Research Details

Abstract

We provide a first look into the factors that affect retail investing in cryptocurrencies. We use consumer transaction data to examine how household characteristics, liquidity shocks, and hedging requirements shape the crypto investment decisions of millions of U.S. households. We find that—similar to traditional investing—crypto investing responds to wealth, risk attitudes, and liquidity constraints. Yet, crypto investing is more responsive than after-tax traditional investment flows to overall market conditions. We then show that investors' budget constraints affect crypto investing, in line with portfolio choice theories. We find that relaxing budget constraints through receiving stimulus payments increases crypto investing. Tighter future budget constraints due to higher expected inflation also increase crypto investing, consistent with hedging motives. Our findings are important for understanding this new high-risk, high-return asset class and designing effective regulations in this rapidly evolving space.

Type

Working Paper

Author(s)

Scott Baker, Marco Di Maggio, Mark Johnson, Jason D Kotter

Date Published

2024

Citations

Baker, Scott, Marco Di Maggio, Mark Johnson, and Jason D Kotter. 2024. Cryptocurrency Investing: Stimulus Checks and Inflation Expectations.