The Washington PostDemocracy Dies in Darkness

Locked out of traditional financial industry, more people of color are turning to cryptocurrency

Twins Penelope and America Lopez, stand for a photograph in Times Square in New York, on Nov. 3. (Jeenah Moon for The Washington Post)

It wasn’t their dog-walking business, or the food stand, or their decision to drop out of college that ended up saving the Lopez twins’ parents from financial ruin when the two mortgages on their home became too much.

It was Penelope and America Lopez’s investments in cryptocurrency that eventually allowed them to pay off one of those mortgages. Then when the pandemic hit and both parents lost their jobs, the sisters stepped in again to help.

“It was our rock bed of financial investments that we made the past couple of years that helped us get through both crises,” America Lopez said.

The sisters, known as the CyberCode Twins, paid off one of their parents’ mortgages in 2017, after cashing out their bitcoin to the tune of $100,000, she said. At the beginning of this year, they invested $300 in non-fungible tokens (NFTs), another type of digital asset. They sold about half the NFTs and made about $90,000 in cryptocurrency, she said.

Cryptocurrency started out as mostly a hobby for tech-savvy, financial wizards who had money to play with — cultivating an image of its users as young, White “Bitcoin bros.” But today, a growing number of Americans of color are participating in the $2 trillion global industry as a way to build wealth outside the traditional banking system, which many say has historically excluded and discriminated against their communities.

“When you have been locked out of the system, when you haven’t had pathways to create generational wealth, you see this as an opportunity,” said Cleve Mesidor, founder of the National Policy Network of Women of Color in Blockchain. “You’re going to tell your community about it and you’re going to find ways to optimally use it to ensure you cannot just build wealth for your community, but build wealth for the next generation.”

But financial and economics experts caution that one-off success stories like the Lopezes’ belie the risk involved in the cryptocurrency market. They warn that Americans who already have the most to lose risk even more by throwing themselves into the volatile industry and its uncertain future.

A survey last summer by NORC at the University of Chicago found 13 percent of Americans reported having purchased or traded cryptocurrencies in the past 12 months. Of those, 44 percent were non-White, 41 percent were women and 35 percent had annual household incomes of less than $60,000. The average trader was under age 40 and did not have a college degree, according to the survey.

“It is true the traditional financial system has not provided access, and frankly exploited Black people,” said Darrick Hamilton, professor of economics and urban policy at the New School. “But the remedy isn’t to turn to another vulnerable system, however well-intended it may or may not be. The remedy is a public sector that ensures they have access in an equitable way.”

Locked out

The Lopez twins said their immigrant parents worked full time — their father in construction and their mother as a bus driver — but still struggled and lived in a public-housing project in East Los Angeles. They received an eviction notice for falling behind on their rent. Rather than be evicted, the couple, who don’t speak English fluently, left and bought a house using a piggyback loan.

A piggyback mortgage is a second mortgage made at the same time as the primary one to allow borrowers with little for a down payment to borrow money to qualify. Higher-priced piggyback loans have led a disproportionate number of Latino and Black Americans into debt and helped fuel the 2008 housing crisis.

To the sisters, their parents’ experience was evidence of the bias and predatory nature of the traditional financial system. “We’re trying to get away from all these systems that were developed for oppression,” America Lopez said.

Cryptocurrencies operate on blockchain technology, a decentralized network spread over many computers. The value of the currency is based on supply and collective demand, and not backed by the federal government or items of value — with the exception of stablecoins. Thousands of digital currencies have sprouted up since bitcoin — perhaps the most well-known cryptocurrency — was created in 2009.

Hamilton said it is understandable that Black and Latino Americans would be drawn to buying and investing in cryptocurrency, and he faults society and its institutions for failing to include and uplift communities of color in the traditional financial system.

“Nobody wants to be a victim of society, so the lure of self-help, pull yourself up by the bootstraps, is an attractive feature of the structure we have,” Hamilton said. “Sadly, without resources at its base, it can be seductive in an exploitative way.”

Redlining was banned 50 years ago. It's still hurting minorities today.

Historically, people of color have been victims of practices like redlining, where banks denied loans to residents of certain neighborhoods. Redlining has prevented Black and Latino families from building generational wealth through land and homeownership, and reinforced a lingering mistrust in the financial system. Black and Latino Americans also are more likely than White Americans to receive subprime loans, studies show, a practice that led them to have disproportionately higher rates of foreclosures during the Great Recession.

A 2019 report by the FDIC found that 13.8 percent of Black households and 12 percent of Latino households are unbanked, compared with 2.5 percent of White households. Language barriers, minimum balance requirements and general mistrust, among other things, dissuade many from opening bank accounts, which in turn locks them out of the financial benefits, such as building a credit history.

Read: FDIC report on American banking

The 'Wild West'

The federal government has struggled to get a handle on cryptocurrency and how to regulate it. Is it primarily a security, commodity or currency? Should it fall under the jurisdiction of the Securities Exchange Commission, the Commodity Futures Trading Commission, or perhaps the Office of the Comptroller of the Currency? Investors say they often get mixed messages from different agencies on the rules of the trade, causing confusion and making it difficult to make safe decisions in the space.

Cryptocurrency “is much riskier than speculating in stocks,” said Kenneth Rogoff, professor of public policy and economics at Harvard University. “By risk we mean the ups and downs. And it’s still the Wild West in terms of regulation.”

A federal report last month led by Treasury Secretary Janet L. Yellen, among others, urged more regulation of stablecoins, a type of cryptocurrency whose value is tied to real-world assets, such as the dollar or gold. But it asserted that Congress — not the federal agencies who collaborated on the report — should craft the regulations.

The $1.2 trillion infrastructure bill includes some tax provisions for crypto, including requiring “brokers” to report their gains to the IRS. A bipartisan group of lawmakers introduced legislation clarifying the government’s definition of brokers to ensure the new reporting requirements don’t impact crypto miners and software developers.

Biden administration calls on Congress to take the lead on crypto

'Unsavory activity'

Rogoff said there is a “dark net” in crypto’s underbelly that needs to be clamped down on. He said crypto’s “pseudonymity” — its uniquely secure, anonymous feature — “allows for a lot of unsavory activity” and bad actors. The systems also can be vulnerable to hackers, and some investors have lost thousands to scams and unscrupulous companies.

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But Mesidor, of the National Policy Network of Women of Color in Blockchain, said the kind of currency used isn’t the problem.

“Illicit players, they are smart. They use the platforms, technologies, innovations that will allow them to commit a crime. Crypto is not the crime though,” she said. It’s the vehicle for it, much like cash — yet no one is blaming paper currency.

“Don’t hold crypto to a standard that we don’t hold the centralized world to,” she said. “It’s just hypocritical.”

Sinclair Skinner, a crypto advocate and co-founder of BillMari, a bitcoin wallet provider, said lawmakers are too quick to advocate for regulation in the name of protecting crypto users when they could have been passing laws to regulate banks and protect consumers from becoming victims of the traditional financial system.

“I’m not for more regulations. I’m for people who steal going to jail . . . using the existing space to hold people accountable,” Skinner said. “I think the biggest exploiters currently are the big banks.”

Deidra McIntyre, founder of the popular Facebook group Black People & Cryptocurrency, said regulation of cryptocurrency could send it down the same path as traditional banks.

“Regulation has never been inclusive, it has never been equitable, it has never been fair. Now we can lift ourselves up by our bootstraps and build our own infrastructure,” she said. “We recognize that this is an opportunity.”

'Even the playing field'

When America Lopez told her family she had been accepted into a Massachusetts Institute of Technology crypto program a few years ago, they were a confused.

“My dad thought I said I got a job at McDonald’s,” she said, laughing. “My grandma said ‘Where’s Massachusetts?’ ”

Back then, there weren’t many people who looked like the Lopezes entering crypto competitions or attending its conferences and events.

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But that has slowly been changing. There is the annual Black Blockchain Summit, which attracted more than 1,000 attendees this year. There are dozens of Clubhouse and Facebook groups dedicated to people of color in crypto, and digital currencies that cater to Latino and Black consumers.

Carlos Acevedo, a former English teacher, oversees programs in the Bronx that teach predominantly minority high school and community college students about crypto. He thought the programs were important, “because these students are generally at a disadvantage when competing with peers around the country for employment and colleges,” and the knowledge was a “unique opportunity to even the playing field.”

At the end of the program in the spring, each student received $5 worth of the cryptocurrency Zcash.

One teacher’s idea to lift poor students: Cryptocurrency

Rep. Darren Soto (D-Fla.), who represents a district with a large immigrant population and is a member of the Congressional Blockchain Caucus, said he doesn’t encourage or discourage individuals from purchasing cryptocurrency. But he does think crypto could be a boon for small, immigrant-owned businesses, because it eliminates the costly overhead fees banks often charge for international wire transfers.

Crypto also offers a cheaper and faster way for immigrants to send money to family in their home countries, fans say.

“The main feature I see is it’s going to help expand business opportunities and remittance opportunities and help stabilize economies in Central and South America,” Soto said. “It helps with the egalitarianism of doing business to business, internationally, with very little transaction costs.”

But others contend people of color are likely to face some of the same obstacles in the crypto industry as they do in traditional banking.

“The biases are going to be exactly the same as they currently are,” said Jarret Leaman, co-founder of Canada-based Akawe Technologies, which uses blockchain technology.

“Who’s checking out from a Native perspective the unconscious bias that’s being put in the banking system now and transferring over to cryptocurrency?” said Leaman, a member of Magnetawan First Nation tribe. “If there’s nobody doing that, you can assume the biases in the financial system are going to be in (crypto) as well.”

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