A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide for wealthy investors and consumers. Register to receive future editions, straight to your inbox.
Soaring bitcoin prices have helped create 70,000 new crypto-millionaires over the past year, adding hundreds of billions of dollars in potential spending to the economy, according to new studies.
According to Henley & Partners and New World Wealth, there are now an estimated 241,700 people holding crypto holdings worth $1 million or more, a 40% increase from last year. There are 450 crypto-centimillionaires, or those with crypto holdings of $100 million or more, and 36 crypto-billionaires, according to the report.
Bitcoin’s price has more than doubled over the past year as the dollar falls and concerns grow over deficits and fiscal spending. More favorable regulation in the United States and broader adoption by investors and traditional financial services companies have also increased demand. On Monday, bitcoin rose above $125,000 for the first time before falling back to around $122,000.
The total market capitalization of global cryptocurrencies has soared to over $4.3 trillion, adding $2 trillion to paper wealth over the past three years. While still modest compared to recent stock market gains – with Nvidia itself worth more than $4 trillion – the crypto boom has created substantial wealth for millennials and younger investors who were early investors in crypto.
“Bitcoin is becoming the foundation of a parallel financial system, in which it is not just an investment for speculating on fiat price appreciation, but also the base currency for accumulating wealth,” said Philipp Baumann, founder of Z22 Technologies, a crypto trading company.
The new class of crypto-rich is so new that reliable research on their spending and investing habits remains scarce. But a new paper by a group of economists who analyzed crypto wallets sheds light on some common characteristics and overall spending.
The study, by Brigham Young University professors Darren Aiello, Mark Johnson, and Jason Kotter, along with Scott Baker of Northwestern University, Tetyana Balyuk of Emory University, and Marco Di Maggio of Imperial College London, examined crypto investors based on transfers to and from exchanges cryptographic.
They found that crypto investors spent about 9.7 cents for every dollar of additional crypto wealth. This ratio, known as the marginal propensity to spend, was more than twice the level typically found for stock market gains or home values. Since crypto investors tend to be younger, they also tend to spend more of their wealth gains than older investors.
The report’s authors estimate that the added wealth generated by crypto gains accounted for $145 billion in additional spending in 2024, or about 0.7% of total U.S. consumption.
However, the decline of cryptocurrencies is having the opposite effect.
“While the massive increase in crypto wealth over the past decade has likely contributed positively to economic growth through consumer spillovers, this symmetry suggests that major crypto crashes could place significant negative pressure on the economy as investors reduce their consumer spending,” according to the study.
The authors claim that crypto investors tend to fall into two broad categories: casual crypto investors, who have a relatively small portion of their investments in crypto, and “all-in” investors, who dedicate 100% of their investments to crypto. More diversified crypto investors tend to spend more of their earnings. “All-in” investors rarely change their spending because they have “strong beliefs” about the future of crypto and rarely sell.
When it comes to their spending, crypto-rich people stocking up on Lamborghinis and Rolexes appear to be more of a high-profile exception than the rule. The study indicates that most of the consumption is in restaurants, entertainment and general merchandise.
A previous study by the group found that real estate is very popular among the crypto-rich. The research examined housing prices in counties with high crypto populations compared to counties with low crypto populations. The study found that when bitcoin skyrocketed, real estate prices rose 0.46% faster in crypto-heavy counties.
“We find that increasing crypto wealth leads to significant growth in real estate prices,” according to the study.
The current Bitcoin boom may not lead to a sudden influx of spending, however. Tad Smith, former CEO of Sotheby’s and now a partner at 50T Funds, a private equity firm focused on digital assets, said many wealthy crypto investors are holding on to their bitcoins and other tokens waiting for prices to rise again.
“They want to be fully invested because this is the moment they’ve been waiting for,” Smith said. “For them, now is not the time to sell.”
Smith said that while some longtime mega-holders of Bitcoin, known as “whales,” may occasionally cash out a small portion of their holdings in the current price surge, the vast majority of committed crypto investors are still pouring more money into the asset class.
Longer term, Smith said that as crypto investors get older and start families, more of their spending will be on real estate rather than cars or flashy watches.
“During the last big cycle, they were younger,” Smith said. “Now many of them have children and have to think about a growing family, so their lifestyle choices are different.”
Spending by the wealthy on cryptocurrencies is also likely to accelerate as cryptocurrency-backed lending products become more acceptable. Zac Prince, head of GalaxyOne, Galaxy Digital’s new business and finance platform, said buying a home was difficult for many crypto-rich investors because of their crypto collateral.
“Today, if you want to borrow against your crypto, the options are relatively limited,” he said. “I’ve heard countless horror stories from people who own millions of dollars in crypto and want to buy a home, but they can’t get approved for a mortgage through traditional bank lenders.”
But the tide may be turning. FHFA Director Bill Pulte has issued a directive to Fannie Mae and Freddie Mac to consider cryptocurrency assets in their underwriting guidelines for mortgage loans.
Prince said that as lenders allow more borrowing to the crypto-rich, their expenses will increase because they won’t have to sell their positions to get liquidity.
“The ‘buy, borrow, die’ strategy has been around for a long time,” he said. “The problem is that crypto investors have not been able to access loans.”