Fed Report Analyzes How Crypto Price Shifts Influence Ownership

A study from the Federal Reserve Bank of Philadelphia’s Consumer Finance Institute discovered that cryptocurrency ownership decreased during periods of market decline, despite rising Bitcoin prices. Survey results indicated that interest and participation in crypto did not grow with the price hikes. The report highlights the need for more research to understand how consumers react to market changes.

How Market Fluctuations Shape Consumer Interest in Cryptocurrency?

The Consumer Finance Institute (CFI) of the Federal Reserve Bank of Philadelphia published a report on Friday, written by Senior Advisor and Research Fellow Tom Akana, titled "Do Price Changes Affect Crypto Ownership?" The report examines how changes in cryptocurrency prices impact consumer ownership patterns and behavior.

Akana outlined the data collection process, noting: "Since January 2022, the CFI has gathered data on cryptocurrency ownership from six separate surveys. All six included questions about current crypto ownership, while three also asked about future purchasing intentions." 

This research was part of the CFI's Labor, Income, Finances, and Expectations (LIFE) Survey, which analyzes various economic behaviors, including cryptocurrency ownership. The report goes into further detail on these findings.

The report highlighted that : "CFI survey data collected in 2022 showed a change in cryptocurrency ownership in response to the crypto winter; reported ownership as well as interest in purchasing crypto both decreased as market value decreased."

Bitcoin Price Surge vs. Flat Ownership Trends: Need for Further Analysis

The report reveals that, although Bitcoin prices have surged significantly since October 2023, ownership rates have not seen a corresponding increase.

To investigate how fluctuations in cryptocurrency market conditions influence ownership rates and future buying intentions, Bitcoin (BTC) is used as a benchmark for the broader crypto market. Figure 1 in the report charts Bitcoin's daily closing prices from July 1, 2021, to July 9, 2024, with columns illustrating ownership rates from various surveys included in the analysis. 

The data from January 2022 and October 2022 reveal notable trends, particularly during the crypto winter when Bitcoin, along with other cryptocurrencies, experienced significant price drops.

Akana explained, "Since the LIFE Survey began recording cryptocurrency ownership in October 2023, Bitcoin's price (our market indicator) has risen sharply." He added, "Despite this, ownership levels have actually declined slightly across four survey periods, even though the market’s performance seems to be sparking greater interest in future crypto purchases."

The report concludes by suggesting that further research is needed to explore "consumer patterns of market entry and exit to better understand these trends."