Goldman Sachs says crypto decline should have very limited impact on US spending

Anxieties about broader market conditions and the meltdown of TerraUSD (UST) have sent traders fleeing from the cryptocurrency space, triggering fears that the decline in prices in the nascent market could have a spillover impact on the US economy. 

Those fears are overblown — at least, according to one research note sent out to clients by Goldman Sachs. 

A group of the bank's researchers, led by Joseph Briggs, said that any impact of the crypto markets slide on US spending should be very small since "the recent decline is very small relative to US household net worth."

Bitcoin's price is down more than 35% since the beginning of the year. 

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As per the bank, cryptocurrency holdings as a percentage of net worth represent a mere 0.3% of US household net worth compared to 29% for US equities.  

According to the bank's researchers: 

"While there is admittedly a lot of uncertainty around our assumptions—for example, it’s unclear whether the propensity to spend out of crypto holdings will ultimately be larger or smaller than for equities and other asset classes—our results strongly suggest that the crypto impact will be marginal relative to other factors."

The bank added that the impact on the US labor force participation rate should also be muted given that the participation of young men in the labor force — "the demographic group that is the most likely to be affected by the crypto pullback" — is currently at pre-pandemic levels. 

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Frank Chaparro is Host of The Scoop podcast and Director of Special Projects. He also writes a biweekly newsletter. Chaparro started his career at Business Insider, where he specialized in the intersection of digital assets and Wall Street, market structure, and financial technology. Soon after joining Business Insider out of Fordham University, Chaparro was interviewing top finance and tech executives, including billionaire Mark Cuban, “Flash Boys” star Brad Katsuyama, Cboe Global Markets CEO Ed Tilly, and New York Stock Exchange President Tom Farley. In 2018, he become a sought after reporter in the crypto world, interviewing luminaries such as Tyler Winklevoss, the cofounder of Gemini, Jeremy Allaire, the CEO of Circle, and Fundstrat head Tom Lee. For inquiries or tips, email [email protected].