financially innovative products, crypto, a lot of the initial growth was driven by retail investors, not by institutional investors. And indeed, to the extent that banks and others are using crypto, as you correctly stated, they’re using for their own internal purposes when they’re transferring money across borders and things like that, which is a different kind of the use of a blockchain than the public blockchain that underlies crypto.
And, you know, that decision is actually worthwhile for those people interested in the space. What is a private blockchain, which is what a lot of banks are doing, and what is a public blockchain, which is what Bitcoin is based on, for example. Those are important differences.
And sort of building on the point you were making, it’s intriguing that one of the big sort of times when we saw an increase in interest in crypto was in the early 2024, when the Securities and Exchange Commission greenlighted an exchange traded fund on Bitcoin. And that puts Bitcoin in a format and in a disclosure format in particular that is more familiar, I think, to investors and institutions. And we saw a rise in interest.
And I think just at the beginning of June, the Department of Labor completed taking comments on its new rules for retirement plans and their ability to offer crypto. And of course, that’s been a big topic because if it’s in your retirement plan, at least in our survey, we found that those investors who were thinking of investing in crypto would be motivated to do it more so if their retirement plan allowed it. The people who had already bought it didn’t seem as strongly motivated by that because they had bought it even before that was an option.
So that sort of suggests to us that that regulatory environment and whether institutions are in the game is important to the retail investors and whether they want to get in.
Jeffrey Snyder, Broadcast Retirement Network
So you bring up another interesting, I mean, you bring up a lot of interesting points. But this is interesting because the Securities and Exchange Commission and different apparatus underneath have oversight of ETFs, mutual funds, right, and certain investments. Has the regulatory environment truly caught up?
I think the United States is ahead of its peers in Europe and other entities, other districts, other governments. But have we truly caught up or is like the U.S. Treasury and the SEC still playing the catch up game?
Vikramaditya Khanna, University of Michigan Law
That’s a great question. So as you correctly underscored, crypto regulation is a global phenomenon. So the EU has already got something called the markets and crypto assets regulation.
And then I think Hong Kong has something already in place. Singapore is working on something and so forth. The regulatory strategies adopted in most of the modern Western economies are similar, which is that they are currently focused on stable coins, which is basically a way to on-ramp and off-ramp into crypto.
And then on where are crypto assets being traded and what regulatory structure surrounds them. So in most parts of the world, what we see is the emergence of what you might call a licensed model. That is, they want to license exchanges or other operators to be transacting in crypto or stable coins and then subject them to some kind of regulatory oversight.
In the U.S., a similar structure is beginning to emerge for stable coins that’s already been enacted over the last year. It goes under the moniker of the Genius Act. And now I’ve forgotten what the acronym is for genius, but we can stick with that.
And the law that’s sort of being debated right now in Congress on where you would trade crypto and what the regulatory structure is, is called the Clarity Act, at least the House version of it is. And what that does is it gives most of the regulatory authority for actively traded cryptos to the CFTC. That’s the Commodities Features Trading Commission.
And the SEC retains jurisdiction when you’re trying to raise money with cryptos or for certain other kinds of specified situations where, for example, a person who’s regulated by the SEC is buying and selling crypto, then the SEC would regulate it. And ETFs, of course, are regulated by the SEC and they’re subject to the SEC’s disclosure rules for ETFs. And so there’s, I think, a smattering of different regulatory entities that are involved.
A uniform or let’s say a consistent pattern of regulation is beginning to emerge. But I don’t think it’s fully crystallized yet. The Clarity Act is still being debated in Congress.
We’ll see where that goes. We’re coming close to the August recess. So if it doesn’t get enacted now, it might get enacted later in a different form.
Jeffrey Snyder, Broadcast Retirement Network
Or in a different congressional term, right? Because everyone starts to focus on after Labor Day, it now becomes the November elections. And what’s the makeup of the Senate and the Congress going to be?
Well, Vic, very interesting study. There’s a lot more that we need to talk about. But look, thanks so much for joining us.
Great survey. And we look forward to having you back on the program again very soon.
Vikramaditya Khanna, University of Michigan Law
Thank you, Jeff. I look forward to it. Appreciate your time.