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Crypto Bleed Won’t Ruin U.S. Economy: Goldman Sachs

Goldman Sachs economists have said that the recent crypto decline is small relative to household net worth.

Crypto Bleed Won’t Ruin U.S. Economy: Goldman Sachs
Shutterstock cover by Barbara Froehlich

Key Takeaways

  • Goldman Sachs doesn't think the downward momentum in the crypto market will have a major impact on the economy.
  • Economists at the investment bank noted how crypto is small relative to overall household net worth.
  • The crypto market is in its seventh month of weak price action, with the global crypto market cap almost 60% short of its peak.

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The update comes as crypto continues its months-long downward trend. 

Goldman Sachs Discusses Crypto Crash 

While the cryptocurrency market has been on a decline for months, Goldman Sachs doesn’t think the bleed will significantly impact the economy. 

In a research note distributed to clients, economists led by Jan Hatzius pointed out that the dip in the crypto market is “very small” when compared to overall household net worth. The global crypto market cap hit a peak in November 2021, but the space has suffered from sluggish price action for seven months. Nonetheless, the Goldman economists pointed out that this drop is small relative to the $150 trillion that makes up overall household net worth. 

Due to the relatively small size of the digital assets space, the note said that spending is unlikely to see a significant drop as a result of the ongoing crypto decline. “We therefore expect any drag on aggregate spending from the recent declines in cryptocurrency prices to be very small,” it read. 

The economists said that crypto accounts for around 0.3% of household net worth, while equities make up closer to 33%. While most crypto assets have put in weak performances throughout 2022, but many stocks have also been harder hit in recent weeks amid fears the Big Tech bubble may have finally burst. Last month, Netflix suffered its worst day in 18 years after sliding 37% on an earnings report that revealed it had lost 200,000 subscribers in the first quarter of the year. The likes of Microsoft, Tesla, Amazon, and Alphabet have also shed billions of dollars of value in recent weeks. 

In the note, Goldman noted that “equity price fluctuations are the main driver of changes in household net worth, while cryptocurrencies are only a marginal contributor.” The economists also pointed to the typical cryptocurrency investor demographic, which includes young males “less affected by wealth fluctuations.” 

Although Goldman has indicated that it thinks the crypto crash won’t have a major impact to the economy, many of crypto’s most ardent believers have been hit hard in the recent selloff. Terra’s spectacular collapse last week caused a $40 billion wipeout as UST lost its peg and LUNA plummeted to zero, resulting in an ecosystem-wide meltdown. Besides Terra, many other assets are trading down from their highs. Bitcoin is about 57% of its November peak, Ethereum is almost 60% down, and most lower cap assets have fared much worse. 

Per data from CoinGecko, the global crypto market cap is currently $1.3 trillion, down almost 60% from its $3 trillion peak in November 2021. 

Disclosure: At the time of writing, the author of this piece owned ETH and several other cryptocurrencies. 

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