Part of the recently passed $1.9 trillion Covid-19 relief bill allocates hundreds of billions of dollars’ worth of direct checks or bank deposits to struggling people and families. You might think that they’d spend the money on bills and debts, or save it for a rainy day, but the experts suggest they’ll be spending it on stocks and cryptocurrency.
A survey of 235 individuals released by Mizuho Securities found that two out of five individuals receiving stimulus funds plan to invest at least some part of the proceeds into Bitcoin and stocks.
If we extrapolate those results, then around 10% of the stimulus check payments, or approximately $40 billion, could be poured into the stock market and Bitcoin.
The Mizuho survey found around 20% of check recipients expected to allocate as much as 20% of their checks to Bitcoin and/or stocks. Another 13% of recipients expected to allocate between 20% and 80%, while 2% expected to put 80% or more of their checks into the markets.
And here’s where it gets really interesting. You’d think that the stock market would be the go-to choice for most investors, right? Not so fast, as the Mizuho survey yielded a surprising result concerning how stimulus check recipients plan to invest their funds.
As it turns out, Bitcoin is the preferred investment choice among check recipients. It comprises 61% of the investors’ preference – which could imply $25 billion spent on Bitcoin from stimulus checks, according to Mizuho analysts Dan Dolev and Ryan Coyne. And that, in turn, would represent 2% to 3% of Bitcoin’s current $1.1 trillion market cap.
This might be an unexpected result, but perhaps it shouldn’t be. Bitcoin’s rapid run-up over the past several months brought many new investors into the fold while also raising Bitcoin’s profile in the mainstream media.
And if you thought that $40 billion being poured into Bitcoin and stocks is a huge amount, then you’d better put your seat belt on as analysts from Deutsche Bank are projecting a much bigger inflow than that.
“With potential direct stimulus payments of $465 billion being planned, this could represent a sizable inflow into equities ($170 billion),” wrote Deutsche Bank strategists Parag Thatte, Srineel Jalagani, and Binky Chadha.
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Like Mizuho, Deutsche Bank conducted a survey of prospective market participants; in particular, Deutsche Bank surveyed 430 U.S.-based users of online brokerage platforms, with nearly two-thirds of them being 44 years of age or younger.
37% of the respondents said that they plan to use any stimulus checks they receive to buy stocks. Recent data also yields some interesting trends among the new crop of retail traders and investors:
- 61% of new retail investors are under the age of 35.
- More than 50% of them frequently use options.
- Also, more 50% of them trade options 10 or more times per month.
- 26% of them say they have used some sort of leverage or borrowing to buy stocks.
“The group of new individual investors exhibits several characteristics which are markedly different from those that have been trading for longer, and in particular show greater use of leverage, option trading and reliance on social media for investment advice,” observed the Deutsche Bank analysts.
Deutsche Bank also attempted to gauge why people are choosing to pour more of their funds into stocks now. Here’s a breakdown of the responses:
- 42% of respondents believe that stocks offer good return on investment
- 35% say they had more cash to spend
- 38% cite having more time to research and trade during the pandemic period
- 35% point to the relative ease of trading from home, with many people being locked down over the past year
- 28% state that commission-free trades are a key incentive
While Deutsche Bank might not have cited this factor in particular, it’s likely that the ascent of “meme stocks” like Gamestop and AMC motivated at least some people to start trading in the financial markets.
The upshot of all this will probably be a short-term influx of retail dollars into stocks and Bitcoin. It’s just another reason to avoid taking a short position against stocks and cryptocurrency – you’d be betting against a massive wave of investors who don’t necessarily know what they’re doing, but they’ll all be doing it at the same time.
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