Lamborghini Bros no more: Crypto is creating a new wealth effect
How much that extra cash gives them confidence to spend more — a phenomenon economists call the wealth effect — is a hot topic whenever crypto prices are surging. A group of researchers tried to quantify it and determined that crypto bonanzas in the US aren't exactly spent like windfalls from winning the lottery. And so far, the effect has been relatively modest on the $28 trillion American economy. But if the asset class continues to boom, the study provides insight on potential game-changers in consumer patterns.
The new wealth increased households' consumption by about $30 billion in total over a decade, the researchers estimated, with every dollar of unrealized gains leading to about nine cents of spending. While that figure is almost double the marginal propensity to consume when it comes to stock-market returns, it's about one-third that of income shocks such as lottery winnings. Despite all the flexing on social media, it wasn't all blown on Lamborghinis and bling: Some went toward home purchases, boosting real estate markets where crypto is popular.
«If households tend to treat crypto like gambling, then we would expect them to spend their gains in similar ways as lottery winners do,» Darren Aiello, assistant professor of finance at Brigham Young University's Marriott School of Business and one of the authors of the paper, said in an interview. «In contrast, our estimates suggest that household spending out of crypto gains is more like the
