The impact of the cryptocurrency market's recent decline on overall spending in the U.S. is likely to be very small, Goldman Sachs said in a research report Thursday. There is also very limited scope for an increase in labor force participation due to the declines, it said.
An important consideration is the share of crypto assets held by investors in other countries, the bank said. Goldman estimates that U.S. households own about one-third of the global crypto market, with a market capitalization of $1.3 trillion. This means that the recent decline in market capitalization is very small compared to the net worth of U.S. households, which stood at $150 trillion in the fourth quarter of 2021.
Recent declines in cryptocurrency prices have likely reduced U.S. crypto holdings by about $300 billion, and those holdings now account for just 0.3% of household net worth, the note said.
By contrast, equities accounted for about 33% of household net worth at the end of last year, and the recent decline in equity markets has likely reduced household net worth by about $8 trillion, the note adds.
Tighter financial conditions will lead to a rapid slowdown in growth and spending this year, but any additional impact from the recent decline in crypto prices is likely to be "modest," the report said.