Understanding Cryptocurrency: Confidence, Challenges, and Consumer Perceptions | Cait Lamberton

How Do Consumers Feel About Cryptocurrency?

Dan Loney: How do consumers feel about cryptocurrency? There is promise seen by many, but cautiousness from others. It’s a pleasure to be joined by Cait Lamberton, who is a Wharton marketing professor and co-editor of The Journal of Marketing.

Cait, there’s so much exuberance around cryptocurrency, but a lot of people are still trying to learn what it is and what it will be able to do. The attitudes of consumers are kind of all over the map.

Cait Lamberton: Yeah, it’s very confusing. It’s interesting because it’s called cryptocurrency, so we think it’s going to act like a currency. If you come at it from a finance perspective, you assume what that means is there’s some stable, underlying thing about which people can agree. There’s an underlying asset and we can at least, given good data, figure out what it’s worth.

But the reason we’re interested in this from a marketing perspective is because it acts more like marketing things do, in the sense that it’s very subjective and very malleable. And it’s very heterogeneous as a result, both within and across people, and within a moment and across time. We can understand why it’s so hard to learn about. The data changes constantly, and you ask one person or another person, not only are their perceptions different, but the data they’re using to form their perceptions are different. So, learning it is a tricky task, and you can’t blame anyone who sort of throws their hands up in the air and says it’s a moving target.

Loney: It doesn’t help it that we’ve had instances pop up over the last few years of negative actions, FTX being one of them. From a marketing perspective, the old line, “Any press is good press,” is not the case when you have something like FTX.

Lamberton: It’s only good in the sense that it makes people pay attention and perhaps be more careful. We’ve also seen a lot of high-profile cases where people were taking advice from individuals whose understanding of cryptocurrency was perhaps also not founded in the best data available, or who perhaps had faith in cryptocurrency that was rooted in information given by sources that were drawing information from another source that was less or more reliable.

So, we can say all press is not good press. But I think to the extent that it provides more information to us about how this works, it’s useful for us, at least as either a cautionary tale or an informative option. And to that extent, although things are negative in the short term, I think they do provide some illumination about the way it can unfold in the market.

Loney: You and your colleagues here at Wharton have come up with the Consumer Cryptocurrency Confidence Index. Tell us a little bit about it and why you think it will be important moving forward.

Lamberton: Given that that cryptocurrency is such a socially valued phenomenon, we were really interested in how that value was emerging. It seemed to us that in the world of most blockchain assets, the value is driven by basically what people think of it. In fact, one of my collaborators on this index, Martin Paul Fritze, and I had also written a paper on the way that people valued NFTs, which are another blockchain-associated asset. And what we found there is that the value is completely driven by social currency. It’s not about even scarcity, which, in classical economic terms should matter. But scarcity, if anything, had a negative effect.

We thought, if this is all about social value, then what matters is just how people feel about it. Shifting that over to cryptocurrency seemed a natural step. The nice thing about confidence is that is that people can tell you how confident they are. That’s a completely subjective perception, and it’s easy for people to self-report. So, we simply started asking people, “How well do you think this is going to go? How likely is it that you’re going to be able to use this at more places in the next six months? How likely do you think this is going to be widely accepted? How likely do you think it’s going to be that it has more, as opposed to less, value in the future?” People can make those predictions, and perhaps those predictions are all that really matters in determining how much they’re willing to pay for it in the present.

Current Trends in Cryptocurrency

Loney: How much does it matter that there are several cryptocurrencies out there?

Lamberton: It seems the dominant cryptocurrencies are those that people anchor on the most. They’re going to key in on what’s going on with bitcoin. They’re going to key in on what’s going on with ethereum. They’re the loudest in the market. That doesn’t mean that others don’t matter. But as we track cryptocurrency confidence, we see a fairly strong association with those prices.

Some of the others that are more short-lived possibly track momentarily with the more dominant cryptocurrencies. To be honest, we haven’t looked at what happens when there might be a flood of smaller cryptocurrencies that enter the market and leave. It’s likely that those are going to be noticed by a smaller segment of the population. We’re trying to capture the confidence that is expressed by general population. We’re capturing samples that are not only people who already own crypto, who are already following crypto, but people who have a less direct connection to crypto on a daily basis.

Loney: What are they telling you?

Lamberton: An interesting thing is that since we started collecting this data in early 2023, it has steadily increased, which you would expect with any new technology, any new product. Even if people don’t really know a lot more about it, just by virtue of it becoming more familiar, people feel like, “Oh, it’s probably more OK.” But there’s some really interesting asymmetries in it. For example, people are far more willing to pay in cryptocurrency than they are willing to be paid in cryptocurrency, which is kind of a funny thing. Because it really doesn’t make any difference. It’s just money going in and out of your bank account. But they’re still not quite OK with you paying them. That tells you there’s still some wobbliness in there, even if they say they’re very confident in it.

I think that when we get to the point where consumers say, “It’s OK for me to receive my wages in cryptocurrency,” then we’re seeing a really strong level of confidence that this is a legitimate way to exchange value. People still do recognize that it’s extremely volatile. They absolutely recognize that. But some of them find that exciting. If we were to step back from our data as a whole, we would say there’s massive heterogeneity in people’s perceptions. Some people see it as an investment. If that’s the case, then we would say, “We should think about this an investment. Perhaps that’s how it should be discussed.” Some people, however, do see it as a currency. That’s a different language and a different category.

One of the things that we’re trying to understand is how people categorize this, what drives them to categorize it one way or another, and how they handle it. What kinds of risks they’re willing to take, what they’re not willing to take, whether they’re willing to give it to charities, whether they’re willing to accept it, etc.

Loney: The more we see of companies deciding to accept cryptocurrency for payment, then we have more opportunity to see its potential growth. I remember a couple of years ago, the Oakland A’s baseball team was trying out accepting cryptocurrency for tickets. It didn’t help them a lot. I guess there is this feeling-out process of seeing how you can use it.

Lamberton: Yeah, and we’re just starting to study that. We are looking right now at what we’re calling “crypto creep,” which sounds bad, but we don’t mean it in that way. We’re just starting to look at the proliferation of cryptocurrency ATMs geographically to understand the relationship between, for example, localized levels of crypto confidence. We want to understand, at least to some extent, from tax records, the geographic areas in which cryptocurrency ownership is the highest. Then we can start to look at the areas in which acceptance by businesses and access via ATMs is higher.

We can look at how those things are unfolding over time. Is it the case that the businesses are leading, in the sense that they’re saying, “We’re going to accept this,” and then more people in that geographic area decide that it makes sense for them to own cryptocurrency? Or is it the case that the private individuals decide to own cryptocurrency and then the businesses follow? We’re hoping that over time if we can watch this, we can see who’s leading and who’s following, because that’s a really interesting demonstration of how a technology diffuses with a socially driven kind of technology.

Crypto Regulation and More Research on Consumer Confidence

Loney: Is it safe to assume that if you’re in the crypto world right now, you’re aware of and thinking more about the potential of regulation than, say, the public in general?

Lamberton: I don’t know. I think none of us know what will happen with regulation. Again, it takes us back to the question of what exactly this is. Whether it’s an investment or a currency, or whether it’s a blend of both, or whether it’s something different entirely.

What I can tell you is that we’ve come to understand that there’s a psychological factor that underlies people’s acceptance of cryptocurrency that is quite independent of political partisanship. There’s a correlation, but we can’t make some kind of causal claim. The psychological construct is distributed trust. People who tend to believe that the world is safer when centralized institutions are running the system tend to be less comfortable with cryptocurrency, because cryptocurrency is based on the idea that trust should be democratized. You would expect that people who believe in centralized institutions are going to be more pro-regulation. They’re going to say, “Maybe this stuff can be out in the market, but we need a centralized institution to make sure that it’s managed in a way that’s safe.”

Those people might also choose not to own cryptocurrency because they’re not particularly comfortable with this level of democratized trust that exists in cryptocurrency to begin with. The cryptocurrency owners like this idea that the world is safer when everybody has a little bit of control, as exists on the blockchain. For those people, regulation doesn’t make the worlds feel any safer, so they’re going to have a very different attitude toward that kind of process. I think we’re going to see different psychological processes unfold that will affect both the way people interact with cryptocurrency and the way that they think about regulation.

Loney: Where do you think the research takes you next?

Lamberton: I think the causality behind the confidence itself and the prices of the cryptocurrency is something that we’re still trying to understand. There are so many factors that affect people’s confidence in something like cryptocurrency. There’s so many chicken-and-egg problems. We’d like to be able to say we understand what raises confidence in this. We’d like to be able to say that it’s purely confidence that is changing the price. It’s likely that in some cases, people’s innate confidence pushes the price. It’s possible, however, that the price changes and then people’s confidence changes. We want to keep trying to understand that. We have some ideas at present, and we have some preliminary analysis, but it’s a very hard thing to untangle. And as we see more external shocks, it becomes even noisier.

Beyond that, I think we’re going to continue to understand how cryptocurrency changes in its use in the marketplace. I think when crypto first came in the market, there were people who said, “This is a blip. This thing is going to come and go.” At this point. I think that’s a very tough case to make. Whether people like it or they hate it, it’s shown that it has some staying power. That is probably because it’s learning how to evolve. It’s learning how to find places where it can become truly useful to people. It’ll be really interesting to see how it continues to find pockets of indispensability so that it becomes a stable part of our market.