Most Americans have bank accounts — reliable places to store money that are federally insured, carefully regulated, and generally better than coffee cans full of cash. But some 5 million households don't have bank accounts. So every two years, the Federal Deposit Insurance Corporation conducts a survey to find out why. Is it a trust thing? A distance thing? A fees-and-service-charges thing?
Last November, for the first time, the FDIC reported the results of a new question it added to the survey: Do you use a cryptocurrency like bitcoin instead of a bank?
From the start, the dream for crypto has always been "be your own bank." I'm being a little simplistic there, but bitcoin, ether, and their digital cousins were supposed to be a smarter flavor of money. They're accounted for on unbreakable digital ledgers called blockchains, with no barrier to entry except internet access, and no government eyeballs. Booster-ish companies like Coinbase promise "a cryptocurrency infrastructure that can serve as an increasingly viable alternative to the traditional financial system." With funds like that, who needs banks?
The answer turns out to be: nearly everyone. Only 4.8% of all households owned or used crypto, the FDIC's survey found. Among unbanked households, it was even lower: just a bit over 1%. What's more, pretty much all of the crypto users — 92.6% of them — held it as an investment; only 4.4% used it to buy stuff. Which, for a thing that calls itself a "currency," really does not sound very much like money, much less a futuristic alternative to the hegemony of the global banking system.
Crypto has been around since 2009. But there's no evidence, an FDIC official tells me, that unbanked households are using crypto to meet any of their core financial needs. It's time to admit what crypto really is: a speculative asset, a cluster of financialized electrons with no purpose except "number go up." And unlike most investments — Microsoft, government bonds, hog futures — crypto is untethered from the real world, free of any external benchmark that might be used to gauge its value. Outside the world of crime, it's just a thing to gamble with, and it's used mostly by people who are well off: The FDIC found that 7.3% of households making more than $75,000 a year held cryptocurrencies, compared with just 1.1% of households making less than $15,000.
So what happened? Why hasn't cryptocurrency turned into actual currency, as its pioneers predicted?
The purpose of money is to serve as a medium of exchange. If you have a thing I want to buy, instead of giving you an object of equal value, apples for oranges, I can give you money — but only if both of us believe the money is worth the orange. For that to work, under the classic definition, the money itself has to be intrinsically and reliably worth something. To store value, it has to have value.
But that definition clearly doesn't work anymore. Gold fits the definition, but we don't use gold as money much these days. (It's heavy.) And if you think about it, no legal-tender currency really has any intrinsic value. A "dollar" and a "euro" are worth €0.97 and $1.03 respectively only because we all say they are. Money, the current thinking goes, is a metaphor — what economists call a "social technology of account." It's what we as a society agree to agree on.
And we don't agree that crypto is all that. It obviously has value. Quite a lot, actually. As I write, all the cryptocurrency put together is worth $3.5 trillion, and the price of an individual bitcoin is brushing up against $100,000, more than double the price a year ago. But its price volatility and peer-to-peer, algorithmic nature feel fundamentally sketchy to normies. According to a study by the Pew Research Center, 63% of Americans have "little to no confidence" in the reliability and safety of the digital mechanisms required to use or invest in crypto; just 5% of Americans say they're "extremely" or "very" confident. That's not a good look for a "social technology." Money is like Tinker Bell: Everyone has to believe in it, or it dies.
A currency isn't really a currency if two out of three people distrust it. That's why it's easy to acquire and trade cryptocurrency but pretty much impossible to buy anything with it. Amazon doesn't accept it; try to check out with bitcoin at Walmart and you'll quickly be in conversation with security. "If the federal government starts taking crypto as satisfaction for my tax obligation, that's exactly why dollars have value," says Darren Aiello, a professor of finance at Brigham Young University who studies crypto. "I can't buy groceries with a cryptocurrency right now."
Now, the people who do believe in crypto believe hard. But their faith in it is as something to own, to increase their wealth. In general, retail investors follow "contrarian" strategies in the stock market — they try to buy low and sell high. But in 2023, an international team of economists found that crypto investors tend to stick through crashes, awaiting gains. The faithful say "HODL," a corruption of "hold" — once they're on the ride, they don't get off.
"If you think the price is going to go down, you sell it as quickly as you can. If you think the price is going to go up, you're not going to spend it on coffee," says Hanna Halaburda, an economist at NYU's Stern School of Business. "It's not a means of payment. It's not exactly a store of value. It's hugely volatile. It's more of a casino chip."
In 2021, the government of El Salvador made bitcoin legal tender. People could pay their taxes with it, and businesses were required to accept it. The government launched a "wallet," an app that stores crypto information and works as a kind of user interface for holding and spending crypto, and made it free to use. It even offered people $30 (in bitcoin) for downloading it — more than a couple of days' pay at minimum wage.
Yet bitcoin still didn't turn into money. Nearly a third of Salvadorans surveyed in early 2022 said they'd never heard of the wallet app. Those who had were mostly educated young men who already had bank accounts and internet access — the exact opposite of the "unbanked" population that was supposed to benefit from having a crypto account. Most people who downloaded the app turned the bonus into dollars and spent them. In December, the government announced it was ratcheting back its bitcoin initiatives.
In fact, the simple existence of the dollar is one of crypto's biggest challenges. The United States already has a very good, stable currency and a solid banking system. As the FDIC notes, 95.8% of households in its survey had checking or savings accounts. Beyond money laundering, crypto doesn't do anything better than dollars and banks.
It's not a means of payment. It's not exactly a store of value. It's hugely volatile. It's more of a casino chip.Hanna Halaburda, NYU
Now, in some parts of the world without a solid financial infrastructure, crypto is starting to be used as an actual currency. In places like Venezuela and Nigeria, bitcoin and "stablecoins" — a form of crypto whose value is firmly tethered to something, usually the dollar — are being used to buy stuff and replace bank functions like wire transfers, leapfrogging weak financial systems the way cellular phone networks leapfrogged landlines. A recent global survey by the investment firm Castle Island Ventures found that stablecoins "increasingly feature in the ordinary economic lives" of people in many countries.
The Trump administration is clearly intent on greasing the wheels for crypto. "The thing that's clearly going to happen, which is both good and bad, is less regulation, more do-whatever-you-want," one investor tells me. But if that hands-off approach winds up sparking a speculative frenzy that nukes the stock market, it might actually lower trust in cybercurrency as currency. Banks became banks because of strict government oversight — if FDR hadn't stepped in after the stock market crash in 1929 and implemented reforms like the FDIC, nobody would have put a dime into their local savings and loan. If crypto is ever going to become something more than a casino chip, it will be the government, not investors, that makes it happen.
"Here is what you would need to have in order for crypto to be a means of payment: We would need to get paid in it," Halaburda says. If that happens, she adds, "we might see bitcoinization." But until then, cryptocurrencies will remain less about banking and more about making bank.
Adam Rogers is a senior correspondent at Business Insider.
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