Gen Z investors are most likely to hold cryptocurrency in their investment portfolios, which comprise of examples such as bitcoin and ethereum, according to a joint study by Finra and the CFA Institute. This is likely owing to the fact that this generation grew up during an age of social media, technological progression, and increased ease of access to investment opportunities, as noted by experts. An advisor suggested that crypto should account for roughly 1-3% of any investor's portfolio.
Gen Z investors appear to be primarily investing in cryptocurrency, a trend that is likely driven by them growing up during an era of technological progress, social media and increased accessibility to investing, as a recent report from CFA Institute and the Financial Industry Regulatory Authority's Investor Education Foundation indicates. However, although younger individuals may be able to assume more risk with their investments than older generations, investing in crypto remains a risky venture due to its unstable nature, according to specialists. The Securities and Exchange Commission also brought action against Coinbase, the biggest U.S. crypto exchange on Tuesday, suggesting the company was selling investment assets without being registered to do so. The SEC had sued Coinbase's competitor, Binance, the preceding Monday.
A report from Finra-CFA Institute shows that 55% of Gen Z investors have invested in crypto. This cohort consists of those born in the late 1990s and into the 21st century, with the oldest members being in their mid-20s, based on a survey of US citizens from ages 18-25. 41% of Gen Z investors invest in individual stocks, 35% in mutual funds, 25% in nonfungible tokens, and 23% in exchange-traded funds. By comparison, the most common investment among Gen X (born between 1965 and 1980) is mutual funds (47%), followed by individual stocks (43%) and crypto (39%). Gerri Walsh, president of the Finra Investor Education Foundation, expressed concern for Gen Z's relatively high concentration in crypto and individual stocks, highlighting that they do not offer the same degree of diversification that mutual funds and most ETFs offer.
Generation Z is the first demographic to come of age in an era of technology and social media; taking in investment advice from platforms such as TikTok and Instagram, according to Ted Jenkin, a certified financial planner based in Atlanta. This demographic's enthusiasm for cryptocurrency coincides with the proliferation of investment applications that enable users to purchase with minimal amounts of money, thus providing more investment opportunities to those with less disposable income. Jenkin, who is the founder of oXYGen Financial and a part of CNBC's Advisor Council, has observed that this generation has faith in the progressive growth of technology and the digital economy.
Crypto can be a volatile asset class, with the value of bitcoin having dropped by over 50% since hitting highs of around $69,000 in November 2021. Currently trading at roughly $27,000, it is still seen as a viable alternative for investors willing to take on higher risks. Jenkin recommends generally limiting exposure and cautions that, "there's certainly a case for aggressive growth, but I generally wouldn't recommend more than 1% to 3%" of a portfolio in cryptocurrency.
The Finra-CFA Institute joint report does not mention the average percentage of Gen Z investors' portfolios that is devoted to cryptocurrency. It should be kept in mind that it should be considered as a long-term investment and held for at least 10 years, suggested Walsh. According to the shared Finra-CFA Institute report, 46% of Gen Z investors in the US classify themselves as risk-takers. Additionally, half of them confess to having made an investment without properly assessing the risks due to fear of missing out, Walsh warned.
This week, the SEC took legal action against Coinbase and Binance which is based partly on the difference between registered and unregistered exchanges. Registered ones, like the New York Stock Exchange, provide security for investors with a financial preparedness of up to $500,000 in case of the exchange's failure. Binance expressed their disappointment in a blog post, and stated that they had cooperated with the SEC's investigations and engaged in a negotiation to reach a resolution. Paul Grewal, Coinbase's chief legal officer, pointed out to CNBC that the digital asset industry is lacking clear rules, which disadvantages companies that are devoted to adhering to regulations.
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