Federal Reserve Report: Will Bitcoin Price Changes Affect Its Holdings?

Source: Federal Reserve; Compiled by: Tao Zhu, Golden Finance

Since January 2022, the Consumer Finance Institute (CFI) has collected information on cryptocurrency ownership from six different surveys; all six surveys asked about current cryptocurrency holdings, while three surveys also asked about the likelihood of purchasing cryptocurrency in the future. Comparing the survey results with the performance of the cryptocurrency market, we observe a disconnect between market prices and holdings over the past two years. While we saw a clear decline in holdings and buying interest during the 2022 crypto winter, the recent market growth has not been accompanied by an increase in cryptocurrency holdings among the population we surveyed.

Using the daily price of Bitcoin as a proxy for the overall value of the cryptocurrency market, we find that the crypto winter reached its lowest point at the end of 2022; prices recovered at a relatively slow pace between January and October 2023, and then quickly accelerated in March 2024. Since then, they have remained at or near five-year highs.

Beginning in October 2023, CFI has collected quarterly LIFE Survey data on cryptocurrency holdings, allowing us to track holdings during periods of market growth. The survey questions are similar to previous data collection questions in the 2022 CFI COVID-19 Consumer Survey. We find that while holdings clearly declined during the price declines of the crypto winter, they have not increased at a corresponding rate during the recovery. However, the recent increase in prices does appear to correspond with an increase in the share of respondents who are likely to purchase cryptocurrency in the future.

Differences in Survey Collection

The first two surveys that collected cryptocurrency ownership data were conducted as part of CFI’s COVID19 Consumer Surveys in January and October 2022; the last four surveys were conducted as part of CFI’s Consumer Lifestyle Survey. There are two major differences between the two surveys that result in slightly different results; however, post-collection weighting and comparison of responses to similar questions (except for the cryptocurrency questions) in the two surveys indicate that the results reported in the two surveys are comparable.

The survey results were collected by two different survey agencies. Both surveys were web-based, targeted at 5,000 nationally representative responses, and the results were weighted to similar target distributions across major demographic categories. The same non-cryptocurrency questions in both surveys produced comparable results, and the relationships between demographic groups of cryptocurrency holders were consistent across the two survey agencies.

While ownership rates are not completely comparable between the two surveys, each survey collected information more than once. The two COVID-19 surveys covered the crypto winter, while the four LIFE surveys covered the more recent price recovery. Therefore, we can clearly compare changes in ownership rates during each period.

Holdings and Price Changes

To assess the relationship between crypto market conditions and holding rates and future buying interest, we use the price of Bitcoin (BTC) as a proxy for the general crypto market. Figure 1 plots the daily closing price of Bitcoin between July 1, 2021 and July 9, 2024; the bars represent the cryptocurrency holding rates in each of the surveys cited in this article. Looking at the bars in the figure for January 2022 and October 2022, we see the changes we noted in our previous report; During the crypto winter, the price of Bitcoin (and cryptocurrencies in general) fell rapidly, and holding rates also fell.

Figure 1: Bitcoin closing price (left axis) and cryptocurrency holding rate (right axis)

The October 2023 survey shown in the figure is the first time that the LIFE survey has collected cryptocurrency holdings data. Although the market has risen since the previous year, it has remained stable for nearly six months and is well below its value before the crypto winter; holdings are basically the same as the previous year, at 17.1% (given the slightly different focus of the questions).

After the October 2023 survey was conducted, the price of Bitcoin began to rise. By the time of the January 2024 LIFE survey, the price had risen by approximately 60%, recovering more than half of the value lost during the crypto winter. However, holdings declined slightly, to 15.5%.

The market continued to rise, and by the time of the April 2024 LIFE survey, the price of Bitcoin had exceeded its pre-crypto winter value. We continue to see little change in the holding rate; Despite the significant increase in the value of Bitcoin over the past six months, only 16.1% of respondents listed themselves as cryptocurrency owners. This is statistically indistinguishable from the holding rate in October 2023.

Between April and July 2024, Bitcoin’s price fluctuated but remained near recent highs; in the July 2024 LIFE survey, respondents reported a significant decline in Bitcoin holdings to 14.7%. Once again, we see that market performance has not led to an increase in holdings.

Future Purchase Interest

While holdings in the LIFE survey data did not increase in line with price increases, we do see an increase in the percentage of respondents who are likely to purchase cryptocurrency in the future. Similar questions were included in the 2022 COVID-19 survey and the April 2024 LIFE survey, and the results are reported in Table 1.

Our previous report documented that overall interest in buying cryptocurrencies (both current and non-holders) declined during the crypto winter, from 18.8% to 10.6% of all respondents. The next survey to use the purchase intention question was the April 2024 LIFE survey, when Bitcoin’s current price was at a three-year high.

At that time, 21.8% of respondents said they were likely to buy cryptocurrencies in the future; while this did not translate into higher ownership rates among this group, the large and rapid growth of the market appears to have increased its appeal to consumers.

This observation is even clearer when looking at the purchasing intentions of non-holders. In the 2022 survey, less than 7% of non-holders said they were likely to purchase cryptocurrency in the future; however, in April 2024, this number rose to 13.4%.

Conclusion

CFI survey data collected in 2022 shows that cryptocurrency holders have changed as a result of the crypto winter; reported holdings and interest in purchasing cryptocurrency have both declined as market values ​​have fallen.

Since the LIFE survey began collecting cryptocurrency holdings data in October 2023, the price of Bitcoin has risen sharply; however, holdings have declined slightly over the four surveys, despite evidence that market performance has led to higher interest in future purchases.

Additional research focusing on consumers’ specific market entry and exit patterns may provide a clearer explanation for these observations.