Understanding Crypto Sentiment and Market Signals

Dan Loney: Cryptocurrency is still a financial platform that is not totally understood by a segment of the population. To that end, the Wharton School has developed a Cryptocurrency Confidence Index – and a report based on it – so we can better understand the perceptions of that marketplace. Pleasure to be joined by Dave Reibstein, a marketing professor at the Wharton School, who is one of the collaborators on this report. Dave, it’s been a while. How are you, sir?

Dave Reibstein: I’m doing great, and thank you very much for having me on today.

Loney: Thank you. Let’s start by giving us the background on doing a report like this. And obviously with something like cryptocurrency that is still relatively new for a lot of people, having a better understanding of people’s understanding is probably a good thing.

Reibstein: I think the way you stated it is exactly right. We’re trying to understand what people think, and their perceptions of the currency. It’s a new financial instrument. The question is, how confident are people about that? That’s what we were trying to do.

Loney: Tell us more about the report, how the data is collected, and the types of questions that are asked.

Reibstein: We have a variety of questions. Let’s start, as you say, with how the data is collected. We’re using an online panel. We do a sample once a month, and we sample 1,000 people from across the United States – it’s the U.S. only. We just did our 38th month; we started January 2023.

We have a variety of questions. The key set of questions that we have is asking people about how confident they are in the currency. We do that asking four different questions. We want to know specifically, what it is they think about the future of cryptocurrency? We’re trying to see, does consumer sentiment – their confidence in it – in any way help us predict what’s going to happen with crypto prices?

Loney: Right now, what is the report telling us about people’s thoughts on cryptocurrency?

Reibstein: Well, for the first several years, crypto prices and confidence kept going up. It was sort of hard to separate – is confidence lagging prices, that as prices go up, people become more confident? Or as they become more confident, do prices that go up?

The answer was, it’s some of both. But while the prices were going up, we saw confidence starting to go down. It was like, suddenly, these two lines that were in parallel started to separate. It was like, hmm, what’s this going to tell us? As we saw confidence go down, two months later, prices started to go down. And so the confidence [levels] were precursors to the prices, in what we saw.

Loney: Do we know why the confidence has led us on this path right now?

Reibstein: We don’t know why. What we do know is we ask people what is it that influences them, and use that to try and see, what could be leading their confidence? […] We have a whole bunch of other questions about, “Who are you? Where do you live? How confident are you in the Fed and the SEC?” We have questions like that that are part of it.

Loney: So that is another important part to this. The regulatory side is still very much up in the air, but it is a very important component to where most people think cryptocurrency will have an impact the next five, 10, or 20 years down the road.

Reibstein: No question about it, it’s going to be part of what happens. And I might say that, I think that owners of crypto are becoming more appreciative of regulatory [forces] playing some role and assuring [people] that it’s going to be stable.

Loney: How much is lack of understanding about the platform out there? And if it’s out there, what impact does that have?

Reibstein: There’s no question there is a great deal of uncertainty – lack of understanding, as you put it. And yet, I think what that means is that people view this as a risky investment. What’s really interesting is we refer to it as cryptocurrency, like it’s an alternative currency. But to a very large degree, it’s viewed like an investment. And people do see it as a risky one, because there’s so much uncertainty about what’s really behind it and where it’s going to go.

Loney: That’s a key component there. From that perspective, do people feel like it is something good to potentially invest in right now?

Reibstein: They were feeling more and more positive about it when President Trump came out supporting it. We do have evidence that Trump’s support bolstered confidence, bolstered prices. But now what we see is some people [losing confidence in it]. I don’t know, I can’t say they’re losing confidence in the President, because they still say he plays a role in it. But obviously some of their confidence has gone down with the currency.

Loney: Yes, and it probably can’t help that we get these anecdotal stories of cryptocurrency being used somehow in illegal activities. When you’re thinking about the marketing of a product – there’s the old line that any press is good press. But negative press certainly can’t help the growth of something like cryptocurrency.

Reibstein: That is absolutely the case. It makes it seem a little bit dirty when it’s mainly used in criminal activities. And those have ranged in different types of activities, and I think that has led to some of the volatility that we see.

Loney: Can you see the level of confidence adjusting as we have seen some of the price volatility in cryptocurrency over the last year, or year-and-a-half?

Reibstein: To my amazement, the confidence grew over the last year-and-a-half. It’s only in the last few months that we’ve seen the confidence starting to go down, and then subsequently we see the prices going down.

Loney: What, then, are you watchful for from a researcher’s perspective, as you move forward with this type of work, talking with people every month?

Reibstein: We’re trying to see shifts in who it is that is owning cryptocurrency, and who it is that is confident about cryptocurrency. One of the things that is amazing to me is —I ask people, “Who do you think is most likely to be competent in cryptocurrency, East Coast, West Coast or the Midwest?” And people always guess the coast. It’s the Midwest that happens to be the most confident. That really surprises people.

And then the question is, so, why? We’ve tried digging from the researchers’ perspective about why that would be the case. Some of that is just in terms of confidence in centralized control. Thinking about the banking system, there’s centralized control. A lot of the Midwest and a lot of the more conservative sector of the population want things decentralized, and we see that in the data.

Loney: I assume that the mindset of the public, at least right now, is they do see it as an investment. They do see it as a component to move value back and forth. But they probably don’t see it as a traditional currency as we know it, like $1, $20, et cetera. And it doesn’t feel like we’re going to get to that point anytime in the near future.

Reibstein: One of the questions that we’ve asked people in past is, “Would you like to be paid in cryptocurrency?” And the answer is, “No, no, no.” Even those that are confident say, “No, don’t – give me hard cash. I want cash. I have much more confidence in cash. I’ll selectively take money I could afford to gamble with and put it into crypto, but don’t put my paycheck in crypto.”