[8 minute read] by Christian Brandstoetter
In 2018 alone, $ 865m in funds have been stolen in hacks of cryptocurrency exchanges. So why on earth would 43% of millennials trust cryptocurrency exchanges more than established stock markets? This was the startling result of a study conducted by Provocative Insights on behalf of online trading company eToro. Why do so many millennials refuse to have faith in stock markets which have been trustworthy institutions for decades?
IMPORTANT NOTICE: It is important to point out that the story was reported on and covered in a somewhat biased fashion. E.g. eToro’s press release was titled “Nearly Half of Millennials Trust U.S. Stock Market Less Than Crypto”. Describing 43% as “nearly half” certainly is a daring move one would only take if one wanted to make news – but who doesn’t, right? CoinTelegraph jumped on the bandwagon by titling “Half of Millennial Investors Trust…”. It’s 43% of those surveyed, okay!
Still, the finding seems surprising to some, shocking to others. Now, unfortunately the study didn’t ask respondents for their attitudes and motives. Instead, eToro’s managing director Guy Hirsch took it upon himself to explain the findings. Somewhat meaningful, but of course he interprets it to fit with eToro’s agenda of increasingly offering cryptocurrency trading on its platform. Please don’t get me wrong, Mr Hirsch, but you are a member of Gen X.
Ideally, we would have heard from the respondents themselves as to why they trust cryptocurrency exchanges and why they distrust stock exchanges. Mr Hirsch gave three reasons: the immutability of blockchain increases trust in crypto-exchanges, the financial crisis of 2008, and the lack of accountability by big company CEOs and managers saw millennials lose trust in the stock markets. The monetary system has also been questioned due to its constant inflation and quantitative easing.
Valid reasons, I find. But not sufficient. Hence, arrogant and vain as I am – a typical millennial as you know – I took it upon myself to offer 3 alternative reasons why so many millennials may prefer to trade on crypto-exchanges instead of stock exchanges.
1. We feel that cryptocurrency and blockchain are “our” technology.
If you’ve ever been to blockchain or crypto-events, you will probably have realized that about 70 to 80% of the people there are millennials or even GenZers. It’s typically guys somewhere between 18 to 35 who have become interested in blockchain technology, whether they are programmers, or software engineers, business developers, consultants, start-up founders or people from libertarian circles.
When we think of the gurus and decision makers in the blockchain and crypto-sphere, who do we typically think about? Who do we see as the big authorities in the crypto-space? I’d say, we typically think of people like Vitalik Buterin and other millennials.
So when we millennials as a generation think of this scene, it is very easy for us to identify with it. We see the people and the actors and they are our age, they speak our language. Indeed, the entire crypto-sphere is very inclusive. We exchange with ourselves in calls, we talk at blockchain summits and crypto-events, we write each other a telegram or IRC, we discuss on Reddit and Bitcointalk. We are part of this scene and at eye-level with the key decision makers.
While this is especially true for investment in ICOs, it also translates to cryptocurrency exchanges which we often see as an alternative to finally get hold of tokens of companies and projects the ICO of which we unfortunately missed.
Few if any of this applies to us millennials when we think of stock markets. We see big banks, huge corporations, and financial institutions with their boards made up of Generation X and baby boomers. We see their senior management hardly having any millennials in their ranks and of course, we find it hard to identify with these stiff decision makers in their tailored, pinstripe suits. “Should I trust these guys with my money?” we wonder.
After all, it is them who we invest in when we buy or trade stocks on the stock market. We might question whether they understand the world that we are living in. We often see that they may not be the most experienced with technology and the digital world in which we grew up (millennials = digital natives). Statements like those by JP Morgan CEO Jamie Dimon, who not too long ago saw crypto-currencies as being closed down by governments (https://www.cnbc.com/video/2017/09/22/eventually-governments-will-close-down-cryptocurrencies-jpmorgan-ceo.html) and called them “fraud”, of course, don’t help. It only helps to strengthen the idealistic, bank-critical members of the blockchain scene in a somewhat teen-against-dad puberty-like act of defiance.
Moreover, there may be general doubts or at least some skepticism as to whether these people are on our side, or if they care what we have to say and what propositions we have to make.
We see the cryptocurrency market as “our thing”. Hence the high level of trust – even in the face of hacks. When we look at a stock exchange we see it as a project or an ecosystem in which Generation X and baby boomers still make up the vast majority and in which, if anything, it is their interests which are represented there.
2. We have witnessed and experienced the global financial crisis in our teenage years or our early 20s. We saw it affect our parents and grandparents. Other than GenXers and baby boomers, we believe that a different world is possible.
It is only about 10 years ago that the global financial crisis threw the world into turmoil. Within months, it eliminated millions of jobs and billions if not trillions in value and savings. Also, it cost big losses in the stock markets all around the world – the institution some millennials now lack trust in.
Now I’m not here to say that one generation suffered more from this than another generation. Though some authors argue that it was GenXers and baby boomers who suffered the most (https://money.cnn.com/2017/12/04/pf/impact-recession-millennials/index.html, https://www.independent.co.uk/voices/millennials-recession-financial-crisis-debt-student-loans-economy-a8534811.html).
Of course, Generation Y suffered too. We may not have lost thousands of dollars in savings and 401ks on the stock market (we still have student debt to pay and hardly any money in there!), but we have suffered from lack of jobs and other aspects.
While Generation X and baby boomers have become very skeptical – and rightfully so – of the dynamics of big stock markets and corporations’ orientation towards maximization of quarterly accounts and profits, they still see themselves as part of that system. It has been here all the while they were.
For us idealistic, arrogant millennials, there is a profound difference. It is not just members of “Occupy Wallstreet”, but large parts of our generation that CAN IMAGINE A WORLD WITHOUT OUR CURRENT FINANCIAL SYSTEM AND STOCK MARKETS.
In fact, some of us may find that “We were not yet part of that system when this crisis happened.” Most of us when we think of this crisis think of our parents or our grandparents or relatives who went through ordeals and very stressful times. We were affected, yes, but indirectly so because back then we might still have been fed by our parents’ salaries or student loans.
Because we were at that age when this happened, we were still young enough to be dreaming and idealistic. We were fed up with that system, so why not create a different one? “YES, WE CAN!” imagine a world in which there is an alternative system. While other people may question the system that has existed for decades, they only think of improvements within the system.
We as millennials and Generation Z can go one step beyond that. In our wildest dreams, we can imagine a world in which that system does not even exist.
And that is why we doubt stock markets. Because a part of us questions their necessity and existence. It’s not that we question stocks, but we question whether stock exchanges have to exist as they do. Many authors have picked up on this notion by underlining that being a Wall Street banker or trader is no longer fancied with millennials. Neither with the ladies, according to NYMag. https://nypost.com/2017/07/19/women-no-longer-care-about-landing-mr-big/ Paying higher salaries won’t do the trick either. http://nymag.com/intelligencer/2014/08/raises-for-young-bankers-wont-make-banking-cool.html
Rather, the perceived ideal is to be a digital nomad, traveling the world, vlogging, or simply doing something meaningful for society and the environment. Being a Wall Street stockbroker may have been the goal 10 or 20 years ago, but nowadays we think of traveling the world while we work or simply working in more sustainable and environmentally friendly jobs.
We don’t need stock markets. That is kind of what a lot of millennials are thinking. Because when we think of stock markets, we might see the financial crisis, we see overpaid executives who have never been made accountable for the bad decisions they made before, during and after the global financial crisis.
Look at the cryptocurrency markets and we’re talking about a new playing field. There has not been a financial crisis in the cryptocurrency market. Sure, there have been bubble-bursts like the one witnessed over the first months of 2018. BUT: there has not been a questioning of the existence of the entire market as such.
After all, cryptocurrencies still derive their legitimacy primarily from being “better than” fiat currencies. They primarily exist as an idealistic, digital alternative rather than in their own right.
Yes, of course, there are hacks of cryptocurrency exchanges and there is the widespread consensus that the largest percentage of ICOs held were merely scams. But the entire currency market as such has never been put into question entirely.
Let’s not forget how “Crypto” really started. In the aftermath of the global financial crisis, a censorship-resistant, inflation-free and decentralized financial system outside the control of governments and central banks was envisioned. While that spirit has been somewhat lost over the last years, it still simmers inside the community. It’s not gone.
While stock markets may not have been mentioned explicitly, they are seen as part of that maybe-superfluous world.
3. Cryptocurrencies (also referred to as “digital currencies”) are enabled by a digital-first world. Stock markets seem antiquated to us millennials.
Admittedly, this may seem like an oversimplification. But as millennials and Generation Y we are also considered to be digital natives. You see, cryptocurrencies are sometimes also referred to as “digital currencies” and associated tokens also known as “digital assets”.
So, for digital natives, these digital currencies seem to be a perfect fit, don’t they? Of course, we can also trade on the stock market online through online brokers, but when we think of Wall Street, we still see the brokers who run around in their suits and robes, executing trades, hastily taking calls, looking at their 5 screens and acting all caffeinated while the bell is ringing in the back.
When we think of a cryptocurrency exchange like this, we simply think of going to our laptops or maybe even trading through our apps. We think of the wallets that we have on our smartphone and which we manage that way. Crypto-exchanges appear to be a natural extension of this. Hence, we tend to think of crypto-exchanges as more user-friendly and hence trustworthy than when being asked to think about the stock market.
Please don’t get me wrong. I am not necessarily talking about the real usability, but about the perception in the heads of us millennials as considered in the survey. It may be the assumption in millennials’ minds that makes the stock market seem antiquated and rusty compared to crypto-exchanges.
These are the three alternative reasons as to why 43% of millennials might rather trade on crypto-exchanges than on stock exchanges. Of course, there are many limitations to the reasons I offered here. For one, they are all based on my own estimation. I may be completely off and have done a major disservice to my generation – who knows? Another limitation is the fact that the study only showed such a high percentage for existing traders – hence, this group is already convinced of what they are doing and the trustworthiness of the platforms they use. You could also frame it completely differently – 2/3rds of non-trading millennials would rather trade on the stock market than trade on crypto-exchanges. Furthermore, there is much that the survey does not reveal to us. What would happen if we asked about investing rather than trading? It seems to me that many millennials wouldn’t think of trading when it comes to the stock market, but rather investing. What if millennials consider a different time frame and different motives for putting their money in either vehicle – how would that change the evaluated trustworthiness of the exchanges?
There is much to be researched in this highly dynamic and rapidly evolving field. In any case, we have to consider that millennials and GenZers see and approach the topic of cryptocurrencies, digital assets, and blockchain technology completely differently than GenXers or baby boomers might. Moreover, with Security Token Offerings becoming the next big thing in the scene, it will be interesting to see if STs can become a competition to classical securities and if it will especially be millennials and GenZers that will jump on this increasingly regulated and promising new form of investment.
I’m curious to know what you think. Why do millennials put so much trust in crypto-exchanges? And apparently so little in stock exchanges? Can you relate to the 3 reasons I shared? Would you completely disagree?
Now if you might excuse me, I have to check the latest quotes and bids. I am checking today’s market developments. Which market may I be talking about…?