Cryptocurrency Investing: Stimulus Checks and Inflation Expectations

By: Darren Aiello, Scott R. Baker, Tetyana Balyuk, Marco Di Maggio, Mark J. Johnson and Jason Kotter

Language:English
| Pages:56

Abstract

We provide a first look into the factors that affect retail investing in cryptocurrencies. We use consumer transaction data to examine how borrower characteristics, liquidity shocks, and hedging requirements shape crypto investment decisions of millions of U.S. individuals. We find that – similar to traditional investing – crypto investing responds to wealth, risk attitude, and liquidity constraints. Yet, crypto investing is more responsive than after-tax traditional investment flows to overall markets conditions. We then show that investors’ budget constraints affect crypto investing, in line with portfolio choice theories. We find that relaxing the budget constraint through receiving stimulus payments increases crypto investing. Tighter future budget due to higher expected inflation also increases 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.

Keywords

Consumer Finance; Cryptocurrency; Fintech; Inflation; Portfolio Choice; Stimulus; Consumer Behavior; Risk and Uncertainty; Investment

Citation

Aiello, Darren, Scott R. Baker, Tetyana Balyuk, Marco Di Maggio, Mark J. Johnson, and Jason Kotter. "Cryptocurrency Investing: Stimulus Checks and Inflation Expectations." Working Paper, May 2023.