Government financial assistance during COVID-19: Lending to small businesses (PPP) significantly increased households’ interest in crypto assets, particularly among new, retail investors

Bertomeu, Jeremy and Martin, Xiumin and Zhang, Sheryl, Uncle Sam’s Stimulus and Crypto Boom. SSRN, January 9, 2023. http://dx.doi.org/10.2139/ssrn.4320431

Abstract: This study examines the impact of government financial assistance during the COVID-19 pandemic on the demand for crypto assets and the effect of crypto interest on the stated goals of stimulus programs. Government lending to small businesses (PPP) significantly increased households’ interest in crypto assets. Using a Bartik instrumental variable for PPP distribution, we find that a one standard deviation increase in PPP disbursement is associated with an increase in crypto-related Google searches. A 100% percent increase in PPP disbursements is also accompanied by a 2% increased number of new wallets, 10% higher trading volume, 23% higher miners’ revenue, and a shift from large to small addresses, suggesting that government assistance increases the demand for cryptos, particularly among new, retail investors. We further find that about 5-14% of PPP loans are diverted to crypto assets, rendering PPP less effective in maintaining employment. Our results are stronger for MSAs with a less educated population, supporting a house money explanation.

Keywords: Pay Check Protection, Crypto, Stimulus Program

JEL Classification: D82, D83, G10, G5, G24, G3, K0