Crypto Study: Will the Traditional Investor Ever Plunge Into Crypto?

If you follow financial news at all, chances are good you’ve probably heard about cryptocurrencies in the news. These cryptocurrencies – such as Bitcoin, Ripple, and Ethereum – are also called digital currencies or virtual currencies. They aim to serve as an alternative to the world’s established currencies and, in light of recent economic crises, it’s no surprise they’ve captured quite a bit of attention.

While all currencies get their value because of their scarcity, usually the supply of money is controlled by a central bank such as the Federal Reserve. But cryptocurrencies are designed to work differently, with specialized encryption techniques controlling how many units of money are available and verifying the transfer of funds. There won’t be one centralized authority that makes sure a unit of cryptocurrency is valid or that monitors how much currency people have. Instead, for verification, there’s an encrypted public ledger everyone can see but that can only be changed when specific processes occur.

Even as the basics of cryptocurrencies can get confusing if you don’t have a technical background, they’ve generated a slew of headlines in recent years thanks to their soaring and then plummeting valuations. Digital currencies have become more mainstream, with major financial firms taking an interest. For example, Fidelity Investments recently launched a cryptocurrency trading desk.

The record-breaking prices of cryptos – coupled with the interest of established financial institutions – has caught the attention of investors of all levels. But, big swings in prices and issues such as regulatory uncertainty, still make many people wary of investing.

So will traditional investors ever plunge into crypto and start putting money into these alternative currencies? A recent LendEDU survey shows that there’s some interest despite a lack of trust in current currency trading platforms. The key seems to be that many investors want their brokerage firm to offer the investment before they’ll jump in.

Many Traditional Investors Would Invest in Cryptocurrency if Their Brokerage Account Offered It

LendEDU surveyed 1,000 American adults with brokerage accounts through mainstream brokers including E-Trade, Fidelity, Charles Schwab, Merrill Lynch, and Vanguard. Among those investors, there were clear signs that crypto’s time has likely come.

In fact, the 56 percent of investors who believe cryptocurrencies would help diversify their investment portfolios dwarfs the 21 percent of investors who don’t agree virtual currencies could offer them a better mix of assets.

Since investors see crypto investing as a way to diversify, it should come as no surprise that more than half – 52 percent – expressed a clear interest in making investments in virtual currencies, indicating they’d either definitely or most likely buy if offered by their brokerages. By comparison, just 22 percent of investors said they either definitely wouldn’t buy cryptocurrencies or were unlikely to purchase.

Among the respondents who said they’d definitely or most likely buy cryptocurrencies, most were willing to scale back their other investments to diversify into virtual currencies. In fact, 29 percent said they’d definitely reduce their other investments to put more money into digital currencies and almost one-third of investors said they most likely would, compared with only 1 percent who said they definitely would not.

Still, Trust in Cryptocurrency Amongst Traditional Investors Remains Low

While there’s undoubtedly a strong interest in cryptocurrency investing, many investors are likely holding back because they don’t trust the current cryptocurrency investing platforms.

In fact, 41 percent of respondents indicated they’d trust their traditional broker to handle their cryptocurrency investments more than they trust exchanges specific to cryptocurrency, such as Coinbase. Just 14 percent of respondents said they trust Coinbase or other currency-specific providers, and only 23 percent have equal trust in both traditional and currency-specific providers.

The higher levels of trust in traditional brokerages likely isn’t explained by the fact people really like their brokerage. Instead it’s likely the result of distrust of currency-specific platforms. That’s why nearly 40 percent of respondents said they’d trust Amazon with their cryptocurrency investment over cryptocurrency exchanges, even though Amazon isn’t even a brokerage company. Just 15 percent of respondents said they trust virtual currency exchanges as much as Amazon, and 19 percent trust both equally.

Slow adoption by brokerages is likely holding many investors back from crypto investments when they would otherwise be interested. In fact, just 18 percent of survey respondents said they’d definitely invest in virtual currency even if their brokerage didn’t offer it as an investment, while a quarter of respondents said they either definitely or most likely wouldn’t.

Brokerage Accounts Stand to Benefit By Launching a Cryptocurrency Option

Brokerages should take note that investors are looking for alternatives. In fact, just over one in five respondents said they’d definitely consider moving their portfolio to a brokerage that allows cryptocurrency investments as well as traditional investments, while 27 percent of investors said they’d most likely make a move. That’s compared with just 4 percent of investors who said definitely not and 18 percent of investors who said most likely not.

Investors also don’t mind paying for the privilege of investing in cryptocurrency with their brokerage. Fifty-four percent said they were OK with their broker making a commission off a virtual currency purchase, compared with just 21 percent of respondents who said they weren’t OK with that.

The good news for brokerages, though, is that most investors aren’t yet disappointed that their brokerage isn’t giving them the chance to invest in cryptocurrencies. Just under 32 percent said they were disappointed their brokerage won’t currently allow them to invest in concurrency, compared with 42 percent of respondents who weren’t disappointed.

However, as interest in cryptocurrency investments grows – and mainstream brokers begin to offer virtual currency trading – these numbers are likely to change.

What Does All This Mean?

Our survey shows a definite interest in cryptocurrency investments, but also that cryptocurrencies still have a long way to go before they become mainstream. The good news for those who hope cryptocurrencies become more widely accepted is that the market is there and big financial institutions are likely to respond to buyer demand.

With Fidelity opening its cryptocurrency trading desk, other mainstream brokerages may soon follow suit. If so, this could prompt much more investment and make a big difference in the level of trust investors have in crypto.

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