Written by Isabelle Lee Translated by Yangz, Techub News   It is common for investors who invested in cryptocurrencies early and received huge returns to show off their wealth on social media.   Whenever the price of cryptocurrencies soars, how much consumption confidence the additional gains can bring to investors (economists call it the wealth effect) becomes a hot topic. Some researchers have quantified it and found that in the United States, the profits brought by the surge in cryptocurrency prices are not simply spent like winning the lottery. So far, such gains have had a relatively small impact on the US $28 trillion economy, but if the asset class continues to thrive, this research will provide insights into potential game-changing consumption patterns.   According to the researchers' estimates, the new wealth brought by investing in cryptocurrencies has driven a total of about $30 billion in household consumption in ten years, with each dollar of unrealized gains leading to about 9 cents in spending. This figure is almost twice the marginal propensity to consume of stock market gains, but only one-third of the consumption effect of unexpected wealth such as lottery winnings. Although people show off their wealth on social media, not all the money is spent on Lamborghinis and luxury goods. Some of the funds actually flow into the real estate market. “If households tend to treat cryptocurrency like gambling, then we would expect them to spend their proceeds in a manner similar to how they would if they won the lottery,” Darren Aiello, an assistant professor of finance at Brigham Young University’s School of Business and one of the study’s authors, said in an interview. “In contrast, our research shows that household spending from cryptocurrency proceeds more closely resembles the patterns we see with traditional equity investments.”The topic may attract more attention from economists after the launch of a bitcoin spot ETF this year expanded the range of potential cryptocurrency investors. The researchers, including those from Northwestern University, Emory University and Imperial College London, submitted a survey paper to the Federal Deposit Insurance Corporation in March. They surveyed 60 million people from 2010 to 2023, covering millions of bank, credit and debit card transactions, to analyze the impact of cryptocurrency wealth on the U.S. real economy. The survey found that 16% of the surveyed households had deposited money into retail cryptocurrency exchanges at some point in the decade before 2023. It is not easy to establish a connection between spending and cryptocurrency investment. Some investors invest in the asset class hoping to profit from savings rather than decide to spend lavishly after receiving a cryptocurrency windfall. Therefore, the researchers isolated the portion of household cryptocurrency gains driven by long-term purchases and holdings rather than recent investments in order to directly measure the causal impact of cryptocurrency on spending. “There is a lot of debate about what role cryptocurrencies should play in household portfolios, given their high volatility and murky fundamentals,” Jason Kotter, a co-author of the paper and assistant professor of finance at Brigham Young University, said in an interview.   For Noelle Acheson, author of Crypto Is Macro Now, the insights into how cryptocurrencies appeal differently to different types of investors are less interesting than the macroeconomic implications. “For lower-income investors who are less focused on wealth preservation, an allocation to cryptocurrencies may be seen as a make-or-break play,” she said. “So it makes sense to put any gains toward a big-ticket item like a house.”   Real Estate Market   While much of the growth in cryptocurrency wealth has gone toward discretionary spending, a significant portion has flowed into local real estate markets, especially in California, Nevada, Utah and other areas where cryptocurrencies are hot, the researchers found.   To get their numbers, the researchers looked back to 2017, the year the price of Bitcoin jumped nearly 1,400% from around $950 to $14,000.Using ZIP codes associated with brokerage accounts, they compared home price changes in areas with more cryptocurrency wealth with those with less enthusiasm for digital assets. They found that home prices grew 43 basis points faster in the former, pushing the median home price up by about $2,000 over 12 months.   Quantifying Crypto’s Wealth Effect   One dollar of unrealized crypto gains results in nine cents in spending.Analyzing the decade through 2023, they found that every $1 increase in a household’s cryptocurrency wealth boosted the median home price by 15 cents in the three months that followed.   The researchers also tracked investors who withdrew at least $5,000 from cryptocurrency brokers between 2018 and 2023 (about 90% of whom came from Coinbase Global Inc.). The results showed that Americans spent about $5,754 more in total in the year after a large withdrawal than they did the year before. While mortgage spending remained constant in the six months before the large withdrawal, it increased sharply after the withdrawal event.   “For every $5,000 household that withdrew from a cryptocurrency exchange account, there was a 5% chance that it was used to purchase a first home,” Kotter said.   After all, we can’t live in a Lamborghini.