In my last post I started discussing the possible formulation of a theoretical model for the Bitcoin industry. In this post I will look at the next group of players in this game, the traders. This is by far the largest group, as well as being the group almost solely responsible for the capricious nature of Bitcoin prices. In particular I will be examining the demographic and what that might mean for the market.
It has been widely documented that Bitcoin users are overwhelmingly young males. One just has to look at the statistics on https://coin.dance/stats#demographics to gain a picture of how skewed the user base demographic is. The data, powered by Google Analytics shows that 54% of bitcoin users are under the age of 35 and an astonishing 97% are male. This has many ramifications for the analysis of not only bitcoin but other cryptocurrencies as well as it stands to reason the pattern could exist in many other coins across the industry. There are two possible explanations for this, one being that the cryptocurrency industry is ‘all hype’ and doomed to fail, the other that this demographic is a side-effect of the nature of cryptocurrencies and wider technology.
The first is the most popular line of reasoning. There are numerous reports and analyses suggesting that the future of cryptocurrencies is an inevitable cataclysmic crash. It is believed that the males who are buying the likes of bitcoin are in for a short term profit and the thrill of trading. This is backed up by the gender split in the gambling industry. Some reports put the gap at over two thirds male. This is relevant because cryptocurrency investing is, to most people, a form of gambling. It is simply a case of betting on the direction of the price, similar to the stock exchange but with far more pronounced volatility.
The second explanation draws upon the gender split in the technology industry. It is yet another sector where women are underrepresented (making up roughly 16% of the tech workforce in the UK and 25% in the US). This is an enduring state of affairs with 88% of all patents filed between 1980-2010 being filed by all-male teams. Although it is true that more women are getting into the computer science profession, at the moment there are simply more men than women who enthuse about technology. The other side of this split is the age split. The whole cryptocurrency industry is marketed for younger generations. The ideological underpinning of ‘decentralisation’ and ‘the new generation of finance’ are certainly very alluring for most young people. Add to this the fact that older generations often did not grow up with technology anywhere near this level and you have an industry (cryptocurrencies) which is geared towards younger generations – who more readily accept and understand technology in general – and males – who are more involved in the tech industry and are more likely to have studied computing.
I favour the explanation being a mix of both. The idea that cryptocurrencies such as bitcoin are inherently appealing to young males above all demographics is certainly a very plausible one. I believe that the vast majority of the traders who get involved with a currency because they support the technology, will be young males. However, I also think that men being more prone to gambling and females (on average) being more risk-averse, is what has led to the overwhelming hype and volatility we see in the market today.
Side Note: 16th Jan 2018 – The Cryptocalypse?
At the time of writing this article, cryptocurrencies have just experienced a huge downturn. All currencies dropped in price by 15-20% over the course of the day, some by even more. This is a prime example of the sensitivity of the markets. There have been a few concerning news stories for bitcoin traders over the past week (China cracking down on bitcoin miners, South Korea planning to ban cryptocurrency trading and news that hackers stole $400,000 worth of cryptocurrency ‘Lumen’ from customers of an online deposit ‘BlackWallet’), and these have culminated in a day of reckoning. It is interesting to speculate whether a more gender-balanced market would have coped better with these stories, as well as how it might affect the ability to bounce back. I believe it could have made for a significantly different story, however there is a distinct lack of data in financial markets with this kind of gender split so any conclusions would indeed just be speculative.
In future posts in this series I will be continuing my discussion of a bitcoin model, looking at exchanges and the power they possess as well as the concept of anonymity in cryptocurrencies – the appeal and the dangers of it.
Thanks for reading and stay tuned with cbeconomics.com @cbeconomic on twitter for more economic-related analysis and discussion! I will be continuing the Cryptonomic series as mentioned above, as well as looking at starting a new series about Sports, and how economic thinking can (and has) change sports for the better! All this and more to come over the following weeks.