Editor's Note: (Tonantzin Carmona is a David M. Rubenstein fellow at the Brookings Institution. Her most recent work has focused on the risks and drawbacks of cryptocurrencies, particularly their impact on Black and Latinx communities. The views expressed here are her own. Read more opinion at CNN.)
(CNN) 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."
That's not the way things have turned out.
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.
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.
But for many, crypto hasn't come close to delivering on its promise of access and opportunity. Far from being a financial haven, it has proven to be an unmitigated disaster for many investors of color.
The eventual rush by communities of color to embrace crypto came against a backdrop of racial and ethnic wealth gaps reflecting decades of discriminatory practice impeding the ability for people of color to accumulate wealth.
Prior to the civil rights movement of the 1960s, White households largely benefited from federal policies intent on building and sustaining the middle class in America. Black and many Latino households, however, were excluded.
And while policies like the GI Bill predominantly assisted White soldiers with attending college, starting a business or buying a home, Black veterans, and to a certain degree Latino veterans, frequently were barred from accessing these benefits. While White Americans accessed federally-backed loans aimed at promoting homeownership, redlining practices excluded Black and many Latino neighborhoods from these same government-backed mortgages.
The passage of civil rights legislation during the 1960s outlawed segregation and prohibited employment discrimination and redlining practices. But just when it seemed that communities of color might finally be included in society's wealth-building endeavors, a backlash against the expanding government arose, and deregulation, union busting and tax-slashing for high-income earners were in full swing.
This history of explicit exclusion was followed by an era of "predatory inclusion": Black, Latino and other marginalized communities could theoretically access opportunities -- such as mortgages and credit -- from which they were historically excluded. But without significant federal investments, this "access" often came with conditions that undermined its benefits—in many cases, reproducing insecurity for these same communities.
For example, higher education access offered by for-profit colleges came with a higher price tag and riskier loans. And homeownership was made more accessible via subprime mortgages heralded as "innovations," which decimated Black and Latino wealth during the 2008 financial crisis and its aftermath.
Today, bitcoin ATMs— notorious for charging high fees—are clustering in Latino and low-income neighborhoods, much the way payday lenders and check cashing services did, targeting vulnerable populations. The experience with crypto for many people of color has proven, in short, to be a continuation of an exploitative pattern of predatory inclusion. Meanwhile, many individuals of color remain excluded from the financial system. And even as their need for wealth-building opportunities persists, crypto hasn't come close to delivering on its promise of access and opportunity.