How financial literacy affects the crypto market

By Georgios Panos and Tatja Karkkainen
Posted on June 13, 2019

When the crypto market is largely dominated by less informed investors who jumped on the train in a FOMO kind of way, it is susceptible to biases, manipulation and over-reaction. To grow into an established and transparent market, a healthier balance of informed investors and speculators is required. We want to know to what extent financial knowledge impacts the crypto market, and who invests in it.

In our forthcoming study, we will link two global novel micro databases to examine the relationship between financial literacy and attitudes to cryptocurrencies. We will use the ING Mobile Banking Survey 2018, the first database with information about attitudes to cryptocurrencies in 15 counties across the EU, the USA, Australia, and Turkey.

We will merge the ING database with the Standard & Poor’s Global Financial Literacy Survey 20141, based on gender, age, and income categories.

“The relationship between financial knowledge and the demand for cryptocurrencies has not been explored so far.”

Impacting financial behaviour

Recent literature suggests that financial literacy exerts a significant impact on a number of desirable financial behaviours, such as:

  • stock market participation2
  • the demand for financial services 3, 4
  • portfolio diversification5

Lusardi, Michaud and Mitchell6 suggest that financial literacy formed early in life becomes endogenous in several financial decisions across a person’s lifecycle. This can ultimately explain up to 40% of retirement wealth inequality in the USA. There are very few other factors that can explain inequality to that extent in any literature.

The relationship between financial knowledge and the demand for cryptocurrencies has not been explored so far. However, Glaser et al.7 did find strong indications that uninformed users approaching digital currencies are not primarily interested in an alternative transaction system, but are simply looking for an alternative investment vehicle. While scholars are beginning to inquire about the determinants of the supply of cryptocurrencies, such as the Bitcoin – which has the highest market capitalization amongst them – much less is known about the factors influencing the demand of cryptocurrencies. Given the large variations in the price of the Bitcoin (Figure 1) and its high volatility compared to other asset classes (Figure 2), it is of great interest to examine – for the first time – who invests in cryptocurrencies using global micro-level data.

Figure 1 Bitcoin USD price evolution
Figure 1: Bitcoin USD price evolution
Figure 2 Asset daily 1-month running annualised volatilities
Figure 2: Asset daily 1-month running annualised volatilities

The future of investing?

The ING Mobile Banking Survey 2018 has found that two in three Europeans (66%) have heard of the cryptocurrency technology. More men (77%) reply having heard of cryptocurrency than women (55%). Fewer than one in 10 in Europe (9%) indicate owning cryptocurrency at the time of the survey, with the smallest fractions in Luxembourg and Belgium. Figures are similar in the USA and Australia. One in four (25%) in Europe indicate they expect to own cryptocurrency at some time in the future, with the share being higher among mobile bankers (31%). About a third (35%) in Europe find that the Bitcoin is the future of spending online. A similar share (32%) of respondents find that cryptocurrency is the future of investing.

In our study, we will examine the relationship between financial literacy and attitudes to cryptocurrencies, using multinomial probit models to examine the four distinctive types of attitudes towards cryptocurrencies:

  • owning;
  • not owning but expecting to own;
  • not owning and not expecting to own;
  • not having heard of cryptocurrencies.

We will focus on a large number of control variables, such as gender, age, marital and family status, education, labour-market status, real equivalized household income per capita, and country characteristics. Most importantly, we will control for an exogenous financial literacy proxy. In our mechanism explanations, we account for technological literacy, preference for cash, future-oriented languages, youth, and perceptions of risk and reward.

Financial literacy and attitudes to crypto

Figure 3 shows a snapshot of the relationship between financial literacy and attitudes to cryptocurrencies. The results show large negative effects of financial literacy on the probability of owning cryptocurrencies and on intending to own in the future. The financially-literate are more likely to be aware of cryptocurrencies, compared to their financially illiterate counterparts. The regressions reveal large effect magnitudes. The financial literate are some 82% less likely to own cryptocurrencies, 40% more likely not to intend to own in the future, although they are some 34% more likely to have heard of cryptocurrencies.

When investigating the mechanisms that can explain the empirical relationships found, the evidence confirms the prediction that the more financially literate are better positioned to evaluate the risk-reward profile offered by cryptocurrencies.

Figure 3 Financial literacy and attitudes to cryptocurrencies
Figure 3: Financial literacy and attitudes to cryptocurrencies

Our study has just been presented at the ADBI/WSBI Joint G20 Conference in Tokyo (June 2019); our full working paper is expected in July.

Georgios Panos (Professor of Finance at the University of Glasgow) and Tatja Karkkainen (PhD candidate at the Adam Smith Business School and a TFI-funded research assistant at the University of Glasgow).


  1. 1. Klapper, L., Lusardi, A., and P. van Oudheusden (2015). “Financial Literacy Around the World: Insights from the Standard and Poor’s Rating Service Global Financial Literacy Survey”. Report:
  2. 2. van Rooij, M., Lusardi, A., and R. Alessie (2011). “Financial Literacy and Stock Market Participation”. Journal of Financial Economics. 101(2): pp. 449-472.
  3. 3. Cole, S., Sampson, T., and B. Zia (2011). “Prices or Knowledge? What Drives Demand for Financial Services in Emerging Markets?” Journal of Finance. 666: pp. 1933–1967.
  4. 4. Klapper, L., Lusardi, A., and G. A. Panos (2013). “Financial Literacy and its Consequences Evidence from Russia during the Financial Crisis”. Journal of Banking and Finance. 37: pp. 3904-3923.
  5. 5. von Gaudecker, H. M. (2015). “How Does Household Portfolio Diversification Vary with Financial Sophistication and Advice?” Journal of Finance. 70: pp. 489-507.
  6. 6. Lusardi, A., Michaud, P.C., & Mitchell, O. S. (2017). Optimal financial knowledge and wealth inequality. Journal of Political Economy, 125 (2), 431-477.
  7. 7. Glaser, F., Zimmermann, K., Haferkorn, M., Weber, M. C., and M. Siering (2014). “Bitcoin - Asset or Currency? Revealing Users' Hidden Intentions”. Working paper: Goethe University Frankfurt Faculty of Economics and Business. Presented at the 22nd European Conference on Information Systems: Tel Aviv.