Crypto Herf: Utilizing the Herfindahl Index to Assess Cryptocurrency Investment Preference

Abstract

This paper utilizes the Herfindahl Index to assess university business major student investment preferences regarding cryptocurrency. This paper seeks to determine which cryptocurrency investment options are most desirable and, more importantly, ascertain the reasons for said investments. This paper reviews the real estate-based currency of the French Revolution in order to provide historical lineage for the popularity of cryptocurrency investment today.

1. Introduction

Questions surrounding cryptocurrency have been all over the news in recent years. Is it an investment or is it a possible new mode of currency? Does cryptocurrency have staying power in its challenge to fiat currency, or is it just a passing fancy? Are cryptocurrency proponents simply speculators or are they rational investors responding to real threats in the economy today? These questions led to the development of the survey on which this paper is focused.

This paper will elaborate on the results of an international study of business students seeking to ascertain their rationale for cryptocurrency investment. At the outset of this project, the authors felt that a primary investment rationale for cryptocurrency would be as a hedge against inflation, with a noted weakness of cryptocurrencies being the volatility of the price over time. This led the research team to consider other periods in history when the status quo in currency was challenged.

The present study will proceed as follows. Firstly, we will highlight one challenge to the monetary status quo that is particularly interesting to readers of this journal as it was the world’s first real estate-backed currency. Secondly, we will provide a recent literature review of cryptocurrency usage and investment preference, along with the current relevant literature focused on the Herfindahl Index. Once the literature review has been completed, we will turn to the survey methodology, analysis, and results. Once the survey has been discussed, we will offer concluding thoughts and areas for future research.

This paper will utilize the Herfindahl Index (Herf Score) to assess how concentrated the survey respondents’ answers were in a given survey iteration. While the Herf Score is typically utilized for commercial real estate mortgage-backed security (CMBS) assessment, we are essentially creating the “Crypto Herf” for this paper. The Herfindahl Index is defined as the sum of the squares of the market shares of firms within an industry, where the market shares are expressed as proportions [1]. When calculated, the crypto Herf elucidates the effective number of currencies selected for a certain position in the survey (i.e., first, second, or third investment choice).

2. Babeuf Coin

While some might consider cryptocurrency to be the first serious challenge to the status quo of state-controlled fiat currency, this is certainly not the case. Since the world’s first currencies in Chinese cowries, there have been frequent challenges to the status quo in the use, deployment, and control of currency [2]. While cryptocurrency is challenging the link between state sovereignty and money, there have been other iterations in history where the concepts of challenge and innovation have materialized in currency.

One such historical currency episode that we would like to highlight is the experience of the assignat from the French Revolutionary period. The assignat was ushered in soon after the 18th century revolutionaries took control in France, something made urgent given the dire situation in French coffers regarding holdings of gold and silver after multiple ongoing foreign wars and a spending spree by the royal family who had led the country prior to revolution. In one of history’s great innovations in currency, the revolutionaries led by Maximillian Robespierre and Louis de Saint Just decided that the best solution to the need for hard cash was to proclaim an alternative into existence. One of the results of the French revolution for the new leadership was a massive land grab from the Catholic Church and the nobility who decided to flee the country rather than be subjected to the new government. The assignat was born, which, in French, means “assigned”. The assignat’s initial value was assigned per unit of currency based on the value of the confiscated real estate in possession by the French revolutionary government.

The story of the assignat was relatively short and chaotic. The first issuance of the assignat occurred in December of 1789, and the currency was essentially gone by January of 1796. One of the notable weaknesses at its issuance was that the assignat was created as a new form of money alongside the existing hard specie that was already in existence in France. Gresham’s law of money states that bad money drives out the good. Said in another way, when there are multiple forms of money in circulation, the tendency of the market is to hoard the stronger currency and trade the weaker. The assignat was subject to mass speculation, a problem made more prominent by the ease with which the currency could be counterfeited. There were only a few people in French government who were able to discern the difference between the official assignat and the pirated versions [3], regardless of the “death to counterfeiters” sloganeering on the bills. This lack of an expert eye in spotting counterfeiters led to the mass production of counterfeit assignats and the ensuing mass erosion in the purchasing power of the world’s first real estate-backed money.

At the start of the assignat currency experiment, the new French government said that at no time would there be more than 12 million total francs in issuance. While historians debate the total in circulation given the various counterfeiting regimes both inside and outside of revolutionary France, what is not in question is that the original limit for the assignat was certainly breached and that this happened early.

After the fall of Robespierre and during the reign of the Directory, the Babeuf Plot stands as the last episode of the French Revolution, and this also has a real estate story to tell. Francis-Noel Babeuf, the proto-communist who desired to overthrow the Directory in order to move France to a society based on asset and income equality, spent time in the land registry office of the prior regimes [4]. Given all the machinations with real estate valuation increases in France required to support the increased circulation of the assignat, Babeuf became radicalized during his time as a land surveyor. He was at bird’s eye view of the disparities of those with means and those without. Babeuf came to believe that nature bestowed upon each and every individual an equal right to the enjoyment of property. Babeuf and his conspirators published the Manifesto of the Equals in 1796, hatching an ill-fated plot which materialized after the fall of Robespierre. During that period, Babeuf was prophetic in heeding the future thoughts of composer Kurt Weill when he said “Speak low when you speak, love. Our summer day withers away too soon” [5]. After meeting with his conspirators in secret, the time seemed ripe for change once again in France. After an attempted insurrection, Babeuf was captured, jailed, and executed on 27 May 1797.

Babeuf dreamed of a world that was not meant to be (Figure 1). Income and asset equality justifies state theft of property from one to share with another. The assignat experiment and Babeuf’s participation in land surveying offer an interesting parallel with the innovation coming in the form of cryptocurrency in recent years. In both cases, the existing monetary system was being challenged in favor of something new. The assignat was an attempt to decouple money from gold and silver, while cryptocurrency is an attempt to decouple money from centralized government control. In both cases, the new currency stated maximum future circulation levels, which, in the case of the assignat, proved fatal.

In the pages that follow, we will provide a literature review for the various strands of research deemed relevant to our study; then, we will focus on the implementation of an international survey of university business major students, with the aim of better understanding their reasons and methods for cryptocurrency investments.

3. Literature Review

At the outset of this project, we theorized that there were probably no other examples of the Herfindahl Index being used in relation to cryptocurrency investment preferences. That said, we split up the literature review into three distinct categories:

• Alternate uses for the Herfindahl index;
• Cryptocurrency investment preferences;
• Non-fungible tokens (real estate).

When looking at the current literature concerning the Herfindahl Index (also known as the Herf Score or the Hirschman–Herfindahl Index (HHI)), this index is mostly used in assessing commercial real estate mortgage-backed securities (CMBSs) from a loan concentration standpoint [1]. The model, in its original form as the Hirschman–Herfindahl Index, was created to aid in the assessment of market share concentrations given a proposed merger in a specific industry [7]. Herfindahl then modified the index into the form utilized today when assessing CMBS for the use of environmental economics [8]. Given its concentration orientation, the model can be utilized in a wide variety of areas, as evidenced by the literature review.

Bucciarelli et al. [9] utilized the Herf score to evaluate the criticality of strategic metals. In Ausloos [10], the HHI was utilized as a team-oriented competitive balance indicator for multi-stage cycling. Its sport usage appeared again with Zenga [11], when the Italian football league was analyzed utilizing the concentration measure. Spiegel [12] utilized the HHI to show that it could illustrate the ratio of producer surplus to consumer surplus in macroeconomics. Another use of the Herfindahl index was to study the concentration of medical professionals in an Iranian province [13].

Turning to a more economic focus in the literature, one recent study utilized the Herf Score to assess industrial concentration in rural areas in order to depict a clearer picture of economic development in those areas [14]. Another recent study returned closer to the roots of the original Herfindahl-specific usage of this index, where the diversification in US energy mixes over a sixty-year period was assessed [15].

The last article related to the alternative use of the Herfindahl Index was found in a Brazilian journal, in Portuguese. It represented the closest research resembling the task undertaken here. Monteiro Chagas et al. [16] utilized the HHI to analyze the market structure of Bitcoin by studying the concentration rate of the currency’s transacted volume between countries over a period of time. While this does not delve into specific investment preferences, it does represent a linkage of the Herfindahl Index with cryptocurrency in some form.

Given the vast uses of the Herfindahl Index in the existent literature, we have created an Appendix A of a fun example called the Dukes of Herfindahl, which pays homage to the 1980s television serial “the Dukes of Hazzard”.

Turning to recent research on cryptocurrency investment preferences, most of what we found had been published only over the last few years. Cryptocurrency is certainly a growing area in many ways, including research papers. One recent paper studied the knowledge levels of shoppers utilizing cryptocurrency for purchases [17].

Another research paper provided a study of consumers that utilized cryptocurrencies and their satisfaction levels with their experience [18]. In this particular study, Bitcoin, Tether, and Ethereum were the top three currencies from a usage standpoint, with store and product availability being the primary concerns noted. Among the issues facing the mass adoption of cryptocurrencies are the availability of retail outlets, the high transaction fees, the complexity of payment systems, the underlying price volatility of cryptocurrencies, the long processing delays, and the prevalence of frauds and scams. Some of these themes were present in our survey regarding reasons for or against investment in cryptocurrency.

Other research papers focused more on how environmental social governance preferences impacted investments in cryptocurrencies [19,20]. In both studies, the better the environment for investing in cryptocurrencies, the higher was the preference for this, relative to stocks and bonds.

Levkov [21] and Levkov et al. [22] produced a couple of relevant papers studying consumers who use cryptocurrencies. The attempt is to better understand the socio-economic and demographic characteristics of crypto adopters and their financial behavior. In one study [22], Macedonian crypto adopters were more likely men of a younger age, who were living on their own in urban areas, with good jobs and higher education levels. These investors were primarily passive, which was of interest to our study as we are concerned with why people would choose to invest in cryptocurrency. In the other study [21], cognitive reflection scores, discount rates, and risk preferences were measured to determine cryptocurrency adopters versus non-adopters. Cognitive reflection scores measure a person’s tendency to override an initial, intuitive response in favor of a more deliberate and reflective thought process. Temporal discounting is common in impulse buying that is more short-term oriented in terms of benefits and returns. These papers deal with on-going research rather than offering firm conclusions at the present time.

Another study [23] was focused on university students and their investment preferences in crypto assets. This study focused on how financial characteristics, financial literacy, self-confidence, and risk susceptibility shaped investment preferences and seeing if investment decisions regarding crypto assets were also shaped by these same characteristics. This study is highly relevant for our research, finding that those who invested in crypto assets were predominantly male, had a stronger crypto asset literacy, and a stronger risk-taking profile than the others surveyed. Men were three times more likely to invest in crypto assets then women. The students surveyed in the above study appeared to be an at-large student body rather than the business and finance students surveyed in our paper.

Nyhus et al. [24] also delved into the gender issue in a study of crypto investment intentions as a function of consumer, gender, financial overconfidence, and personality traits. Less than one percent of the sample of Norwegians were willing to invest in crypto assets. Those who were more likely to invest were more likely to be male, less conscientious, and more risk-accepting investors. Somewhat confirming this result was a study of Canadian Bitcoin users [25]. This paper specifically studied the role of gender differences in crypto asset owners. The authors found that most Bitcoin users were male with a low knowledge of crypto assets and a low financial literacy. A further study focused on investigating the relationship between personality traits and investing in the crypto markets [26]. This research concluded that dark personalities such as narcissism, Machiavellianism, and sadism had a positive effect on owning crypto investments.

Finally, Limone et al. [27] utilized sentiment analysis to analyze the effect that news headlines had on the prediction of crypto prices like Bitcoin. They found that there was a link between news headlines and short-run price movements, but, for the purposes of our study, the implication of speculation was more intriguing.

Our final area of the literature reviewed concerned non-fungible tokens. Specifically, we were looking for coverage of real estate tokens. It appears that real estate tokenization is an area for future research, as there were not many articles focusing on this area. Real estate tokens allow for a digital form of ownership that represent title and, potentially, property rights. The ownership is represented in the form of a blockchain-based token. Tokens can be programmed through smart contracts to automatically implement and enforce agreements, including rent distributions to token holders, and compliance requirements [28]. The main obstacle for real estate tokenization at this point is the non-universal connection between property rights in the real world and the digital world. Nascent efforts have commenced regarding selling the digital rights to specific parcels of real estate, which does not entitle the owner to the real property assets. It would seem that this large stumbling block has made this subject less frequently researched from an academic perspective.

One article highlighted three proposed book chapters that discussed fairly high-level technological viewpoints concerning cryptocurrency and real estate transactions [29]. As discussed earlier in this paper, another article explored lessons from the French assignat money experiment in order to determine the main success criterion for currency experiments today [30]. A main finding from this paper is a lesson from history according to which the commoditization of money will spell its end. Money is supposed to be a medium of exchange that is devoid of value in and of itself.

Now that we have completed the relevant literature review, we will discuss the survey methodology.

4. Cryptocurrency Survey Methodology

Since there has been so much investor interest in cryptocurrency, we ventured to create a survey that would investigate the idea behind the basic reason for the investment. Some cryptocurrency investments are rather short-term, while others are more long-term. The initial thought behind the longer-term investment horizon was that it was a diversification play, away from the fiat currencies existing in a given location. For the short-term investor horizon, it was assumed that the main reason for investment was to “follow the leader” or the “fear of missing out”, more speculative approaches to investment.

It was decided that we would survey four distinct sets of business major university students: two in Germany and two in the United States. Further, the German students in this survey would serve as the “expert” respondents, as they were mostly registered in an MBA Information Technology program in Ludwigshafen, Germany. For the US sample, we chose two distinct classes of undergraduate finance majors at Wake Forest University.

Each participant was provided a one-page survey asking “Assume you must invest $1000 (or euro for the German students) in cryptocurrency today and hold it for at least three years. Which would be your top three cryptocurrency investment choices”. After they listed their top three choices, there was an open feedback section as follows: List your reasons for these investment choices below (there were narrative fields present for the respondent to explain, under category headings of unit of account, store of value, medium of exchange, and other rationales). The first three reasons are the historical functions of money definitions. We thought that it would be interesting to delve into how cryptocurrency did or did not meet the traditional rationale for currency purchase.

The survey respondents were all supplied with one article from the website Bank Rate, which listed the twelve most popular types of cryptocurrencies [31]. This appears to be a site that is updated at least annually, as the top cryptocurrencies differed slightly from the 2021 to the 2023 and 2024 samples. When comparing the market cap of the top twelve cryptocurrencies as shared in the article provided to students, the cumulative market cap of the top twelve cryptocurrencies dropped by sixty-two percent between late 2021 and late 2023. One of the top twelve cryptocurrencies from the initial article (Terra LUNA) collapsed entirely by the time the 2023 surveys were conducted. As musician Kurt Vile would say, Terra LUNA was not just gone, it was “way gone” [32]. In both “top twelve” surveys, Bitcoin and Ethereum were the top two cryptocurrencies. By 2023, both of these leading cryptocurrencies had dropped in total market cap by over sixty percent. These results were explicitly shared with the survey respondents in the information provided in preparation of completing the survey.

In total, in our four student surveys conducted between December 2021 and March 2024, we received 110 completed surveys, at an overall response rate of 69%. While gender was not specifically part of the survey questions, since the respondents were students enrolled in classes taught by the lead author, we were able to discern that sixty-four percent of survey respondents were male. We will now discuss the survey results for each of the four iterations. It should be noted that there was no outside research requested nor required for completion of the survey by the respondents.

5. Survey One: December 2021, Ludwigshafen, Germany

For the initial survey of German students in December 2021, we received thirty-five surveys, at a response rate of 73%. Bitcoin and Ethereum both received thirty votes for being one of the three cryptocurrencies that student respondents would select. Bitcoin came in first, with Ethereum second. The third choice, with only nine survey respondents selecting it, was Cardano. Bitcoin received the most first-place votes, while Ethereum received the most second-place votes. Cardano received the most third-place votes. Sixteen other cryptocurrencies received votes somewhere in the respondents’ top three, and there were two respondents who could not identify a third cryptocurrency selection.

The crypto Herf score for this sample was calculated overall at 5.59 (i.e., only six cryptocurrency selections were meaningful from a concentration standpoint). The crypto Herf for first-place votes was 2.25, while the Herf score for the second-place votes was 3.77. The crypto Herf for the third-place votes was 11.45. This helps us illustrate the higher concentration for the first- and second-place currency selections (i.e., Bitcoin and Ethereum) and the wider net cast for the third-place vote currency selections.

It may be helpful to share a sample calculation of the crypto Herf for this first survey result. As mentioned above, both Bitcoin and Ethereum received a total of thirty votes in this survey. Nineteen other cryptocurrencies received at least one vote. From a pure numbers’ perspective, the sequence of votes cast for a specific cryptocurrency is shown here: 30, 30, 2, 9, 2, 4, 3, 2, 2, 2, 4, 1, 1, 1, 1, 1, 4, 2, 1, 1, and 2. This is a total of one hundred and five votes spread over twenty-one cryptocurrencies. When the following Herf score formula was applied, the crypto Herf was calculated at 5.59: $Herf score=1/{\sum }_{i=1}^n{\left({\displaystyle \frac{p_i}{P}}\right)}^2$ An Excel workbook with all calculations is available upon request.

We now turn to the open-ended feedback section of the survey. Once the survey respondents ranked their top three cryptocurrency investment options, they were provided a free form section of the survey to document their reasons for their hypothetical investment options. The traditional three reasons for investing in currency were listed as possible headings in the survey (medium of exchange, unit of account, and store of value), while “other rationale” was listed at the bottom. Some survey respondents chose to segment their answers in this fashion, while others just filled out the “other rationale” section. For this reason, we will highlight specific answers regarding their investment options rather than attempting to glean anything from which predetermined category they chose for their open-ended feedback.

In terms of general thoughts, over half of the respondents listed either speculation or the fear of missing out as the main reason for investing in cryptocurrency. Another fourteen percent of respondents felt that, after the three-year investment horizon prescribed in the initial survey question, there would be far fewer cryptocurrencies and that those left would have a higher market value. Just under ten percent of respondents said that a general reason for cryptocurrency investment would be to diversify their portfolio holdings.

In terms of Bitcoin-specific feedback, the leading reason for investment was that, given the current market cap of Bitcoin, it was less likely to crash to nothing during the investment horizon. Over sixty percent of respondents mentioned this in their open-ended feedback. Almost thirty percent of respondents listed Bitcoin’s use as a means of payment (medium of exchange) as a reason for selection. Other notable rationale for Bitcoin investment included its limited supply, ease of investment, safety, and privacy. The survey respondents noted two main weaknesses with Bitcoin: the volatility of the market price and the higher expense of mining Bitcoin relative to other platforms.

Turning our attention to the open-ended feedback for Ethereum, over thirty percent of survey respondents felt that the current market value would make it less likely for the currency to crash down to nothing. This was a similar thought to that echoed in the Bitcoin feedback. Additionally, thirty percent of respondents cited the smart contract ability on the Ethereum blockchain as a reason for investment. Over thirty percent of respondents also cited Ethereum’s use as a means of payment as a rationale for investment. Over twenty-five percent of respondents liked Ethereum’s blockchain, as it can be interlinked with other coins. Other notable positive thoughts on Ethereum were the ability to purchase non-fungible tokens (NFTs), the ability to burn more coin to counter inflation (a concept certainly tried worldwide with fiat currency, to no avail), and its relative price stability compared to Bitcoin.

The survey respondents noted two main weaknesses with Ethereum: higher transaction fees and its current status as a proof-of-work consensus mechanism vs. proof of stake. In proof of work, miners compete to solve complex mathematical puzzles in order to validate transactions and create new blocks on the blockchain [33,34]. In proof of stake, validators are chosen to create and validate new blocks based on the amount of cryptocurrency that they hold and are willing to “stake” as collateral [35]. Proof of stake requires much less computational power and energy consumption compared to proof of work [36].

For the vast array of other cryptocurrencies chosen, there were some common themes mentioned by the survey respondents in terms of their investment decision rationale. Over twenty-five percent of the respondents said that Tether being tied to the USD would lead to less price volatility as a main investment reason. For Cardano, the survey respondents said that this platform was faster than Bitcoin and Ethereum in almost twenty percent of the surveys submitted. This led over ten percent of the respondents to note that the quicker transactions led to Cardano being a more sustainable cryptocurrency, as well as to it being more scalable. Another fairly common comment showed the rather speculative inclination of many of the respondents. In almost ten percent of the completed surveys, Shiba Inu was mentioned based on both its low price and partial affiliation with Elon Musk (or at least his pet dog!).

Returning to the concept of the crypto Herf, we utilized the information provided from the open-ended feedback to categorize the responses, as discussed above. Then, we used the crypto Herf to essentially convert the frequency distributions into a calculated Herf score. For this first survey sample, the general thoughts provided had a crypto Herf score of 1.85, while the Bitcoin-specific feedback achieved a calculated crypto Herf score of 4.99. This essentially means that, for the Bitcoin open-ended feedback, there were five comments that were important relative to the total comments provided in terms of the concentration of responses given. The crypto Herf score for the Ethereum responses was 7.64, while the other cryptocurrency responses obtained a crypto Herf score of 11.31.

The benefit of the crypto Herf score is that you can utilize the frequency distribution first to categorize the information and then use the crypto Herf score to verify the number of key responses.

6. Survey Two: December 2023, Ludwigshafen, Germany

For the second survey of German students in December 2023, we received twenty-two surveys at a response rate of 46%. This was the lowest response rate of any of the survey iterations. Bitcoin and Ethereum both received twenty-two votes for being one of the three cryptocurrencies that student respondents would select. In other words, every respondent selected them as part of their top three. Bitcoin came in first, with Ethereum second. The third choice, with only eight survey respondents selecting it, was Cardano. Bitcoin received the most first-place votes, while Ethereum received the most second-place votes. Cardano received the most third-place votes. Nine other cryptocurrencies received votes somewhere in the respondents’ top three.

The crypto Herf score for this sample was calculated overall at 4.28. The crypto Herf for the first-place votes was 1.45, while the Herf score for the second-place votes was 2.07. The crypto Herf for the third-place votes was 6.21. This helps to illustrate the higher concentrations of first- and second-place currency selections (i.e., Bitcoin and Ethereum) and the wider net cast for the third-place vote currency selections. Compared to the first survey iteration, there was more concentration (i.e., less currencies selected) for each first-through-third option.

We now turn to the open-ended feedback section of the survey. In terms of general thoughts, over twenty-five percent of the respondents listed either speculation or the fear of missing out as the main reason for investing in cryptocurrency. The same number of respondents listed cryptocurrency as a possible hedge against inflation. Given the mass printing of money by governments in both countries during the COVID pandemic, the second Germany sample noted inflation as a rationale for investing in cryptocurrency [37]. Just under ten percent of respondents said that a general reason for cryptocurrency investment would be to diversify their portfolio holdings.

In terms of Bitcoin-specific feedback, the leading reason for investment was that, given the current market cap of Bitcoin, it was less likely to crash to nothing during the investment horizon. Returning to the idea of an inflation hedge, over eighty percent of survey respondents cited the limited supply of Bitcoin as a reason to invest. With a finite supply, the thought was that devaluation of the purchasing power of Bitcoin was less of a risk than for the predominant fiat currency in place (the EUR). Sixty percent of the survey respondents mentioned this in their open-ended feedback. Over thirty percent of respondents listed Bitcoin’s use as a means of payment as another reason for selection. Other notable rationales for Bitcoin investment included Bitcoin’s ease of investment, its store of value (once again in the backdrop of high inflation for the EUR), the safety and privacy of Bitcoin, and its increasing public and institutional usage. The survey respondents noted two main weaknesses with Bitcoin: the volatility of the market price and the higher mining and transaction fees for Bitcoin relative to other platforms.

Turning our attention to the open-ended feedback for Ethereum, over eighty percent of survey respondents felt that the presence of smart contracts included in the Ethereum blockchain represented a strong case for investment. Almost sixty percent of survey respondents considered Ethereum as a generally stronger platform for decentralized finance (DeFi) relative to other applications. Decentralized finance refers to financial services and applications built on the blockchain technology. Over thirty-five percent of respondents felt that the suitability for non-fungible tokens (NFTs) on the Ethereum blockchain made it a stronger investment choice. Over thirty percent of survey respondents echoed the feedback of the prior German sample in that the proof-of-stake vs. the proof-of-work consensus-building model made Ethereum a more sustainable choice relative to Blockchain.

For the vast array of other cryptocurrencies chosen, there were some common themes mentioned by the survey respondents in terms of their investment decision rationale. Eighteen percent of the respondents felt that Cardano had more recent peer-reviewed papers depicting its current and future innovations. This is an example of why the German students were considered our “expert sample”, as they were more exposed to the current academic literature on the subject of cryptocurrencies than typical finance majors. Still regarding Cardano, over thirty-five percent of the respondents felt that it was more scalable and sustainable than its peers. Over fifteen percent also felt that the prevalence of smart contracts on the Cardano blockchain stood in its favor as an investment alternative, as well as the ability for cross-coin transactions within the Cardano system. Lastly, Binance Coin made its first appearance as a statistically significant open-ended comment in this second survey. Almost ten percent of the survey respondents felt that the platform made things easier for purchasing and trading in other cryptocurrencies.

Returning to the concept of the crypto Herf, for this second survey sample, the general thoughts provided had a crypto Herf score of 3.28, while the Bitcoin-specific feedback achieved a calculated crypto Herf score of 6.39. This essentially means that, for the Bitcoin open-ended feedback, there were six comments that were important relative to the total comments provided in terms of the concentration of the responses given. The crypto Herf score for the Ethereum responses was 5.27, while the other cryptocurrency responses obtained a crypto Herf score of 11.35.

7. Survey Three: December 2023, Wake Forest University, USA

For the third survey overall, we engaged Wake Forest University finance students in December 2023 during an undergraduate real estate finance course. We received thirty-three surveys at a response rate of 82%. Bitcoin received twenty-two votes, and Ethereum received twenty-one votes for being one of the three cryptocurrencies that student respondents would select. Bitcoin came in first, with Ethereum second. The third choice, with only seven survey respondents selecting it, was Tether. Bitcoin received the most first-place votes, while Ethereum received the most second-place votes. Tether received the most third-place votes. Six other cryptocurrencies received votes somewhere in the respondents’ top three, and there were two respondents who could not identify a third cryptocurrency selection.

The crypto Herf score for this sample was calculated overall at 4.59. The crypto Herf for the first-place votes was 1.31, while the Herf score for the second-place votes was 1.59. The crypto Herf for the third-place votes was 6.22. This helps to illustrate the higher concentration for the first- and second-place currency selections (i.e., Bitcoin and Ethereum) and the wider net cast for the third-place vote currency selections. Compared to the first two survey iterations, there was more concentration (i.e., less currencies selected) for each first-through-third hypothetical investment option.

We now turn to the open-ended feedback section of the survey. In terms of general thoughts, the speculative fervor seen in the German surveys appeared for the US iteration. Thirty percent of survey respondents felt that the fear of missing out or simply speculation was a primary reason for investment in cryptocurrencies generally. Interestingly, however, thirty percent of the respondents in this survey felt that they would not want to invest in cryptocurrency at all, and over twenty percent of respondents shared that they felt that they did not know enough about cryptocurrency to invest. These thoughts were not present in the German surveys, which helps further support the notion that the German students were more expert in this subject relative to the Wake Forest students. Over fifteen percent of the students mentioned that cryptocurrency might be a good investment owing to an inflation hedge. The fiat money-printing presses were running during the COVID pandemic in the United States as well as Germany.

In terms of Bitcoin-specific feedback, the leading reason for investment was that, given the current market cap of Bitcoin, it was less likely to crash to nothing during the investment horizon. In fact, over sixty percent of respondents said as much. Returning to the idea of an inflation hedge, over twenty percent of survey respondents cited the limited supply of Bitcoin as a reason to invest. With a finite supply, the thought was that devaluation of the purchasing power of Bitcoin was less of a risk than for the predominant fiat currency in place (the USD). Over thirty percent of the respondents listed Bitcoin’s use as a means of payment as another reason for selection. Other notable rationale for Bitcoin investment included Bitcoin’s ease of investment, its store of value (once again in the backdrop of high inflation for the USD), and the safety and privacy of Bitcoin. Over twenty-five percent of survey respondents noted that the main weakness with Bitcoin was the volatility of the market price.

Turning our attention to the open-ended feedback for Ethereum, almost forty percent of survey respondents felt that a primary reason for investment was the low probability of the cryptocurrency crashing to nothing given its current market capitalization. Over twenty-five percent of respondents cited smart contract operability within Ethereum’s blockchain as a primary reason for investment, as well as the platform being suitable for decentralized finance in its current and projected forms. Over ten percent of survey respondents cited some use as a means of payment and the presence of non-fungible tokens as reasons to invest in Ethereum.

For the vast array of other cryptocurrencies chosen, there were some common themes mentioned by the survey respondents in terms of their investment decision rationale. Over fifteen percent of responders cited Tether being tied to the USD as a primary reason for investment. While the USD has its own problems, it was seen as a means of reducing the volatility of the price of the cryptocurrency relative to others, such as Bitcoin. Just under ten percent of survey responders once again cited Cardano as a more sustainable and scalable model, while Ripple (XRP) deserved mention for its ability to offer cross-border payments. Dodge coin was mentioned by just under ten percent of respondents in a pure speculative play.

Returning to the concept of the crypto Herf, for this third survey sample, the general thoughts provided had a crypto Herf score of 4.69, while the Bitcoin-specific feedback achieved a calculated crypto Herf score of 5.45. This essentially means that, for the Bitcoin open-ended feedback, there were five comments that were important relative to the total comments provided in terms of the concentration of the responses given. The crypto Herf score for the Ethereum responses was 4.86, while the other cryptocurrency responses obtained a crypto Herf score of 13.28.

The other cryptocurrency responses obtained the highest crypto Herf score yet seen in our sample. In a CMBS context, a higher Herf score points to less concentration within a mortgage bond pool, which is generally considered a good thing from a risk perspective. With the crypto Herf, which is tallying responses to a survey, a higher score also means that the responses were less concentrated, but this is less of a good thing if your goal is to determine the responses which were most significant rather than focusing attention on the wide bandwidth of low-frequency responses to the survey.

8. Survey Four: March 2024, Wake Forest University, USA

Our fourth and final survey was conducted at Wake Forest University in an undergraduate real estate finance course in March 2024. We received thirty completed surveys, at a response rate of eighty-eight percent. Bitcoin and Ethereum both received thirty votes for being one of the three cryptocurrencies that student respondents would select. In other words, every survey respondent selected either of those cryptocurrencies for their top three. Bitcoin came in first, with Ethereum second. The third choice, with only nine survey respondents selecting it, was Binance Coin. Tether received eight votes, finishing in a close fourth place. Bitcoin received the most first-place votes, while Ethereum received the most second-place votes. Binance Coin received the most third-place votes. Other than Tether, six other cryptocurrencies received votes somewhere in the respondents’ top three.

The crypto Herf score for this sample was calculated overall at 4.07. The crypto Herf for the first-place votes was 1.30, while the Herf score for the second-place votes was 1.40. The crypto Herf for the third-place votes was 5.11. This helps to illustrate the higher concentration for the first- and second-place currency selections (i.e., Bitcoin and Ethereum) and the slightly wider net cast for the third-place vote currency selections. Compared to the first three survey iterations, there was more concentration (i.e., less currencies selected) for each first-through-third option.

We now turn to the open-ended feedback section of the survey. In terms of general thoughts, the speculative fervor seen in the German surveys appeared for this US iteration. The top general thought of this respondent group was that cryptocurrency could be used as a hedge against inflation. Over ten percent of the respondents cited this as a primary investment reason. Relative to the prior Wake Forest class, much fewer of the respondents cited a lack of knowledge of cryptocurrency or the desire not to invest in the asset class. One notable market change for this final group of survey respondents was the SEC’s decision to approve cryptocurrency ETFs for trading, which could have helped this responder class in overcoming these issues.

In terms of Bitcoin-specific feedback, the leading reason for investment was that, given the current market cap of Bitcoin, it was less likely to crash to nothing during the investment horizon. In fact, over seventy percent of respondents said as much. Returning to the idea of an inflation hedge, over fifty percent of survey respondents cited the limited supply of Bitcoin as a reason to invest. With a finite supply, the thought was that devaluation of the purchasing power of Bitcoin was less of a risk than for the predominant fiat currency in place (the USD). Thirty percent of respondents listed Bitcoin’s use as a means of payment as another reason for selection, along with its store of value. Other notable rationale for Bitcoin investment included lower transaction fees relative to its peers, and Bitcoin’s presence as a unit of account. Some students cited Bitcoin becoming the official currency of El Salvador in this respect. Over ten percent of survey respondents noted that the main weakness with Bitcoin was the volatility of the market price.

Turning our attention to the open-ended feedback for Ethereum, over fifty percent of survey respondents felt that a primary reason for investment was the low probability of the cryptocurrency crashing to nothing given its current market capitalization. Over thirty-five percent of respondents cited smart contract operability within Ethereum’s blockchain as a primary reason for investment, and over forty-five percent of respondents cited the platform being suitable for decentralized finance in its current and projected forms. One third of respondents mentioned that the presence of non-fungible tokens was another reason for investing in Ethereum. Finally, ten percent of survey respondents cited the blockchain’s interlinkage with other coins as a reason to invest in Ethereum.

For the vast array of other cryptocurrencies chosen, there were some common themes mentioned by the survey respondents in terms of their investment decision rationale. Thirty percent of respondents mentioned that Tether being tied to the USD was a reason to invest in that particular cryptocurrency. In over twenty percent of the responses, Binance Coin’s use in purchases and trading in other cryptos was cited as a reason to invest. Solana was seen by over ten percent of respondents as a platform with a scalable blockchain and one with cheaper fees. Dodge Coin and speculation came through in this survey as well, with over ten percent citing this as a reason to invest in the meme coin. Lastly, a few responders mentioned the presence of a cryptocurrency named Sand, which is tied to virtual real estate. This harkens back to the paper’s introduction of the French Revolution and how real estate and currency were linked in that situation.

Returning to the concept of the crypto Herf, for this second survey sample, the general thoughts provided had a crypto Herf score of 2.58, while the Bitcoin-specific feedback achieved a calculated crypto Herf score of 5.55. This essentially means that, for the Bitcoin open-ended feedback, there were five comments that were important relative to the total comments provided in terms of the concentration of the responses given. The crypto Herf score for the Ethereum responses was 5.88, while the other cryptocurrency responses obtained a crypto Herf score of 5.62.

This particular survey exhibited the lowest crypto Herf scores across all categories. This illustrates that the responses for this survey were more similar to each other (i.e., less variability) than the prior survey iterations.

9. Overall Survey Results: Four Surveys Combined

In terms of an overall survey analysis, we received one hundred and ten completed surveys, at a response rate of sixty-nine percent. Sixty-four percent of the respondents were male students. Bitcoin received one hundred and four votes, while Ethereum received one hundred and two votes for being one of the three cryptocurrencies that student respondents would select. In other words, over ninety percent of all survey respondents selected either of those cryptocurrencies in their top three. Bitcoin came in first, with Ethereum second. The third choice, with only twenty-three respondents selecting it, was Cardano. Tether received twenty-one votes to finish in a close fourth place, while Binance Coin came in fifth, with sixteen total votes. Bitcoin received the most first-place votes, while Ethereum received the most second-place votes. Cardano received the most third-place votes. Other than Cardano, Tether, and Binance Coin, seventeen other cryptocurrencies received votes somewhere in the respondents’ top three. Four survey respondents did not select a third cryptocurrency option for hypothetical investment.

The crypto Herf score for the overall sample was calculated at 4.76. The crypto Herf for the first-place votes was 1.59, while the Herf score for the second-place votes was 2.10. The crypto Herf for the third-place votes was 9.70. This helps to illustrate the higher concentration for the first- and second-place currency selections (i.e., Bitcoin and Ethereum) and the wider net cast for the third-place vote currency selections.

We now turn to the open-ended feedback discussion of the overall survey. In order to summarize the overall open-ended feedback, we took a slightly different approach when utilizing the crypto Herf calculation. In order to weed out the various survey responses which were infrequently cited, we decided to only include those responses that at least ten percent of respondents of a given survey had said. For example, the comment regarding the ease of investment in Bitcoin scored over ten percent for both German surveys but did not rank at all for the USA responses. If any item was over ten percent in a given survey, then a similar answer was included wherever present in our four surveys, even if it was a solitary response on one other survey. That way, we were able to group the most frequent responses and obtain totals for those responses in order to calculate our crypto Herf scores. Since this process removes the solitary or relatively infrequent survey responses, what remains is what we refer to as the “main thoughts”.

The following chart summarizes the overall general main thoughts regarding investment in cryptocurrency based on our one hundred and ten completed surveys.

As shown in

Table 1. Overall general main thoughts of survey respondents.

General Thoughts	Hits	%
Fear of Missing Out/Speculation	33	30.0%
Inflation Hedge	14	12.7%
Would not want to invest in cryptocurrency	8	7.3%
Do not know much about Cryptocurrency	6	5.5%
In three years will have fewer cryptos at higher value	5	4.5%
Crypto Herf	66	3.09

, the main comments from this survey regarding the overall thoughts on investment in cryptocurrencies was the fear of missing out or speculation and their use as an inflation hedge. The crypto Herf for the general feedback was 3.09, showing how concentrated the main feedback was as per our completed survey trials.

Regarding the Bitcoin-specific feedback, this is summarized in

Table 2. Overall Bitcoin open-ended main feedback.

Crypto-Specific Thoughts: Bitcoin	Hits	%
Market cap/less likely to crash to nothing	70	63.6%
Limited supply with implied devaluation	44	40.0%
Some use as a means of payment	34	30.9%
Store of value	20	18.2%
Weakness: volatility	14	12.7%
Safety and privacy	13	11.8%
Low transaction fees	9	8.2%
Ease of investment	8	7.3%
Unit of account	8	7.3%
Public/Institutional usage growing	5	4.5%
Weakness: mining is expensive	5	4.5%
Weakness: fees are expensive	3	2.7%
Crypto Herf	233	6.05

. The crypto Herf was higher for Bitcoin relative to the general feedback, but it was still basically concentrated on six comments (crypto Herf of 6.05). The most prevalent comment concerned the market cap of Bitcoin being a strong reason for investment.

Turning our attention to the overall main comments regarding Ethereum, these are summarized in

Table 3. Overall Ethereum open-ended main feedback.

Crypto-Specific Thoughts: Ethereum	Hits	%
Smart contracts	47	42.7%
Market cap/less likely to crash to nothing	38	34.5%
NFTs available	25	22.7%
Platform for DeFi and other applications	20	18.2%
Some use as a means of payment	18	16.4%
Blockchain interlinkage with other coins	17	15.5%
Proof of stake vs. proof of work (more sustainable)	10	9.1%
Unit of account	5	4.5%
Burning more coin to counter inflation	4	3.6%
Weakness: volatility	2	1.8%
Crypto Herf	186	6.37

.

As you can see from Table 3, the crypto Herf score for the Ethereum main open-ended feedback was 6.37, which implies that there were six primary responses of note. Leading the way for the investment rationale for Ethereum was the presence of smart contracts, followed by the existing market cap of Ethereum being unlikely to lead to a crash to nothing (like it happened with Terra Luna, which is “way gone”).

Lastly, we will turn to the other cryptocurrencies’ open-ended main feedback summary. This is shown in

Table 4. Overall main comments on other cryptocurrencies.

Crypto-Specific Thoughts: Other Cryptocurrency	Hits	%
USA Coin/Tether: tied to USD	23	20.9%
Cardano: more sustainable/scalable	16	14.5%
Binance: used in purchases and trading for other cryptos	11	10.0%
Dodge Coin: speculation	9	8.2%
Solana: scalable blockchain, cheaper fees	9	8.2%
Ripple/XRP: cross-border payments	7	6.4%
Cardano: faster transactions than Bitcoin and Ethereum	6	5.5%
Cardano: peer reviewed papers for innovations	6	1.0%
Cardano: smart contracts	5	4.5%
Cardano: interoperability/cross-coin transactions	3	2.7%
Ripple/XRP: faster payments	3	2.7%
Crypto Herf	98	7.80

.

As expected, the crypto Herf was higher for this category, but not as high as you might expect, as we did not include one-off or infrequent responses. This chart shows a crypto Herf of 7.80, with Tether being tied to the USD leading the way. In this chart also lies the basic investment rationale for the cryptocurrencies other than Bitcoin and Ethereum that were mentioned in this survey.

10. Final Thoughts

The results of our survey help confirm that the primary reason of most survey respondents for investing in cryptocurrency was the fear of missing out on either a great investment return or the dawn of a new form of money that will become utilized, distinct from national government-controlled fiat money. A secondary investment consideration for those surveyed was that cryptocurrency could serve as an inflation hedge, given the higher-than-typical inflation levels seen worldwide in recent years. These findings align with the initial theories of the author team as to the primary investment motivations. The “fear of missing out” certainly has an element of speculation, while the inflation hedge would appear to have a more nuanced view of the economic environment today.

The aim of this paper was to further the extent of the literature on the investment preferences and rationale for cryptocurrency. Given the large amount of press that this area has received in recent years, the international survey discussed herein attempted to ascertain what the pertinent investment rationales were for a hypothetical longer-term investment in cryptocurrency. As part of the analysis of the survey, the Herfindahl Index was utilized in order to appropriately group an array of responses into a means to determine which responses were most significant from a repetition or concentration standpoint.

Prior research focused on the role of gender in predicting likely cryptocurrency investors, among other factors. Our survey measured hypothetical intent of cryptocurrency investment, but future studies could more formally utilize gender as an explicitly queried characteristic of the study or focus entirely on respondents who have purchased cryptocurrency. Other studies might juxtapose the challenge that cryptocurrency poses to existent fiat currency with other challenges to monetary raison d’être that have occurred in the past. The purpose of a study such as this would be to further the understanding that the history of money is one of trial and error, with a multitude of successes and failures based on the method and means of the market and the moment in time when the challenges occurred.

In light of this study on cryptocurrency investment preferences of university students, the concept of speculation and herd mentality became apparent. Speculation in and of itself is a key ingredient in the normal operation of markets, for which there is no question. What a study like this helps to further is the idea that speculation for profit or the fear of missing out cannot alone be the sole reason for investment. Humans have historically been characterized as rational beings, and the increased focus on artificial intelligence and herd mentality leads us toward, as [38] would say, a “digital swarm”, with the rational being located further and further in the rear-view mirror. Studies such as this help survey respondents, researchers, and readers base their economic decisions on a path of logic vs. following the whims of the multitude.