Dr Marta Baraniak from the Faculty of Management at the University of Lodz comments.
Cryptocurrencies have become extremely popular over the last decade. Returns of millions per year can turn your head around. And if we add the encouragement of YouTubers and assurances of a high and certain profit to it, we can be sure of the involvement of "zoomers" who expect a quick profit. In addition, investing in cryptocurrencies (and not only) is now extremely simple – just install the application on your phone, register and top up your wallet with the appropriate amount of funds. For example, 25% of Bitpanda users are "zoomers". This shows how much young people like this form of investing capital.
NFTs and play-to-earn games
Generation Z also got to like NFTs, i.e. non-fungible tokens in the form of a photo, a gif or a text file. Why? First of all, it's about accessibility. In addition, according to a report conducted by NRF in cooperation with IBM, over 40% of "zoomers" want to take an active part in product design. Generation Z also wants to be part of some community (usually virtual), and NFTs enable them to do so. An example is Bored Ape Yacht Club NFT, an elite club of cartoon monkeys. The most popular of them can cost up to several million dollars.
Many may wonder where young people get funds for digital investments from. One possibility is play-to-earn games such as Axie Infinity, which had 2.7 million active users at the peak of its popularity (01/2022). Currently, the most popular are FindOut and Tamadoge, although the changeability of trends in this segment is very dynamic. What is the play-to-earn model? It's gaming combined with cryptocurrencies. Some games are paid and some allow you to start for free. Players earn tokens, which are then exchanged for NFTs.
For many young people representing Generation Z, games are a passion without which they cannot imagine a normal day. The play-to-earn model gives you the opportunity to combine your passion with the option of earning money. NFTs and cryptocurrencies are an additional introduction to the world of the metaverse, where "zoomers" can purchase luxury goods of their dreams and create a new virtual identity. This world interests them much more than their real life. The most popular brands, such as H&M, Armani and Coca-Cola, know this and have their stores and boutiques in the metaverse.
Watch out for traps
For many outside of Generation Z, digital finance can be simply terrifying. This is mainly due to lack of knowledge and the fear of the unknown. It should be remembered that "zoomers" actually grow up in virtual reality and participate in its development by using available methods and tools. However, you can't forget about online pitfalls.
The Clue PR report indicates that YouTube and Facebook constitute the primary source of information for more than 90% of young people from Generation Z. Unfortunately, these places are not controlled in any way in terms of the quality and reliability of the provided information. Channels of popular YouTubers who promote crypto-investments are sometimes followed by millions of users. However, they are very often sponsored by cryptocurrency exchanges and omit information about any risk. The situation worsens when a novice investor manages to make a high profit on the first trade. This reassures them of having all possible skills and competencies necessary for trading and reduces their risk aversion. And this, in turn, increases the likelihood of a high loss on subsequent trades. Unfortunately, this often takes the form of addiction.
Recent events on the cryptocurrency market only prove how sensitive this market is: the bankruptcy of the FTX cryptocurrency exchange, the collapse of Silvergate Capital Corp. and Signature Bank, as well as a drastic decline in NFTs trading – none of the young investors could have been prepared for the consequences of these events. The development of virtual reality leaves no illusions – digital finance will stay with us for good. The basic task of schools and universities is to provide young generations with knowledge in the field of assessing the quality and reliability of information sources. The acquisition of this skill by "zoomers" will allow them to avoid basic mistakes resulting from ignorance. Generation Z needs to be aware that the "expert" with a million followers is not always right.
Author of the commentary: Dr Marta Baraniak, Department of Corporate Finance Management, University of Lodz