The Treasury Department's research arm was looking for dangers in crypto households amping up their debt, but they found people buying houses with few problems.

Nov 26, 2024, 8:48 p.m.

Crypto investing may have allowed lower-income Americans to buy their own homes at a higher rate than the rest of the population, according to a paper released Tuesday by the U.S. Treasury's Office of Financial Research.

The rise in cryptocurrency investment in recent years came with a pronounced uptick in debt — most notably mortgages — sought in the areas where digital assets activity was highest, according to the research conducted by the Treasury's independent arm that sniffs out U.S. economic hazards. It was looking for evidence that such financial stretching may be a danger to U.S. stability, but so far the researchers found that delinquency rates in those places have remained low.

"Low-income consumers in high-crypto exposure areas are disproportionately more likely to take out a mortgage, and the average mortgage size is large relative to pre-2020 average income," the paper concluded.

"There is little or no evidence of higher levels of distress in mortgage, auto, or credit card debt among consumers in high-crypto exposure neighborhoods," according to the report. "If anything, delinquency rates remain relatively low."

This potentially sunny piece of federal research could further bolster the case of incoming presidential administration officials who seek to clear a path for greater U.S. crypto adoptions. President-elect Donald Trump is expected to appoint financial regulators who favor friendly regulations and lighter enforcement in the digital assets sector.

The OFR paper cautioned that these crypto households will warrant close observation in a financial downturn to see if such stresses expose them as a risk to the U.S. mortgage market. Cryptocurrencies have remained a much more volatile investment than most other asset classes.

"An important takeaway for future monitoring is the increased debt balances and leverage among low-income households with crypto exposure," the report noted. "Rising distress in this group could cause future financial stress, especially if exposure to these types of high-leverage, high-risk consumers is concentrated in systemically important institutions."

The OFR's numbers suggested a 274% increase in mortgages in high-crypto, low-income areas between 2020 and 2024, and the average mortgage balances were much higher than low-income zones with less digital assets activity. They were even significantly higher than in middle-income areas.

"Crypto sales may have supported access to larger mortgages through bigger down payments," according to the findings.

The study relied on U.S. tax data to find crypto concentrations, and because the latest available data was from 2021, the crypto sales would likely have been at the height of the market before the industry's 2022 collapse – meaning sales were more likely to result in significant gains. The investors apparently used those gains to back their other financial moves, including much higher purchase of homes and cars. But the OFR's credit data was as recent as this year.

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