Crypto Wealth Fuels Increased Consumer Spending, Inflating Select Housing Markets

Crypto Wealth Fuels Increased Consumer Spending, Inflating Select Housing Markets

Crypto Wealth Fuels Increased Consumer Spending, Inflating Select Housing Markets

A recent study has found that as cryptocurrencies become an important part of Americans’ investment portfolios, their impact extends beyond digital transactions and affects the real estate market and household spending.

The research, initially reported by Bloomberg, examined bank and credit card data from millions of American households to analyze how cryptocurrency wealth spills over into the US economy. The study found that the increase in cryptocurrency wealth leads to a significant growth in discretionary and housing expenditures.

This response to the growth of cryptocurrency wealth exceeds the similar response observed from traditional stock returns. The research report indicates that each dollar of unrealized cryptocurrency wealth growth, on average, brings about a 0.09 dollar increase in marginal propensity to consume (MPC), “exceeding most previous estimates for unrealized stock returns” (stocks at 0.05 dollars, lottery at 0.52 dollars).

Although it is often seen that investors profiting from cryptocurrencies boast on social media, not all the money is spent on Lamborghinis and luxury goods. Some of the funds are used for home purchases, thereby driving up real estate prices in cryptocurrency-popular areas.

Cryptocurrencies fuel housing prices in certain markets

The paper explains how the increase in cryptocurrency holdings is further associated with the shift from renting to homeownership, which in turn drives up local real estate prices. This pattern is particularly evident in areas with higher concentration of cryptocurrency asset investments, with researchers noting, “Counties in California, Nevada, and Utah have the highest per capita value of cryptocurrency.”

The researchers also tracked investors who withdrew at least $5,000 from cryptocurrency brokerage platforms between 2018 and 2023 (with about 90% from Coinbase). The analysis showed that in the year following a large withdrawal, total spending increased by approximately $5,754 compared to the previous year. While mortgage payment expenditure remained unchanged in the six months prior to the large withdrawal, it significantly increased after the withdrawal occurred.

This study further reveals that cryptocurrency investors typically diversify their portfolios, including both digital and traditional assets. Many investors who profit from cryptocurrency earnings reinvest in traditional financial markets, indicating complex financial behaviors and an understanding of overall risk allocation.

The research findings of this report suggest that incorporating cryptocurrencies into the mainstream financial system may have lasting effects on economic policy and individual financial strategies. The authors of the paper conclude:

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