Why are so many young investors now drawn to cryptocurrencies and NFTs?

(Disclaimer: All opinions expressed in this article belong solely to the writer)

In 2021, a study by MagnifyMoney revealed that 60 per cent of young investors (those below 40 years old) were turning to social media for investing advice. YouTube now seems to be the new CNBC, Reddit’s WallStreetBets and Bloomberg.

This is no surprise. After all, once you’ve read about Dogecoin making overnight millionaires, it’s tough to see the appeal of index funds.

I distinctly remember a Finance 101 lecture — the last one of the semester — where the professor’s golden advice was to invest in the S&P 500.

He explained how setting aside a small portion of your income could help you retire as a millionaire by the time you turned 65. A few of the students took notes, the rest battled with the revelation that they’d have to spend the next 40 or so years working.

As a 20-year-old — in a time of pandemic and the so-called ‘Great Resignation’ — a nine-to-five job fails to hold much allure.

Call it a lack of foresight or plain old naivety, but even the slightest hint of a shortcut feels like it’s worth looking into.

Cryptocurrency and NFTs seem to offer this shortcut. The way they’re portrayed across social media, you’d think there’s a fountain of wealth called the blockchain, and it’s handing out free money.

To top it off, the fountain’s very easy to access. A crypto account can be opened within a matter of hours, and with that comes an abundance of opportunity to invest your money.

Going to the moon

Last year, the top performing stock in the S&P 500 saw its value increase by almost 200 per cent.

In the same timeframe, five of the top 10 cryptocurrencies (by market cap) outperformed it. The highest gainer, Binance Coin, recorded an increase of over 1,200 per cent.

What’s interesting is that such gains have been normalised across crypto and NFT communities. In fact, if an NFT project doesn’t instantly double its value post launch, you’ll always find a portion of community members calling it a scam.

Across NFT Discord groups, there are community members taking their first steps into personal finance. Many of them are barely in high school, yet they spend hours trading and speculating on the value of tokenised .jpegs.

Their idea of ‘investing’ is shaped by the presence of extreme volatility — either you multiply your funds instantly, or take a loss and try again.

Despite the emergence of utilities in the NFT space — from gaming to virtual real estate — the trading charts show that resellers still account for a significant portion of the value being traded.

With new projects being launched on a daily basis, there’s plenty of room for speculation and active involvement. There’s a lot more to do in this space, as opposed to investing in an index fund and forgetting about it for three decades.

The power of community

A common way to research stocks is to look into the underlying company’s fundamentals — its revenue streams, historical earnings, and key management.

With crypto and NFT projects, this isn’t always possible or sought after. For many, the idea of ‘do your own research’ comes down to entering a Discord group and asking, “Is this project a rug pull?”

Founders are often anonymous and .pdf documents filled with buzzwords can be passed off as roadmaps. The only aspect which can reliably be monitored is the strength of the community.

When 100 people tweet about the next Bored Ape Yacht Club, that gets a hundred more to buy in, simply due to a fear of missing out (FOMO).

This is even more apparent with meme coins, which literally promise zero utility. What you’re buying into is the hope that the community rallies together and makes the coin go viral. More often than not, it doesn’t happen.

Yet, there are still plenty of people willing to speculate. Why?

In my opinion, realising gains from NFT projects or cryptocurrencies can often be a lot more satisfying than traditional investments.

Holders play an active role in driving the success of these projects. They take on marketing and community management roles where they lead Twitter ‘raids’ and keep away spammers. These actions can directly influence price movements.

For new (and impatient) investors, the idea of being in control is very promising. Beyond the dream of making quick money, crypto communities offer you a voice and a sense of belonging.

Normalising losses

These same communities also act as support groups when times are rough. It’s tough losing money to a scam, but venting about it with a dozen others helps make it better.

Turning a loss isn’t seen as an eye-opener or a reason to make safer investment decisions. Rather, it’s a part of the game. On forums, users can often be found sharing screenshots and joking about the losses they’ve made.

This phenomenon can actually be traced back to the options traders of the WallStreetBets subreddit. Often, there are posts showcasing portfolios which have crashed and burned. Some of these have over a hundred thousand upvotes.

While upvotes can’t replace the thousands of dollars which have been lost, perhaps they help ease the pain in their own strange way.

Naturally, loss-sharing has become a popular pastime among crypto communities as well. There’s something cathartic about scrolling through portfolio screenshots, all of which end with a sudden drop.

Anyone who’s been in the space long enough has experienced a scam or a rug pull, and after going through that, it helps to know you aren’t the only one.

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Featured Image Credit: Grandbrothers | iStock Editorial | Getty Images

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