Crypto Millionaires’ Spending Habits

The sharp price fluctuations and rally on the crypto market has resulted in thousands of newly minted crypto millionaires. But how do they spend their newfound wealth? On a Porsche, a mansion or stocks?

A study carried out by the non-profit organization National Bureau of Economic Research (NBER) dives into this topic. Millions of bank transactions, credit card and debit card data have been analyzed to identify the spending habits of crypto investors residing in the US. The impact of their crypto wealth fluctuations on their consumption and investments has then been examined. “Our results show that crypto investment does affect real assets,” NBER said.

Number of crypto millionaires on the rise

Last June, before the prices of crypto assets took off, there were already an estimated 88,200 crypto millionaires around the globe. They made up around 0.02 percent of all crypto investors, according to Henley & Partners “Crypto Wealth Report 2023.” With almost 95 million Americans now holding crypto assets today, this suggests that roughly 19,000 Americans are crypto millionaires if the global proportion is extrapolated straight off.

It's worth noting that the price of Bitcoin has more than doubled since the Henley study was published. The extreme market volatility, witnessed on some of the trading days over the past year, should have benefited some investors. Therefore, the number of crypto millionaires may be higher today.

Not as spendthrift as lottery winners

The propensity of crypto millionaires to spend their newfound wealth is “modestly” higher than those who have generated their wealth on the stock market, but far lower than those who won big lottery prizes. Lottery winners typically spend more than half or all of their winnings right away. Typical crypto investors don’t, NBER’s study shows. This is because they generally have higher incomes and lean toward depositing their crypto gains into their bank accounts rather than going on massive shopping sprees.

“Crypto users are more likely to be active traders in equity markets, often simultaneously investing in both crypto assets and traditional equity securities,” NBER said. After realizing a large crypto gain (selling a position at a profit), they typically rebalance their investment portfolios, transfer parts of the profits made to their bank accounts and spend the rest. The combined effect of this new crypto wealth implies an approximate $30 billion rise in the consumption of US households, according to NBER’s estimates.

Newly minted millionaires spend newfound wealth on real estate

Some of the increased consumption mentioned above unsurprisingly comes in the form of discretionary spending – spending on non-essential goods such as streetwear, jewelry, electronics, and fast cars. Crypto adopters spend more money on entertainment, travel, and restaurants than non-crypto investors. But a large chunk of their crypto gains is actually channeled into real estate.

“Households transition from renters to homeowners at higher rates…(or) to upgrade their existing housing,” which in turn has a positive spill-over effect on the local house market, NBER notes. “Increased demand for homes can create local housing price pressure.” This pattern is indeed spotted in countries that are heavily exposed to crypto-related wealth.  California, Nevada, and Utah are states that have a share of counties with per capita crypto wealth above the national average.

In short, crypto gains have substantial spill-over effects on the real economy through consumption but also through investments in equities and foremost real estate.