Crypto Wealth Spurs $30B in US Spending, Real Estate Boost

Key Takeaway

• Crypto wealth led to $30 billion in US household consumption over a decade, with every dollar of gains resulting in nine cents of spending.
• Significant portion of crypto gains spent on home purchases, notably boosting real estate in crypto-popular regions like California and Nevada.
• Large crypto withdrawals correlated with increased spending and home buying, with 1 in 20 households purchasing a house after withdrawing $5,000.

Crypto Wealth's Modest Economic Impact

The narrative that early cryptocurrency investors have amassed significant wealth is widespread, yet a recent study reveals that the economic impact of this newfound wealth has been relatively modest on the $28 trillion American economy. Researchers estimated that over a decade, the new wealth increased households' consumption by about $30 billion in total, translating to roughly nine cents of spending for every dollar of unrealized gains. This rate of consumption is notably higher than that associated with stock-market returns but significantly lower than the spending spurred by income shocks, such as lottery winnings. The study, involving authors from prestigious institutions like Brigham Young University, Northwestern University, Emory University, and Imperial College London, utilized data from 60 million people to analyze spending patterns related to crypto wealth.

Housing Market and Big Purchases

Contrary to the lavish spending often flaunted on social media, the study found that a considerable portion of crypto wealth was directed towards more substantial investments, such as home purchases. This trend was particularly pronounced in regions where cryptocurrency is popular, including parts of California, Nevada, and Utah. In 2017, a notable year for Bitcoin, researchers observed that home prices in counties with high crypto wealth grew 43 basis points faster than in less crypto-enthusiastic areas, increasing the median house price by about $2,000 over 12 months. This finding underscores the significant, albeit selective, influence of crypto wealth on local housing markets.

Crypto Startups and Venture Capital Dynamics

The resurgence of the digital-asset industry is mirrored in the evolving strategies of crypto startups and venture capital. An innovative fundraising approach, characterized by open-ended, rolling fundraises, has enabled startups like 0G Labs to rapidly increase their valuations, with 0G Labs raising $35 million at valuations that varied significantly. This method contrasts with traditional venture-capital models and reflects a broader trend of increased investment in the crypto sector, with overall venture investment reaching $2.5 billion in the first quarter alone. The adoption of such fundraising strategies highlights the sector's recovery and the willingness of venture funds to engage with the digital-asset industry's inherent volatility and innovation.

Street Views

• Darren Aiello, Brigham Young University (Neutral on the impact of crypto wealth on consumer spending):

  "If households tend to treat crypto like gambling, then we would expect them to spend their gains in similar ways as lottery winners do... In contrast, our estimates suggest that household spending out of crypto gains is more like the patterns we see from traditional equity investments."

• Jason Kotter, Brigham Young University (Neutral on the role of crypto in a household's portfolio):

  "There is significant debate about the role crypto should play in a household’s portfolio due to its high volatility and nebulous fundamentals."

• Noelle Acheson, author of Crypto Is Macro Now newsletter (Neutral on investor behavior with respect to crypto):

  "For lower-income investors placing less priority on wealth preservation, a crypto allocation could be seen as a make-or-break play — more to gain than to lose... So it makes sense that any gains would be spent on big-ticket items such as a house."