The rise in prices of cryptocurrencies like Bitcoin BTC/USD, Dogecoin DOGE/USD, and others may have enabled lower-income households to take out new mortgages to purchase property, a new study revealed.
What Happened: A paper by the U.S. Treasury’s Office of Financial Research has identified a correlation between the surge in cryptocurrency investments and an increase in debt, particularly mortgages, in areas with high exposure to cryptocurrencies.
Data showed that for low-income households in high-crypto exposure zip codes, the mortgage holder rate nearly quadrupled from 4.1% in January 2020 to 15.4% in January 2024. Additionally, the average balance per mortgage increased by over 150% from $171,773 in 2020 to $443,123.
“This indicates that low-income households may be using cryptocurrency gains to take out new mortgages and take out larger mortgages,” the study said.
The study also found that the average income of the cohort was $40,664 in January 2024, indicating a mortgage debt-to-income ratio of 0.53, well above the recommended benchmark of 0.36.
“It is particularly concerning because higher debt-to-income ratios are positively correlated with future default rates, especially during periods of turmoil such as the 2008 financial crisis,” the study stated.
That said, higher leverage among these groups hasn’t resulted in higher delinquency rates as of Q1 2024. On the contrary, delinquency on debt dropped the most among low-income households.
Mortgage delinquency dropped by 4.2% among low-income households in high-crypto exposure areas compared to 3.8% in low-crypto areas.
It’s worth noting that during the period between January 2020 and January 2024, the total cryptocurrency market capitalization increased by 737%, from roughly $197 billion to $1.65 trillion.
Additionally, major coins like Bitcoin BTC/USD have leaped 355%, more than fourfold, in the said time period.
An August report disclosed that U.S. consumers are becoming more receptive to cryptocurrency, with fewer than 1% now dismissing it as a "fad," a significant drop from previous years.
Enthusiasts have placed high hopes in President-elect Donald Trump, who enthusiastically supported cryptocurrencies during his election campaign and is speculated to create the first-ever White House role dedicated to cryptocurrency policy.
Price Action: At the time of writing, Bitcoin was trading at $93,246.09, up 0.77% in the last 24 hours, according to data from Benzinga Pro.
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