Woofun AI reports that a Federal Reserve Bank of Cleveland working paper, titled "Do You Even Crypto, Bro? Cryptocurrencies in Household Finance," identifies divergent investor beliefs as the primary driver of cryptocurrency volatility, rather than demographic factors. Authored by Michael Weber, Bernardo Candia, Olivier Coibion, and Yuriy Gorodnichenko, the study argues that Americans who purchase digital assets hold radically different expectations regarding future returns compared to non-owners, creating a feedback loop where rising prices reinforce bullish sentiment and attract further capital inflows.

The empirical foundation of this analysis relies on extensive repeated surveys conducted across multiple waves, capturing data from as many as 25,000 US households per cycle. This large-scale longitudinal approach allows the researchers to isolate the specific variables influencing household financial decisions regarding digital assets. By tracking the same cohorts over time, the study distinguishes between transient market noise and persistent structural drivers of crypto adoption.

A significant knowledge gap persists among the general population regarding cryptocurrency performance metrics. Data from the 2021 survey wave indicates that 87% of non-owners admitted they did not know what return to expect from crypto over the following year. Even among those already holding digital assets, uncertainty remains high, with 54% of owners stating they were unaware of the expected return. This widespread lack of baseline information suggests that market participation is not driven by informed fundamental analysis but by speculative intuition.

Despite this uncertainty, those willing to form expectations exhibit a stark disparity in their forecasts. Crypto owners anticipated an average return of 22% over the subsequent year, whereas non-owners projected a mere 7% return.

Furthermore, owners consistently perceived cryptocurrency as less risky than their non-owning counterparts. This divergence in risk perception and return expectation creates a structural split in the market, where participants operate under fundamentally different assumptions about asset value and stability.

The predictive power of these expectations is unusually strong compared to traditional financial assets. A one-percentage-point increase in an individual's expected crypto return is associated with a 0.8-percentage-point increase in the probability of owning cryptocurrency. Collectively, expectations regarding returns and risk explain considerably more variation in crypto ownership than observable characteristics such as age, income, and gender. This reverses the standard relationship seen in stocks, bonds, and gold, where demographic and financial traits typically hold greater explanatory power.

Nevertheless, the demographic profile of crypto investors remains distinctive even after controlling for expectations. People under 40 were 13 percentage points more likely to own cryptocurrency than those over 60. Men were approximately 4 percentage points more likely than women to hold digital assets.

Additionally, higher-income and wealthier households demonstrated a higher likelihood of participation. These demographic trends persist, but they are secondary to the dominant influence of return expectations on ownership decisions.

To test the causal link between information and behavior, the researchers conducted a randomized information experiment in 2025. Households were randomly assigned to receive information about BTC's recent performance, stocks, GameStop, or inflation. This setup isolates the impact of specific price data on investment decisions, allowing for a precise measurement of how new information alters portfolio allocation and purchasing behavior among retail investors.

The results of the experiment reveal that exposure to positive price history significantly boosts demand. Participants shown Bitcoin's previous 12-month return increased their desired crypto portfolio allocation by roughly 2 percentage points, representing a 47% increase relative to the 4.3% desired allocation among the control group. Actual subsequent crypto purchases also rose by about 2.5 percentage points. This response was concentrated among individuals who previously lacked sufficient information, while those who already viewed crypto as a bad investment remained unswayed by the data.

Woofun AI data shows that crypto wealth also spills into household consumption, though in a limited manner. A doubling in BTC's price made a household with an entirely crypto-based financial portfolio 1.4 percentage points more likely to buy a durable good, equivalent to a 7% increase relative to the unconditional probability of such a purchase.

However, this effect did not extend to ordinary spending, leading researchers to conclude that crypto gains are treated like "gambling income" or lottery winnings rather than a permanent increase in wealth.

The broader implication is that crypto's volatility is rooted in disagreement and learning, stemming from an absence of common information and beliefs across investors. As the authors note, this dynamic suggests that price volatility will remain a defining characteristic of the asset class. Consequently, the next wave of retail demand may depend less on intrinsic value and more on what investors are told about past price movements, reinforcing a cycle driven by narrative rather than fundamentals.