How crypto millionaires spend their fortunes

A version of this article first appeared in CNBC’s Inside Wealth newsletter with Robert Frank, a weekly guide to the high-net-worth investor and consumer. Sign up to receive future editions, straight to your inbox.

The price surge in bitcoin helped created another 70,000 new crypto millionaires over the past year, adding hundreds of billions of dollars in potential spending to the economy, according to new studies.

There are now an estimated 241,700 individuals with crypto holdings worth $1 million or more, up 40% from last year, according to Henley & Partners and New World Wealth. There are 450 crypto centimillionaires, or those with crypto holdings of $100 million or more, and 36 crypto billionaires, according to the report.

Bitcoin’s price has more than doubled over the past year, as the dollar falls and concerns grow over deficits and fiscal spending. More friendly regulation in the U.S. and wider adoption by investors and traditional financial services companies has also increased demand. On Monday, bitcoin topped $125,000 for the first time before settling back down to around $122,000. 

The total market cap of the world’s cryptocurrencies has soared to over $4.3 trillion, adding $2 trillion in paper wealth over the past three years. While still small relative to the recent stock market gains – with Nvidia itself worth over $4 trillion – the crypto boom has created substantial wealth for millennials and the younger investors who were early investors in crypto.

“Bitcoin is becoming the foundation of a parallel financial system, where it is not merely an investment for speculation on fiat price appreciation, but the base currency for accumulating wealth,” said Philipp Baumann, founder of Z22 Technologies, a crypto trading firm.

The new class of crypto wealthy is so recent that reliable research on their spending and investing habits remains scarce. But a new paper by a group of economists who analyzed crypto wallets sheds light on some common characteristics and overall spending.

The study, by Brigham Young University professors Darren Aiello, Mark Johnson and Jason Kotter, along with Scott Baker at Northwestern University, Tetyana Balyuk at Emory University and Marco Di Maggio at Imperial College London, looked at crypto investors based on transfers to and from crypto exchanges.

They found that crypto investors spent roughly 9.7 cents for every dollar in added crypto wealth. This ratio, known as the marginal propensity to spend, was more than 2 times the level typically found for gains in the stock market or home values. Since crypto investors tend to be younger, they also tend to spend more of their wealth gains compared to older investors.

The report’s authors estimate that the added wealth generated by crypto gains accounted for $145 billion in additional spending in 2024, or about 0.7% of total U.S. consumption.

Crypto declines, however, have the reverse effect.

“While the massive rise in crypto wealth over the past decade has likely contributed positively to economic growth through consumption spillovers, this symmetry suggests that major crypto crashes could exert significant negative pressure on the economy as investors cut consumption expenditures,” according to the study.

The authors say crypto investors tend to fall into two broad categories – casual crypto investors, who have a relatively small portion of their investments in crypto, and the “all-in” investors, who allocate 100% of their investments in crypto. The more diversified crypto investors tend to spend more of their gains. The “all-in” investors rarely change their spending, since they have “strong convictions” about crypto’s future and rarely sell.

When it comes to their spending, the crypto wealthy who load up on Lamborghinis and Rolexes appear to be more of a high-profile exception than the rule. The study said most of the consumption is on restaurants, entertainment and general merchandise.

An earlier study from the group found that real estate is highly popular among the crypto wealthy. The research looked at home prices in counties with large crypto populations versus counties with low crypto populations. The study found that when bitcoin spiked, home prices grew 0.46% faster in the crypto-heavy counties.

“We find that increases in crypto wealth cause significant house price growth,” according to the study.

Bitcoin’s current boom may not lead to a sudden flood of spending, however. Tad Smith, the former CEO of Sotheby’s and now partner at 50T Funds, a growth equity firm focused on digital assets, said many wealthy crypto investors are holding on to their bitcoin and other tokens expecting a further run-up in price.

“They want to be fully invested because this is the moment they’ve been waiting for,” Smith said. “For them, this is not the time to sell.”

Smith said that while some longtime mega-holders of bitcoin, known as “whales,” may be occasionally cashing in a small portion of their holdings in the current price run-up, the vast majority of committed crypto investors are pouring even more money into the asset class.

Over the longer term, Smith said that as crypto investors get older and start families, more of their spending will go to real estate rather than flashy cars or watches.

“In the last big cycle, they were younger,” Smith said. “Now many of them have kids, and they have a growing family to think about. So their lifestyle choices are different.”

The spending of the crypto wealthy is also likely to accelerate as crypto-backed lending products become more acceptable. Zac Prince, head of GalaxyOne, the new trading and finance platform of Galaxy Digital, said buying a house has been difficult for many wealthy crypto investors because of their crypto collateral.

“Today if you want to borrow against your crypto, there are relatively limited options,” he said. “I’ve heard countless horror stories from people who have millions of dollars in crypto and they want to buy a house, but they can’t get approved for a mortgage by traditional bank lenders.”

But that tide may be turning. Bill Pulte, the FHFA director, issued a directive to Fannie Mae and Freddie Mac to consider crypto currency assets in their underwriting guidelines for mortgage loans.

Prince said that as lenders allow more borrowing by the crypto wealthy, their spending will increase, since they won’t have to sell their positions for liquidity.

“The strategy of ‘buy borrow die’ has been around for a long time,” he said. “The problem is crypto investors haven’t been able to access borrowing.”