During the pandemic, the cryptocurrency market has grown rapidly, the ease of purchasing digital assets, and the high volatility of their prices may have attracted individual investors. Now, however, the cryptocurrency market has fallen on hard times, comparable to the dot-com bubble bursting or the collapse of Lehman Brothers. How could this affect individual investors in the US?
According to Goldman Sachs estimates, U.S. households may own about a third of the global cryptocurrency market. However, that doesn't mean that the recent declines can have a significant impact on the economy and individual investors. The overall value of households was $150 trillion last year, and the value of the cryptocurrency market, on the other hand, fell from about $3 trillion to $1.3 trillion, according to GS data.
With the value of cryptocurrencies and the stock market falling, economists and market watchers are trying to estimate how much this could hit the American consumer. One study found that every dollar lost in stocks leads to a 3-cent reduction in spending. After a five-month bump, that means a loss of about $300 billion this year. The impact on Americans' wealth is receiving special attention because consumer spending accounts for 70 percent of U.S. GDP and many on Wall Street are predicting that the economy could soon slip into recession, according to Goldman Sachs.
Goldman Sachs says that the cryptocurrency holdings account for just 0.3 percent of household net worth. That's not much compared to stocks, which accounted for about 33 percent at the end of 2021. Their recent price declines have likely reduced household net worth by about $8 trillion. Thus, it is stock price movements that may be a more significant driver of consumer behavior and reverse wealth effect than cryptocurrencies, which are a niche market in light of this data.
Daniel Kostecki, Director of the Polish branch of Conotoxia Ltd. (Forex service)
Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.
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