The Efects of Cryptocurrency Wealth on

Household Consumption and Investment

FDIC Research Symposium

Darren Aiello Scott R. Baker Tetyana Balyuk

BYU Northwestern Emory

Marco Di Maggio Mark Johnson Jason Kotter

HBS BYU BYU

March 2024
Motivation: Crypto Investing has Exploded but Volatility Remains High

BTC 1-Year Volatility vs Other Assets

Crypto Market Cap

1
How does crypto wealth afect household

consumption and investment?

1
Empirical Questions

• Does crypto wealth afect household consumption and investment?

– How does cryptocurreny ft into household investment portfolios relative to other

asset classes?

– How does MPC out of crypto wealth compare to that of

(1) stock market gains, (2) income shocks, (3) lottery winnings

• Does crypto wealth afect investment in real assets (e.g., housing)?

– Do fuctuations in crypto wealth have spillovers on local economy?

Challenge: Anonymous nature of public blockchains

2
This Paper

We use bank transaction data from millions of U.S. households to:

1. Characterize retail crypto investing

2. Examine the efect of crypto wealth on consumption and investment behavior

3. Zoom in on the efect of crypto wealth on housing spending

4. Document spillovers of crypto wealth to the local economy

Data Validation Geographic

3
Key Results

1. Retail crypto investors hold crypto as one part of a broader portfolio

– Crypto users are wealthier and are active equity investors

2. Marginal propensity to consume (MPC) out of crypto wealth is about 2X equity

– But around 1/3 MPC out of one-time income shocks

3. Households use crypto wealth, in part, to purchase housing

– ↑ housing spending after crypto withdrawal

– ↑ new homeownership

4. As a result, crypto wealth shocks spill over into local house prices

– Identifcation: 2 quasi-natural experiments

4
Contribution

• Literature on crypto investing

– Survey-based data (Benetton & Compiani 2022), on-chain trading (Kogan et al

2022, Divakaruni et al 2021, Makarov & Schoar 2021), or of-chain aggregated data

(Chava et al 2022)

– This paper: Fuller picture of crypto investors, their consumption and investing, and

how crypto wealth spills over to real economy

• Literature on consumption efects of investment wealth

– MPC out of capital gains & dividends (Hartzmark & Solomon 2019, Di Maggio et al

2020), housing wealth (Aladangady 2017, Berger et al 2018), income shocks

(Agarwal & Qian 2014, Baker 2018)

– This paper: Consumption response to new asset class

• Literature on real efects of regional wealth shocks

– Equity wealth spillovers to local consumption (Chodorow-Reich et al 2021) or house

values (Hartman-Glaser et al 2018)

– This paper: Efects of crypto gains on local house price appreciation 5
What does the typical crypto user look like?

5
Average Monthly Income/Spending for Crypto vs Non-Crypto Users

Variable

Total Income

Total Spending

Traditional Investment

Crypto Investment

Crypto Gains

Percent of Spending:

Cash/Check

Entertainment/Travel

Mortgage

Restaurants

Crypto Users Non-Crypto Users Diference

7,467

4,979

-260

74

61

16.8

7.6

8.8

10.2

6,648

4,738

-152

0

0

19.4

6.5

8.2

9.1

819***

241***

-107***

74***

61***

-2.7***

1.1***

0.7***

1.0***

Crypto users:

• have higher income

• invest more in traditional

brokerages

• have higher discretionary

spending

See our companion paper, “Who

Invests in Crypto? Wealth, Financial

Constraints, and Risk Attitudes”

SummaryStats Full Spending

6
Median Annual Investment by Asset and Income Class

• Crypto users have substantial exposure to traditional post-tax investments

• BUT: Distribution of crypto investing somewhat more even

7
How do crypto gains afect household consumption?

7
OLS estimates of the MPC out of crypto wealth are large

OLS

(1)

Total Quarterly Spending

Avg. Quarterly Crypto Gains 0.114***

Avg. Quarterly Crypto Gains

× Covid Indicator

Avg. Quarterly Crypto Gains

× Post-Covid Indicator

Lagged Income Control X

Household FE X

State × Quarter FE X

(5.97) • MPC out of $1 of

crypto gains is $0.11

• Identifed? Spending

might drive crypto

investments . . .

Sample All Households

Observations 3,274,658

Adjusted R2 0.676

• Solution? An

instrument!

8
Passive Gains Instrument: Empirical Strategy

• Instrument for Crypto Gains with:

BTCq BTCWealthi,q−4 PassiveGainsi,q = CryptoWealthi,q−4 × − 1 × BTCq−4 CryptoWealthi,q−4

ETHq 1 − BTCWealthi,q−4 + − 1 ×

ETHq−4 CryptoWealthi,q−4

• Crypto Wealth 1-year prior × allocation-weighted Bitcoin and Ethereum return

– Crypto gains that the household would have experienced if there were no deposits or

withdrawals over the year

• Estimate the efect of crypto gains on changes in future consumption using 2SLS

– Passive Gains strongly predict actual gains: F-stat ≈ 2,500

9
2SLS estimates of the MPC out of crypto wealth are smaller, but still large

Total Quarterly Spending

OLS

(1)

2SLS

(2)

2SLS

(3)

2SLS

(4)

2SLS

(5)

Avg. Quarterly Crypto Gains

Avg. Quarterly Crypto Gains

× Post-Covid Indicator

Avg. Quarterly Investment Gains

Lagged Income Control

Household FE

State × Quarter FE

Sample

Observations

Adjusted R2

0.114***

(5.97)

X

X

X

All

Households

3,274,658

0.692

0.0879***

(4.43)

X

X

X

All

Households

3,274,658

0.082

0.0729***

(3.08)

0.0325

(0.79)

X

X

X

All

Households

3,274,658

0.082

0.0678***

(2.95)

X

X

X

Crypto

Investors

569,102

0.081

0.0487***

(4.45)

X

X

X

Non-Crypto

Investors

2,705,537

0.081

• MPC out of $1 of

crypto gains is $0.09

• Roughly 2X MPC

out of equity wealth

• But < 3

1 MPC out of

stimulus/lotteries

Weak ID KP F Stat 11,526 3,383 2,847 9,543 10
MPCs from crypto gains and losses

Total Quarterly Spending

2SLS

(1)

2SLS

(2)

2SLS

(3)

Avg. Quarterly Crypto Gains 0.084**

(2.25)

0.114***

(2.81)

0.0587*

(1.76)

Avg. Quarterly Crypto Gains

× Negative Gains Indicator

0.0575

(0.98)

L X X X

Household FE X X X

State × Quarter FE X X X

Sample Non-Covid,

Positive Gains

Non-Covid,

Negative Gains

Non-Covid

Observations 3,274,658

Adjusted R2 0.080

3,170,985

0.082

3,209,457

0.082

Weak ID KP F Stat 3,122 60,527 2,556

agged Income Control

• First two columns

exclude quarters with

negative or positive

gains, respectively

• No signifcant

diference between

the two, though

weak evidence for

higher MPC from

losses

11
MPC split by net savings

Total Quarterly Spending

2SLS

(1)

2SLS

(2)

2SLS

(3)

Avg. Quarterly Crypto Gains 0.139***

(3.12)

0.0494***

(2.39)

0.141*

(3.15)

Avg. Quarterly Crypto Gains

× High Savings

-0.0896*

(-1.83)

Lagged Income Control X X X

Household FE X X X

State × Quarter FE X X X

Sample Low

Savings

High

Savings

All

Households

Observations 1,627,832 1,646,815 3,274,647

Adjusted R2 0.101 0.072 0.082

Weak ID KP F Stat 3,601 8,094 1,801

• MPCs higher for relatively

constrained households

($0.14 vs $0.05)

• Similar behaviour for imputed

equity gains ($0.10 vs $0.03)

12
What do households consume following crypto withdrawals?

Event study of large (>$5,000) withdrawals

12
Large Crypto Withdrawals are Broadly Spent

Annualized Monthly Coefcient On Annualized Monthly Coefcient On

Spending Post First Crypto Spending Post First Crypto

Category Withdrawal >$5,000 Category Withdrawal >$5,000

Total 5,753*** Groceries 177.9**

(4.68) (2.22

Auto 211.4** Insurance 173.4**

(2.50) (2.21)

Cable/Telecom -56.95 Medical 32.00

(-1.40) (0.64)

Cash/Check 1,833* Mortgage 500.7**

(1.85) (2.27)

Charity 11.75 Rent -64.94

(0.36) (-0.61)

Education -54.46 Restaurants 395.3***

(-0.32) (3.81)

Entertainment 395.4** Utilities 92.67*

/Travel (2.56) (1.71)

General Merchandise 2,105***

(6.82)

*Separate account and year fxed efects included Withdrawals through Time

• Much of this spending is consistent with purchasing a new house 13
Event Study Estimates of Efect of Crypto Withdrawals

Mortgage Spending ($) Rent Spending ($)

• Efect on mortgage spending while no efect on rent

• No pre-withdrawal trends in mortgage spending

14
Crypto Withdrawals and Housing Consumption

Monthly Mortgage New

Spending, Annualized Homeowner

OLS OLS OLS OLS

(1) (2) (3) (4)

Post First Crypto Withdrawal >$5,000 500.7** 0.0477***

(2.27) (5.98)

Post First Crypto Withdrawal >$10,000 597.2** 0.820***

(2.01) (6.87)

Lagged Income Control X X X X

Household FE X X X X

Year FE X X X X

Observations 38,471 20,177 38,476 20,180

Adjusted R2 0.714 0.715 0.243 0.261

• ↑ prob of new homeownership by 4.8 pp, or 45% relative to mean

15
Aggregate efect of crypto wealth on local housing markets

Two identifcation strategies

15
2017 Bitcoin Runup Dif-in-Dif: Setting

• Massive Bitcoin returns during 2017

• BTC crosses $10,000 for the frst

time

• Peak year-over-year return of over

2,000%

• Generated large crypto gains for early

adopters, many of whom cashed out

Wealth by County Crypto Withdrawals

Bitcoin and Nasdaq Equity Withdrawals

16
2017 Bitcoin Runup Dif-In-Dif: Empirical Strategy

Idea: Counties that had early crypto

exposure experienced a large crypto wealth

shock during the 2017 BTC Runup

• Compare house prices in counties with

high pre-runup crypto wealth to

counties with low pre-runup crypto

wealth

• Before and after BTC runup begins

(May 2017)

17
2017 Bitcoin Run-Up Dif-In-Dif: County-Month Housing Prices

County-Month County-Month

Log Median Median

House Price House Price

OLS OLS OLS OLS

(1) (2) (3) (4)

High Crypto Wealth County 0.00426*** 2005.3***

× Post Run-up (2.44) (3.49)

Log County Crypto Wealth 0.00138** 772.5***

× Post Run-up (2.18) (3.43)

Per Capita Equity Gains X X X X

12-Month Lagged Outcome X X X X

County FE X X X X

Month FE X X X X

Observations 18,072 27,747 18,072 27,747

Adj. Within R2 0.333 0.267 0.466 0.521

House prices in high crypto

wealth counties grow 43 bp

faster than low crypto wealth

counties

• Or roughly 12% of s.d. in

2018 house price growth

. . . and the median house

price increases by about

$2,000 in 12 months

18
Passive Gains Instrument: Empirical Strategy

• We extend the analysis to the entire sample using a 2SLS strategy

– Similar to the household-level MPC analysis

• Estimate the efect of 12-month county crypto gains on changes in house prices

• Instrument for county-level crypto gains with:

CryptoWealthc,t−12 BTCt BTCWealthc,t−12 PassiveGainsc,t = × − 1 ×

Householdsc,t−12 BTCt−12 CryptoWealthc,t−12

ETHt 1 − BTCWealthc,t−12 + − 1 ×

ETHt−12 CryptoWealthc,t−12

– Scaled crypto wealth 12-months prior × Crypto Return over the year, weighted by

county’s portfolio allocations

19
Efect of Crypto Gains on Housing Prices

OLS 2SLS 2SLS 2SLS 2SLS

(1) (2) (3) (4) (5)

Per Capita Crypto Gains, 0.194*** 0.192** 0.156** 0.162** 0.147**

Prior 12-Months (2.72) (2.39) (2.17) (2.15) (2.17)

Per Capita Equity Gains, 0.511 0.481 0.491

Prior 12-Months (1.33) (1.31) (1.31)

∆ House Price Index, Prior 3-Months X X X X X

Income Growth, Per Capita X X

Month FE X X X X X

County FE X X X X X

Instrumental Variable Passive Gains Excess

Passive Gains

Observations 179,681 179,681 179,681 169,499 169,499

Adj. Within R2 0.293

Weak ID KP F Stat 1,276 1,215 1,130 633

Change in House Price Index, Next 3 Months

• $1 crypto gains per household leads county house prices ↑ $0.15 over 3 months

• A 1 s.d. increase in per household crypto gains leads to a $500-$600 dollar higher

house price over next 3 months, or 20 to 30bps increase from mean 20
Conclusion

Summary of fndings

• Crypto is one part of a larger investment portfolio for typical retail investor

• The MPC out of crypto wealth is 2X MPC out of equity wealth, but 1

3 the MPC

of one-time income shocks

• Households use crypto gains to increase housing spending, leading shocks to

crypto wealth to spill over into local house prices

21
Conclusion

Bottom line

• The spillover of crypto into other fnancial assets has so far been limited

• e.g., FTX collapse had limited ‘contagion’ to traditional banks and investment frms

• However, shocks to crypto wealth spill over into local house prices and

consumption

• Consequently, distribution of crypto wealth can have a meaningful impact on the

real economy

22
Thanks!

Additional feedback? Email me at markjjohnson@byu.edu

22
Appendix

22
Data

Data Provider

• Data provider is a large fnancial aggregation and analytics frm

• Provider contracts with banks/FinTechs to aggregate transactions

– Avoids active selection of users into the data

Transaction Data

• We see bank and credit card transactions for 60 million households (not only

crypto users) & billions of transactions

– Good coverage from 2014–2023

• We observe transaction date/amount, category, merchant information, and

residence (city)

Back 23
Data Validation

Note: Solid → Census Retail Sales Survey, dashed → transaction data

• Trends in transaction data match Census surveys (corr > 90%)

Back

24
County Weights by Population vs. Transaction Users

Back 25
Summary Stats A + B

Variable Obs. Mean Std. Dev. Q5 Q25 Q50 Q75 Q95

Panel A: MPC Household-level Sample

Total Quarterly Spending 102,730 15,392 12,541 3,923 7,707 12,244 19,062 36,674

Total Quarterly Income 102,730 21,739 15,029 5,095 10,775 17,915 28,531 52,004

Conditional on Crypto User

Avg. Quarterly Crypto Gains 16,202 310 1,325 -23 -1 2 59 1,503

Crypto Exit 16,202 0.091 0.288 0 0 0 0 1

In Final User Period

Crypto Wealth 16,202 21,797 146,072 0 171 1,024 6,225 74,727

Cumulative Crypto Deposits 16,202 18,885 42,795 81 618 3,000 14,033 105,120

Cumulative Crypto Withdrawals 16,202 10,651 105,586 0 0 0 1,776 37,267

Panel B: Household-level Withdrawal Event Sample

Total Monthly Spending, Annualized 27,286 84,838 88,145 6,283 31,905 61,325 106,760 239,698

Lagged Monthly Income 27,286 11,421 8,919 302 5,190 8,999 15,517 30,008

New Homeowner Indicator 27,286 0.108 0.311 0 0 0 0 1

Crypto Withdrawal >$5,000 1,339 15,475 19,592 5,224 6,500 9,660 15,670 49,170

Wealth Skewness Back

26
Summary Stats C + D

Variable Obs. Mean Std. Dev. Q5 Q25 Q50 Q75 Q95

Panel C: County-level Dif-in-Dif Sample

Median County House Price 27,837 183,572 118,895 71,722 109,845 154,498 219,394 393,522

Log(Median County House Price) 27,837 12.0 0.5 11.2 11.6 11.9 12.3 12.9

Annual House Price Growth 27,837 4.9 4.0 -1.2 2.6 4.9 7.3 11.1

Log(County Crypto Wealth per capita, Dec. 2016) 27,837 2.3 1.5 0.0 1.2 2.3 3.2 4.8

Panel D: County-level 2SLS Sample

Median County House Price 151,856 188,758 128,278 69,360 110,112 155,931 228,020 411,153

3-month Change in Median County House Prices 151,856 4,508 6,337 -623 1,359 2,960 5,680 14,793

6-month Change in Median County House Prices 143,939 8,807 11,457 -367 3.034 5,977 10,906 27,501

Annual per capita County Crypto Gains 151,856 431 3,336 -144 3 41 241 1,834

Annual per capita County Equity Gains 151,856 2,948 9,160 -384,962 508 1,365 3,211 1,079,786

Back

27
Distribution of Investment Wealth

Back

28
Growth in Crypto Users over Time

• Surges in new users across geographies coincide with price spikes in major

cryptocurrencies Back

29
Full Monthly Spending for Crypto vs Non-Crypto Users

Variable Crypto Users Non-Crypto Users Diference

Percent of Spending:

AutoFuel 5.2 4.7 0.5***

Cable/Telecom 6.0 6.2 -0.2***

Cash/Check 17.8 21.1 -3.2***

Charity 0.5 0.5 0.1

Education 0.4 0.3 0.1

Entertainment/Travel 7.4 6.3 1.1***

General Merchandise 21.6 21.4 0.2

Groceries 8.8 9.0 -0.2**

Insurance 4.9 5.1 -0.2***

Medical 1.8 2.1 -0.2***

Mortgage 9.9 9.2 0.7***

Rent 2.1 1.7 0.4***

Restaurants 9.7 8.5 1.1***

Utilities 3.8 3.9 -0.1*** Back 30
Defnition: Crypto Gains

For each household, average quarterly crypto gains is

AvgCryptoGainsi,q = 1 CryptoWealthi,q − CryptoWealthi,q−4 + NetWithdrawi,q−3→q , 4

×

– Crypto gains includes both realized and unrealized changes in crypto wealth

– We examine the efect of crypto gains on household investment

– For a sample of crypto and non-crypto users, estimate:

Investi,q = β AvgCryptoGainsi,q + αi + δs,q + Γ Xi,q−1 + εi,q.

αi = household FE, δs,q = state by year-quarter FE, and Xi,q−1 includes lagged income

CryptoWeath Back

31
We Measure Crypto Wealth Based on Transactions With Crypto Exchanges

• Random sample of 152,693 households from top 10% of users by quality rank

• We assume deposits to crypto exchanges are invested in a basket of Bitcoin and

Ether weighted by relative market cap (robust to alternatives)

• Track crypto wealth as:

CryptoIndexi,d CryptoWealthi,d = CryptoWealthi,d−1 × + Depositsi,d − Withdrawalsi,d CryptoIndexi,d−1

CryptoWealthi,t = CryptoWealthi,d | max d

d∈t

where CryptoIndexi,d consists of Bitcoin and Ether weighted by the household’s

asset mix on the prior day Back

32
Cryptocurrency Assets Held Through Coinbase

Back 33
Crypto Adoption and Crypto Portfolio Activity A

Crypto Deposits over Time Crypto Withdrawals over Time

Back

34
Crypto Adoption and Crypto Portfolio Activity B

New Crypto Users over Time Net Crypto Deposits over Time

Back

35
Large Crypto Withdrawals Over Time

Back 36
Crypto County Wealth

Back

37
Crypto Withdrawals During the Run-up

Back 38
Bitcoin and Nasdaq Rolling 12-month Returns

Back 39
Equity Investment Withdrawals around Bitcoin Run-up by Crypto Wealth

Back 40
Efect of Crypto Gains on Housing Prices—2SLS Breakdown

Per Capita Crypto Gains,

Prior 12-Months

0.0711**

(2.42)

Passive Gains

Excess Passive Gains

Per Capita Equity Gains, 0.0130**

Prior 12-Months (2.02)

∆ House Price Index, Prior 3-Months X

Month FE X

County FE X

Observations 162,654

Adj. R2 0.759

Change in House

Price Index,

Next 3 Months

OLS

(1)

Change in House

Price Index,

Next 3 Months

RF

(2)

Per Capita

Crypto Gains,

Prior 12 Months

FS

(3)

Change in House

Price Index,

Next 3 Months

RF

(4)

Per Capita

Crypto Gains,

Prior 12 Months

FS

(5)

0.0756** 1.032***

(2.12) (37.29)

0.0132** 0.00333

(2.03) (1.24)

X X

X X

X X

162,654 162,654

0.759 0.909

0.0732** 1.116***

(2.14) (37.06)

0.0134** 0.00459

(2.03) (1.47)

X X

X X

X X

162,654 162,654

0.759 0.910 41
Efect of Crypto Gains on Housing Prices—Lagged IV

Change in House Price Index Change in House Price Index Change in House Price Index

Next 3 Months Next 6 Months Next 3 Months Next 6 Months Next 3 Months Next 6 Months

2SLS 2SLS 2SLS 2SLS 2SLS 2SLS

(1) (2) (3) (4) (5) (6)

Per Capita Crypto Gains, 0.0372 0.139* 0.0669* 0.205* 0.0573* 0.179*

Prior 12-Months (1.50) (1.77) (1.85) (1.90) (1.71) (1.80)

∆ House Price Index, Prior 3-Months X X X X X X

Month FE X X X X X X

County FE X X X X

Instrumental Variable Lagged Passive Gains Lagged Passive Gains Lagged Excess Passive Gains

Observations 133,399 125,505 133,387 125,498 133,387 125,498

Weak ID KP F Stat 147.7 118.3 198.3 158.4 193.4 165.8

Back

42
Net Deposits (Withdrawals) by Adoption Cohort

• Large variation in trading behavior during price run-ups

Back 43
Share of Income Spent on Crypto Investments (by Investors)

• Share of income invested by crypto investors peaks around 3-4%

44