Crypto Crash to Have Little Impact on US Household Wealth, Claims Goldman Sachs

Crypto holdings account for only 0.3 percent of the total wealth of US households, analysts claim.

By Shomik Sen Bhattacharjee | Updated: 20 May 2022 15:15 IST

Photo Credit: Goldman Sachs

Goldman Sachs is downplaying the effect of the crash on US households

Highlights

Total US household wealth topped $150 trillion earlier this year
Crypto holdings account for only 0.3 percent of US households’ net worth
US households own about one-third of the global crypto market

Analysts at banking giant Goldman Sachs claim that even though US households account for a third of the global cryptocurrency market in terms of total investments, the recent crypto market meltdown will have very little impact on the economy. Goldman Sachs economists explain that the overall US household net worth stood at $150 trillion (roughly Rs. 1,16,31,27,920 crore) as per last year's data. On the other hand, the crypto market has lost a $1 trillion (roughly Rs. 77,53,395 crore) valuation over the last year. Thus, the economists believe that this is still “very small” to the entire US household net worth.

Bloomberg quoted a study by Goldman Sachs showing that every Dollar lost in stocks led to a reduction of 3 cents in spending. This five-month sell-off in 2022 means over a $300 billion (roughly Rs. 23,26,265 crore) spending cut. As per the Goldman Sachs study, stocks constitute 33 percent of the total US household net worth by the end of 2021. On the other hand, crypto accounted for only 0.3 percent.

"These patterns imply that equity price fluctuations are the main driver of changes in household net worth, while cryptocurrencies are only a marginal contributor," Goldman Sachs economists wrote.

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Moreover, Goldman Sachs doesn't expect the ongoing market correction to cause a major spike in labour force participation among young men, the demographic group that is the most likely to suffer from declining prices.

The banking giant adds, "...cryptocurrency investors skew younger and male, a demographic group whose labour force participation has generally been less affected by wealth fluctuations."

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That said, the bank does believe that more people will be incentivised to return to work due to tighter financial conditions, also noting that the decline in crypto prices will have 'limited scope' in that regard since it makes up for such a small percentage of the average household net worth.

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Further reading: Cryptocurrency, Goldman Sachs, Crypto crash