In highlighting the risks posed by crypto, the Biden administration has drawn particular attention to how the hype around digital currency could harm underserved and minority communities.
The Treasury Department underlined this warning by citing a tragedy that occurred nearly 150 years ago: the 1874 collapse of the Freedman’s Savings Bank, which was set up to help former slaves but ended up devastating the black community.
The revolutionary set of Crypto wants to turn financial history upside down, not learn from it. But the landmark mention has stood out to some critics who are increasingly concerned about the hype around crypto and welcome the Biden administration’s focus on its impact on poor and minority communities.
Bitcoin and other cryptocurrencies have attracted some evangelists from historically disadvantaged communities. As prices soared before the crypto winter set in, some saw an opportunity to rebuild generational wealth lost over decades of systematic discrimination. And crypto companies have seen opportunities to market their products to new audiences. Block and Jay-Z, who serve on the fintech company’s board of directors, have supported bitcoin education programs aimed at serving minority populations.
“The Freedman’s Bank comparison underscores a bit of the ‘There’s nothing new under the sun’ perspective on financial products, regardless of their packaging,” Mark Hays, senior policy analyst at Americans, told Protocol. for Financial Reform. “The current risks and harms that digital assets pose to consumers and investors — especially low-income communities and communities of color — are many, serious, and real.”
Tonantzin Carmona, a fellow at the Brookings Institution, said the Biden administration’s particular focus on poor communities “was very reaffirming” since the administration “also saw very similar risks.”
The risks are pronounced in the black community.
The Freedman’s Savings Bank building on Pennsylvania Avenue in Washington, DC circa 1890. The bank failed after the Panic of 1873.
Photo: Library of Congress; Wikimedia Commons
Black consumers are more likely than white consumers to own cryptocurrencies, according to a June report from the Federal Reserve Bank of Kansas City. This has raised concerns that a significant number of black households – with a median wealth of around $24,000 – are dangerously exposed to a highly volatile market, according to the report.
The Kansas Fed has warned that crypto holders “could simply lose their investments if the exchange fails or is hacked: a 21st century version of Freedman’s Savings Bank.” It was an analogy the Treasury Department would echo in its report.
Founded in 1865 with the abolition of slavery, Freedman’s Savings Bank was created by Congress to provide banking and financial assistance to newly freed black people. But the bank collapsed due to mismanagement and the impact of a struggling economy.
The trauma of the Freedman’s Bank collapse had a huge impact on the black community, said Carmona of the Brookings Institution. “If you talk to members of the black community, they will tell you [something] like it happened,” she told Protocol. “These stories are passed down from generation to generation.”
But the story of the Freedman’s Bank collapse has also made many in the black community more crypto-receptive.
The crypto is considered by many in the black community to be “more reliable than traditional assets,” according to the Kansas Fed report. Many black consumers also “see cryptocurrencies as a relatively quick way to close the wealth gap with other races, especially white consumers,” the authors added.
Shawn Wilkinson has become one of the most successful black crypto entrepreneurs, which he has called “open ground” that offers many opportunities “especially for people of color” and entrepreneurs like him “who don’t did not necessarily come from money or generational wealth”. .”
In a 2021 interview with Protocol, Wilkinson, the founder of blockchain storage startup Storj, cited another historic tragedy, the Tulsa Race Massacre, when a predominantly black Oklahoma entrepreneurial community known as the Black Wall Street’s name was destroyed in an anti-black riot. The crypto and blockchain industries, Wilkinson said, open up opportunities to create “generational wealth” that cannot be “bombed and stolen.”
He acknowledged that crypto holders have been affected by the stock market crash. “I definitely saw that,” he told Protocol. “I certainly know people who have gone down a lot.”
But slowdowns are part of crypto, Wilkinson explained. “I’ve been in this space for 10 years – it’s normal for me,” he said. “…Over the long term, crypto is probably one of the best performing assets of all time.”
Another black entrepreneur, Edwardo Jackson, creator of Blacks in Bitcoin, agreed, noting that crypto offers a way to raise capital for communities that have “historically, institutionally been excluded from mainstream financial access.”
But Jackson acknowledged a point that has also been raised by the Biden administration: Certain communities are clearly vulnerable to crypto scams. The Treasury Department report warned that “crypto-asset products can be marketed in ways that mask their level of risk, which could exacerbate the impact of targeted marketing on vulnerable communities.”
Signage advertising short-term loans stands outside shops in Birmingham, Alabama, USA
Photo: Gary Tramontina/Bloomberg via Getty Images
Jackson pointed to what he called “a disturbing trend” in the black community.
“We are targets,” he told Protocol. “We are the targets of all MLM [multi-level marketing] scam, every scamcoin, shitcoin, whatever. Many of them have recently returned home to roost.
Carmona said the crypto crash highlights key lessons for underserved communities, especially black and Latinx people.
While many minorities still struggle with access to capital and traditional banking services, she said, “that doesn’t necessarily mean crypto is automatically the answer.” Despite all the rhetoric about decentralization, “the growing concentration of the wealthy in these spaces demonstrates that not all cryptocurrency holders are created equal.”
The crypto crash also serves as a powerful reminder of other past trends in financial services that promised financial inclusion and access, such as payday loans and subprime mortgages, which have proven disastrous for these communities.
The Treasury Department report actually cited the “prevalence of crypto-asset ATMs in low-income neighborhoods that lack bank branches,” which Hays says “reminds me a lot of payday loan storefronts. that proliferate in low-income neighborhoods.
Carmona also cited a point that she says “has been brought up again and again” in the Treasury Department report: “While crypto may present new opportunities, it may also present a new set of risks.”