Crypto crash will have limited impact on U.S. household wealth and labor supply: Goldman Sachs

The global cryptocurrency market lost over $300 billion last week and about $1.7 trillion in the past seven months. But the impact on U.S. household wealth, spending and the labor supply are likely to be limited, according to Goldman Sachs.

The crypto market capitalization has plunged to around $1.3 trillion as of Thursday, from an all-time high of more than $3 trillion in November, according to CoinGecko.

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

Crypto holdings account for only 0.3% of U.S. households’ net worth, while the recent price drop of digital assets have reduced U.S. household wealth by about $300 billion, according to the analysts. In contrast, corporate equities account for about 33% of households’ net worth at the end of 2021, while their recent losses have likely erased $8 trillion of that wealth.

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

Therefore, a decrease in cryptocurrencies’ value would have a minor impact on the aggregate spending, according to the report.

The analysts also expect the crypto downturn to have a limited effect on labor supply.

In general, the decline in household wealth may incentivize some workers who left the labor market during the pandemic to return, they noted.

However, crypto investors are predominantly young males, a demographic group whose labor-force participation has been less affected by wealth fluctuations, the analysts wrote. Meanwhile, the labor-force participation rate of young males has already returned to pre-pandemic level, Goldman said.

The analysis indicates that the wealth generated from cryptocurrency has likely played an insignificant role in discouraging labor supply, thus the recent fall in its price will provide a limited boost to labor supply.

Bitcoin
BTCUSD,
+0.24%
late Thursday was trading at around $30,217, up 3.7% from 24 hours ago. The Dow Jones Industrial Average
DJIA,
-0.75%
closed 0.8% lower on Thursday.

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