Picture someone who reads a viral post about a coin that supposedly turned early buyers into millionaires. They put in some cash, watch the price swing wildly, and start wondering whether they should move more money in to catch the next surge. To keep chasing that gain, they might skip a mortgage payment, lean harder on a credit card, or tap a retirement account. The question is whether this pattern shows up in real data, or whether it’s just an anecdote.
A study published in the Journal of Behavioral and Experimental Finance looks at exactly this question. The researchers examined how cryptocurrency investment relates to three financial behaviors that tend to signal money trouble: paying a mortgage late, misusing credit cards, and borrowing from retirement accounts. Their analysis offers evidence that people who invest in crypto are more likely to engage in all three.
A gap in the crypto conversation
Much of the existing research on cryptocurrencies focuses on their upside: the chance for big returns or the way they might diversify a portfolio. Fewer studies have asked whether crypto investing is linked to behaviors that could damage a person’s longer-term financial health. Zefeng Bai of Washington and Lee University, along with Pengcheng Wang and Botong Xue of Kennesaw State University, set out to fill that gap.
To frame their thinking, the authors draw on an idea called Behavioral Portfolio Theory. The theory suggests that people don’t treat all their money as one big pool. Instead, they mentally sort it into layers, like a pyramid. At the base sits a “protection layer” made up of safe, stable assets meant to guard against hardship, such as emergency savings, retirement funds, and home equity. At the top sits an “aspirational layer” of riskier bets aimed at getting rich.
The researchers argue that cryptocurrencies fit naturally into that aspirational layer because of their extreme price swings and speculative nature. But they propose that crypto does something unusual. Because the asset is often pursued with hopes of rapid, life-changing gains, fueled by hype and fear of missing out, investors may start treating their protective savings as spare cash to funnel into digital assets. The authors call this a “mental account invasion,” where the risky top of the pyramid eats into the safe foundation.
How the study was built
The team used data from the National Financial Capability Study, a survey of American adults that collects details on financial background and investment behavior. They drew on two waves, 2018 and 2021, treating the 2021 cohort as their main sample and using 2018 as a check. Because the survey’s question about social media use changed between the two years, they analyzed the waves separately. After removing responses with missing information, they had 1,547 people in the 2021 sample and 1,074 in the 2018 sample.
The survey asked people directly whether they had invested in cryptocurrencies. It also asked about the outcomes the researchers cared about: whether respondents had been late on a mortgage, whether they had misused a credit card (paying only the minimum, making a late payment, or taking a cash advance), and whether they had taken a loan from a retirement account. The share of respondents who owned crypto more than doubled between the two survey years, rising from about 11 percent to about 22 percent.
The researchers first tested their pyramid idea using two other behaviors. They used having a rainy-day fund as a stand-in for building the protection layer, and investing in options, another speculative bet, as a stand-in for building the aspirational layer. The results lined up with their framework. Crypto investors were about 6.6 percent less likely to have a rainy-day fund and about 16 percent more likely to trade options than people who didn’t hold crypto.
What the analysis found
Turning to the three main behaviors, the study found that crypto investment was linked to a higher likelihood of each one. In the 2021 data, crypto investors were roughly 7.8 percent more likely to have paid a mortgage late, about 12 percent more likely to have misused a credit card, and about 8.2 percent more likely to have borrowed from a retirement account, compared with people who didn’t invest in crypto.
A single correlation can be misleading, since some hidden trait might drive both crypto investing and money trouble. To address this, the researchers used two additional techniques. One, called propensity score matching, pairs crypto investors with non-investors who look similar on measurable traits like age, income, and financial knowledge, then compares them. The other, an instrumental variable method, is a statistical approach designed to reduce the influence of unmeasured factors. Both approaches pointed in the same direction, supporting the original findings.
The authors also ran what they describe as a placebo test. If the pattern were simply about people who like taking risks, then options trading, another risky activity, should show the same links. It didn’t. Option investment was not significantly associated with any of the three undesirable behaviors. The researchers interpret this as a sign that the pattern could be specific to cryptocurrency rather than a general feature of risk-loving investors.
The social media connection
The team then split their sample based on whether people used social media for investment advice. Among social media users, crypto investment was tied to a higher likelihood of all three behaviors. Among people who didn’t use social media for investment advice, the link was not statistically significant. A statistical test confirmed the difference between the two groups was meaningful.
The authors treat this part as an exploratory add-on rather than the heart of their argument. They point to prior research showing that social media is a heavy channel for crypto promotion and that information on these platforms often spreads fast without verification. Their reading is that these platforms may intensify the hype-driven decisions their framework describes.
Running the entire analysis on the 2018 data produced a consistent picture, which suggests the results weren’t just a product of the pandemic-era economy. The size of the associations was actually larger in 2018 than in 2021. The authors suggest this shrinking effect could reflect a changing regulatory environment and growing investor familiarity over time, though they note this idea needs more study.
What to take away, and what to keep in mind
For individual investors, the study offers a reminder that money set aside for a crypto bet may not stay walled off from other financial obligations. The researchers frame their central concern as this: the influence of cryptocurrencies can extend beyond an investment portfolio and into everyday financial management, including how bills, debts, and long-term savings get handled.
On the policy side, the authors point to regulators who require clear risk warnings on crypto promotions and who restrict public advertising of digital assets. They suggest that transparent risk disclosures and user-specific alerts from exchanges could help encourage more responsible investing.
Several caveats deserve attention. The data is cross-sectional, meaning it captures a snapshot in time rather than following the same people as their behavior changes. The authors are direct that this limits any claim that crypto investing causes financial trouble. Their statistical tools reduce, but do not eliminate, the possibility that some unmeasured trait explains both. They call for future work using data that tracks people over time or experiments to sort out cause and effect. The measures also rely on self-reported survey answers, and the social media question shifted between the two survey years, so comparisons across those years should be read with caution.
