It’s unlikely consumer spending will take too large a hit as a result of the latest crypto winter, argues Goldman Sachs.
In a new research note, Goldman Sachs’ chief U.S. economist Jan Hatzius calculated that the global market for the 200 largest cryptos shed an astounding $1 trillion in value from a peak late last year while U.S. households own about one third of the global crypto market.
But crypto holdings make up for only about 0.3% of U.S. household net worth, Hatzius added, so any drag on the American consumer is likely to be minimal.
“We therefore expect any drag on aggregate spending from the recent declines in cryptocurrency prices to be very small as well,” Hatzius wrote, later adding: “When considering the impact of the crypto pullback on the U.S. economy, a major caveat is that a large share of crypto wealth is held by citizens of other countries.”
If consumer spending were to recoil this year — something strongly hinted at in earnings reports this week from Walmart, Target and Kohl’s — Hatzius suggests looking at declining stock prices as opposed to crashing crypto prices.
Corporate equities, as Hatzius calls them, account for about 33% of household net worth. The decline in stock prices this year has reduced household net worth by roughly $8 trillion compared to the end of 2021, estimates Hatzius.
Hatzius sees the decline in the value of stocks being a negative driver of consumer spending beginning in the third quarter of this year, as shown the chart above, and extending out into the latter stages of 2023.
“Our estimates imply a significant drag on spending from equity price declines in 2022 and 2023,” Hatzius adds.