The State of the Crypto Markets: Users See It as an Investment Instead of a Payment Method

When cryptocurrencies and blockchain technology were originally conceptualized, the idea was to create another payment method. The original Bitcoin creators wanted to establish a new way to make payments without having to rely on fiat money and a centralized financial system.

However, a new study shows that most crypto users see their tokens as assets to invest in rather than a way to make payments. 

Adoption of Cryptocurrencies

S&P Global Market Intelligence’s 451 Research found that 20% of the 1,600 people it surveyed in the U.S. during the first quarter had bought, traded, or received cryptocurrencies. Adoption was heavily skewed toward the younger generations, with 33% of Generation Z and 35% of Millennials saying they had used cryptocurrencies. Crypto adoption among Baby Boomers and the Greatest Generation was at 6% and 1%, respectively. 

Unsurprisingly, Gen Z and Millennials expressed the greatest openness to adopting new technology and were the largest users of digital technologies. The researchers believe both factors contributed to these two generations’ larger adoption of cryptocurrencies.

Additionally, 451 Research pointed out that the fact that Bitcoin was created during the Great Recession is notable. The firm explained that the period had a profound influence on the views many consumers from the two younger generations have on their finances, institutions, and society in general. 

It also found significant differences in crypto adoption according to gender, area of residence, and annual household income. Twenty-eight percent of men said they had used cryptocurrencies, compared to 12% of women, and 31% of urban dwellers used it, compared to only 15% of rural residents. 

Researchers also observed that 18% of households with less than $100,000 in annual income had used cryptocurrencies, compared to 27% of those with more than $100,000 in income.

Investing is the Dominant Use for Cryptocurrencies

Researchers at 451 found a significant trend in the way people are using cryptocurrencies. They said that 64% of those who have used cryptocurrencies have bought them, but only 33% are selling. Interestingly, only 19% are using them as a payment method. 

Researchers at 451 noted that most consumers who have interacted with cryptocurrencies in some ways are treating it as an asset to invest in rather than a form of payment, the original intended use. They also found that 37% of the people who revealed some form of crypto interaction had downloaded a crypto trading app, and 31% had received some cryptocurrency free as a reward.

Based on this finding, 451 Research concluded that most consumers who have bought cryptocurrency have never moved their tokens outside of the exchange where they bought them. The firm added that this is a problem “when considering the widely discussed role for cryptocurrency as a medium of exchange in the Web3 economy.” 

Researchers cited some factors that are likely preventing consumers from using cryptocurrencies to make payments. 

Join our Telegram group and never miss a breaking digital asset story.

Why Consumers Aren’t Using Cryptocurrencies for Payments

For example, they pointed to usability issues with crypto wallets, many of which are not designed to be user-friendly for the average consumer. Additionally, if a user misplaces their private key or seed phrase, they lose access to their crypto wallet permanently. Researchers at 451 suggested that consumer technology companies like PayPal or Apple could target and address some of these usability issues at some point.

They also pointed to problems with chargebacks and disputes, explaining that if a problem with a crypto transaction arises, such as fraud or a product or service issue, there is no intermediary to manage the dispute process and enforce protections for consumers. Visa and Mastercard play this role in credit card transactions. Researchers at 451 believe concerns about the lack of protection and engagement between transaction participants are making some consumers hesitant.

They also noted that relatively few merchants are accepting cryptocurrencies as payment. This issue is due in part to what 451 describes as a “chicken or the egg problem” but also due to the volatility in prices and lag time in processing payments in cryptocurrencies. In their 2022 payments industry outlook, 451 Research said it does expect merchant acceptance of cryptocurrency to increase this year, at least due to the marketing and PR opportunities it creates. 

Opportunities for Card Companies

According to 451 Research, credit and debit card networks are enjoying increased opportunities due to the challenges associated with using cryptocurrencies for payments. For example, the firm pointed out that Visa has set up partnerships with 65 different crypto exchanges and vendors. 

They can issue Visa cards that allow their users to spend their cryptocurrency at any merchant that accepts Visa. According to 451, this strategy allowed for about $2.5 billion worth of transactions during the fourth quarter.

Investment is the Big Crypto Theme

Researchers at 451 said the common theme drying crypto adoption is investment. They reported that 36% of those who trade cryptocurrency do so to increase their wealth, while 27% do it to diversify their investment portfolio. One-quarter use it as a tool to save for retirement. 

Thirty percent of crypto participants said they invest in it to participate in something they find exciting, while 24% say they want to future-proof their finances. Only 19% are using cryptocurrencies for transactions.

Unsurprisingly, Millennials were more likely to trade cryptocurrency to save for retirement, at 28%, compared to 18% of Gen Z. Forty-four percent of Gen Z users are using cryptocurrency to grow their wealth. Millennials were more likely than other generations to cite fear of missing out as their reason for investing in cryptocurrency.

According to 451 Research, “The widespread emphasis from users on the investment use case sends a clear signal to brokerage firms that failing to support cryptocurrencies translates into a missed revenue opportunity.” 

Why Most People Aren’t Using Cryptocurrency

According to 451 Research, 80% of respondents who aren’t using cryptocurrency at all cited three primary reasons for holding back. It found that 32% of them aren’t using it because they don’t understand blockchain technology, while 30% don’t invest in anything, and 26% find buying cryptocurrency to be too complicated.

The researchers pointed out that at least two of the three issues can be addressed through education and improvements in usability by crypto exchanges and wallets. They noted that the Coinbase Earn program rewards users with free cryptocurrency when they view short tutorials and take quizzes on various crypto topics.

Overall, 23% of non-users say they can’t afford to trade cryptocurrency, while 18% cited the extreme price volatility, and 16% were worried about privacy and security. Nine percent of non-users said they prefer to invest in physical commodities rather than digital ones.

Looking into the future, 451 said 10% of non-users report that they plan to trade cryptocurrency in the future. The firm found that most of that intention is among Gen Z, as 20% of those non-users plan to participate at some point. 

The researchers added that crypto exchanges’ ongoing efforts to convert younger consumers are likely to be well-spent. They also found that the primary reasons Gen Zers are not trading cryptocurrency were the inability to afford it, concerns about the environment, and a lack of support from their bank.