Stimulus Checks & Bitcoin: Did Government Payments Impact Crypto Trading?

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Not everyone used their stimulus funds for necessities.

In 2020 and 2021, the U.S. Federal government sent thousands of dollars of stimulus money to American families. This included two checks under the Trump administration as well as a stimulus check payment under the Biden administration.

Many Americans spent their stimulus money on necessities or used the cash to pay down debt or bulk up their emergency funds. But a substantial number of people also invested their money with hopes that they could earn a return on the funds and turn their stimulus checks into more money.

There are many different investment options available for people who chose to put their money to work for them. One of those is cryptocurrencies. Cryptocurrencies, or virtual coins, have become an increasingly popular investment in recent years. Although they are volatile investments, the technology behind many of the virtual coins has shown exciting promise. And as the cryptocurrency market has quickly developed, a growing number of brokerage firms are making it possible to buy these digital currencies.

One big question, though, is whether -- or how -- stimulus checks affected interest in cryptocurrencies. And the Federal Reserve Bank has some data about that very issue.

Here's what the data shows about stimulus checks and cryptocurrencies

According to the Federal Reserve Bank of Cleveland, there was "a significant increase in Bitcoin buy trades" in the amount of $1,200. This increase occurred after the first stimulus checks authorized by the CARES Act were distributed in April of 2020. These stimulus checks were for $1,200 per eligible adult, which is why the $1,200 number was relevant in determining the impact of stimulus checks on Bitcoin trades.

The Federal Reserve Bank determined that, in total, trading volume of Bitcoin increased by approximately 3.8% in response to the distribution of the first stimulus check. The majority of people who used their first COVID-19 stimulus payment to buy Bitcoin were found to be individuals without families, and most of them were non-professional investors.

While just a small percentage of coronavirus stimulus money -- around 0.02% of all CARES Act funds distributed -- were invested in Bitcoin, the money from the payments actually had a fairly measurable impact on the price of Bitcoin. Specifically, the increased trading volume and the stimulus-driven demand resulted in a 7-basis-point increase in the price of Bitcoin.

It wasn't just Americans who used their stimulus funds to purchase cryptocurrencies, either. The Federal Reserve also conducted an analysis of other countries whose governments offered similar stimulus funding programs to their citizens. The analysis revealed that there was an increase in people buying Bitcoin in the currencies of these countries as well.

Although this data was related to the first of the three stimulus payments only, it is likely that subsequent payments would also have had a similar effect -- especially given the fact that stimulus checks were conclusively seen to increase purchases of Bitcoin in multiple different geographic locations.

Naturally, it makes sense that when people get unexpected funds, some individuals who don't need the money for other things invest the cash. The findings suggest that if there are further stimulus checks issued in the future, as many people are calling for, it's likely that there will be additional increases in Bitcoin and potentially other types of cryptocurrency investments going forward.

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