Crypto Crash Will Have Limited Impact on US Household Wealth and Labor Supply: Goldman Sachs

The global cryptocurrency market lost over $300 billion last week and about $1.7 trillion in the last seven months. However, according to Goldman Sachs, the impact on US household wealth, spending and labor supply should be limited.

According to CoinGecko, the crypto market cap fell to around $1.3 trillion on Thursday from an all-time high of more than $3 trillion in November.

According to Goldman Sachs analysts’ rough estimate based on various surveys, U.S. households own about a third of the global crypto market, or about $423 billion as of Thursday. The recent decline in the crypto market is “very small” compared to US household net worth, which stood at $150 trillion in 2021, the bank’s analysts wrote in a note on Thursday.

Crypto holdings account for just 0.3% of US household net worth, while the recent digital asset price drop has reduced US household wealth by about $300 billion, according to analysts. By contrast, corporate stocks accounted for about 33% of households’ net wealth at the end of 2021, while their recent losses likely wiped out $8 trillion of that wealth.

“These patterns imply that stock price fluctuations are the main driver of changes in household net worth, while cryptocurrencies are only a marginal contributor,” the analysts wrote.

Therefore, according to the report, a decline in the value of cryptocurrencies would have little impact on overall spending.

Analysts also expect the crypto downturn to have a limited impact on the labor supply.

In general, the drop in household wealth could spur some workers who left the labor market during the pandemic to return, they noted.

However, crypto investors are overwhelmingly young males, a demographic whose labor force participation is less affected by wealth volatility, the analysts wrote. Meanwhile, the participation rate among young men has already returned to pre-pandemic levels, Goldman said.

The analysis shows that cryptocurrency-generated wealth likely played an insignificant role in discouraging labor supply, so the recent price drop will only provide a limited boost to labor supply.

bitcoin BTCUSD,
it was trading around $30,217 late Thursday, up 3.7% from 24 hours ago. The Dow Jones Industrial Average DJIA,
closed down 0.8% on Thursday. Crypto Crash Will Have Limited Impact on US Household Wealth and Labor Supply: Goldman Sachs

Brian Lowry

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