Bitcoin’s Rally Effect: Fed Experiment Links Price Gains to New Crypto Buyers
- Households shown that Bitcoin had gained 14% over the previous year were about 23% more likely to say they owned crypto in a subsequent survey.
- A Federal Reserve Bank of Cleveland experiment suggests that strong Bitcoin performance can encourage people who were previously on the sidelines to enter the cryptocurrency market.
- Researchers randomly assigned participants in a 2025 survey to a control group or six groups that received information on Bitcoin, the S&P 500, GameStop or the Federal Reserve’s inflation projections.
- One group was told Bitcoin’s return over the previous 12 months, while another was shown a chart illustrating its price performance.
- The two Bitcoin treatments lifted the likelihood of reported crypto ownership by 2.41 and 2.48 percentage points, respectively. With initial crypto ownership at about 11%, the increase amounted to roughly 23% relative to the starting rate.
- The analysis covered 5,352 respondents surveyed from the second through fourth quarters of 2025. Researchers controlled for participants’ existing crypto ownership and relied on self-reported holdings rather than transaction records.
- The treatments also increased participants’ desired crypto allocation by around 2 percentage points, compared with an average allocation of 4.3% among the control group.
- Respondents largely funded the additional crypto exposure by reducing their planned holdings of cash, checking accounts and savings, while their desired allocation to stocks also increased.
- Participants who were shown Bitcoin’s positive return raised their expected crypto returns for the next year by 3.2 percentage points compared with the control group. Those shown the price chart increased their expectations by 1.2 percentage points.
- The strongest reaction came from people who said they avoided crypto because they did not know enough about it. The Bitcoin treatments had no statistically significant effect on respondents who already believed crypto was a poor investment.
- Showing participants the S&P 500’s performance also increased the likelihood of subsequent crypto ownership, although it did not affect their intended portfolio allocations.
- The findings suggest that strong historical returns can draw fresh participants into the market, with their purchases potentially creating additional upward pressure on prices.
- Researchers said the results illustrate one way speculative bubbles can emerge: higher returns raise expectations, attract new buyers and potentially push prices even higher.
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