Crypto’s Collapse Strikes Deep into Black Community

January 8, 2023 

Collapse of cryptocurrency hits Black community harder. | Photo: ntnews.com.au

Reprinted from Fighting Words, Journal of the Communist Workers League

Crypto’s collapse strikes deep into Black community – Fighting Words (fighting-words.net)

By Chris Fry

Back in July 2014, Slate.com published an article by Black writer Jamelle Bouie titled “The Crisis in Black Home Ownership”, which described the catastrophic impact of the Great Recession on Black families:

In 2005, three years before the Great Recession, the median Black household had a net worth of $12,124. Yes, this was far behind the median white household—which had a net worth of $134,992—but it was a huge improvement from previous decades, in which housing discrimination made wealth accumulation difficult (if not impossible) for the large majority of African-American families.

By the official end of the recession in 2009, median household net worth for Blacks had fallen to $5,677—a generation’s worth of hard work and progress wiped out. (The number for whites, by comparison, was $113,149.) Overall, from 2007 to 2010, wealth for Blacks declined by an average of 31 percent, home equity by an average of 28 percent, and retirement savings by an average of 35 percent. By contrast, whites lost 11 percent in wealth, lost 24 percent in home equity, and gained 9 percent in retirement savings. According to a 2013 report by researchers at Brandeis University, “half the collective wealth of African-American families was stripped away during the Great Recession.”

In 2009, when the Great Recession began to ebb, computer researchers developed the first cryptocurrency, which is a digital currency tied to distributed encoded ledger. Anonymous traders can conduct purchases and other transactions without using traditional banks, without credit checks and largely without government oversight, particularly by the IRS.

This system has had growing appeal among the oppressed and other workers so battered by the catastrophic economic devastation unleashed on them during the Great Recession, when so many lost their homes, their jobs and their life savings to the vulture investment banks like Citibank, Wells Fargo, and others.

In the last two years crypto companies have advertised heavily, particularly in the Black and Latinx communities:

Just a few short months ago, venture capital firms, celebrities and even some elected officials were hailing cryptocurrency as the future of personal finance, an investment vehicle that could turn modest nest eggs into massive fortunes.

Among the advantages touted by its supporters was the claim that crypto had the potential to close a pernicious, generations-old racial wealth gap for Black and Latino would-be investors. Cryptocurrencies, the narrative went, were primed to “democratize finance.”

Cryptocurrency is sponsored by a portion of the ruling billionaire class resistant to the control by the central banks over the flow of capital inherent in the imperialist economy. This tendency has a long historical precedent. The racist, pro-NAZI industrialist Henry Ford vehemently opposed the banks in his day famously remarking that it was a good thing that most Americans didn’t know how banking really works, because if they did, “there’d be a revolution before tomorrow morning”.

Of course, the last thing that fascist pig wanted was a genuine social revolution. He just opposed the banks taking a cut of his profits.

A number of Wall Street hedge funds are backing cryptocurrency exchanges. There is even a “crypto caucus” in Congress. A number of fascist groups conduct secret financial operations using cryptocurrency. White supremacist Richard Spencer went as far as to declare Bitcoin the “currency of the alt-right.”

But because the banks have been and still are so discriminatory against people of color, cryptocurrency has drawn a disproportionate number of Black people into its arena. As a Dec. 23 CNN article points out:

Its supporters had argued that cryptocurrencies allowed members of historically marginalized groups to bypass institutional barriers to traditional investments and structural ones such as racism, discrimination, and bias. No longer would there be a need for invasive credit checks or unattainable income requirements; no longer would a prospective investor be turned down because of their race or ethnicity.

Over time, dozens of crypto-focused Clubhouses and Facebook groups catering to Black and Latinx audiences sprang up, as did events such as the Black Blockchain Summit, an annual conference encouraging investment in crypto currencies by African Americans.

Celebrity endorsements and generally favorable media coverage also made cryptocurrencies seem safe and credible. Its proponents rarely mentioned how crypto’s volatility compared to traditional financial products and services, and little mention was made about how cryptocurrencies can be targets for scams, fraud or hacks.

Eventually many Black Americans staked their hopes in crypto as a comparatively accessible wealth-building vehicle. Within a short time, there was a noticeable uptick in the adoption of cryptocurrency by communities of color, which overcame their initial reluctance. According to a 2021 survey by NORC at the University of Chicago, nearly 44% of Americans who owned and were trading crypto were people of color.

Of course, “traditional banks” are not immune from robbing the workers, particularly Black workers. For example, the New York Times reported on Dec. 20th that Wells Fargo was forced to pay $3.7 billion in fines and damages:

The consumer protection bureau said Wells Fargo did not record customer payments on home and auto loans properly, wrongfully repossessed some borrowers’ cars and homes and charged overdraft fees even when customers had enough money to cover purchases they made with their bank cards. 

FTX goes belly-up

On Nov. 11, the Bahamas-based FTX cryptocurrency exchange company declared bankruptcy. The entire crypto sector has gone down from a value of $3 trillion in 2021 to just $850 billion currently.

From a Dec.18 Washington Post article:

The arrest last week in the Bahamas of Sam Bankman-Fried, the former CEO of what until very recently was one of the biggest and best-respected cryptocurrency exchanges in the world, has only deepened the sense that the crypto bubble has definitively popped, taking with it billions of dollars of investments made by regular people, pension funds, venture capitalists and traditional companies.

Crypto has crashed before, but this time it fell from a greater height — having gained mainstream acceptance in a way it hadn’t before, even finding itself in some 401(k)s and pension funds for retirees. It’s unclear whether it can recover.

The Dec. 23 CNN article reports the devastating impact of crypto’s collapse on the Black community:

If crypto has democratized anything, it’s been hefty – even spectacular – financial losses endured by many thousands of investors who sank their savings into them. The downfall of Sam Bankman-Fried and his crypto exchange FTX has become the best-known symbol of crypto’s volatility, obliterating personal financial holdings large and small as it crashed and burned.

The fallout is being felt particularly keenly in communities of color. A study earlier this year by Charles Schwab found that Black Americans were far more likely than white Americans to invest in crypto currencies. A Pew Research study also found that Black, Asian and Latino Americans were more likely than white Americans to say that they owned or traded in cryptocurrency.

Black Americans have been among the groups hardest hit by crypto’s implosion because of their greater financial exposure and their later entry into the cryptocurrency market. In the early days of bitcoin and other digital currencies, Black investors were hesitant to buy in.

Research has shown that Black Americans are far less likely than their white counterparts to be invested in stocks – crypto appeared to offer an attractive alternative. But that lack of assets in traditional financial instruments, and in many instances, an absence of generational wealth, has made this group of investors particularly vulnerable to the precipitous swings in value with crypto.

Crypto’s fraud against the Black community adds validity to the struggle for reparations by Wall Street, not only for the unpaid labor of slavery, but also super-profits extracted from the oppressed from redlining, employment, educational and banking discrimination, and now crypto.

Digital currency does not create wealth. Wealth stems from the surplus value generated by workers in the production of goods and services. Crypto’s nature of speculation merely redistributes it, eventually reaching the coffers of the ruling billionaire class. To truly control the distribution of wealth in favor of the workers and oppressed requires a revolutionary transformation of society, where our class wrenches control of production away from the billionaire class, erecting a system of social ownership and scientific planning designed to bring prosperity to all.