crypto Upadate : [15-05-2024] How crypto is creating a new wealth effect ?

"Crypto Wealth and Consumer Spending: Insights from Research"**

Cryptocurrencies have transformed early investors' fortunes, but how does this newfound wealth impact spending behavior? Researchers delved into the phenomenon known as the "wealth effect" to understand how crypto bonanzas influence consumer patterns in the US.

• Wealth Effect and Spending Behavior:

  • The wealth effect refers to increased spending confidence resulting from financial gains.
  • Contrary to windfalls like lottery winnings, crypto wealth hasn't led to extravagant spending on luxury items alone.
  • Over a decade, households' consumption increased by approximately $30 billion due to crypto gains.
  • For every dollar of unrealized crypto gains, about nine cents were spent.
  • Compared to stock-market returns, this spending propensity is higher.
  • However, it's lower than income shocks (e.g., lottery winnings).

• Crypto vs. Traditional Investments:

  • Households treat crypto more like traditional equity investments than gambling.
  • Real estate markets in crypto-friendly areas also benefited from increased home purchases.

• Future Implications:

  • As crypto continues to boom, understanding consumer behavior remains crucial.
  • The recent launch of spot-Bitcoin exchange-traded funds expands the crypto investor base.

• Research Details:

  • Researchers from Northwestern University, Emory University, and Imperial College London analyzed data from 60 million people (2010–2023).
  • They found that 16% of households made deposits to retail crypto exchanges during this period.