Since the COVID pandemic began and brought the global economy to a near halt, the US government has issued three rounds of stimulus checks to provide relief for those facing economic hardship. If you were an eligible adult without dependents, you would have been eligible for the following payments:

In this scenario, we are talking about a total of $3,200 in stimulus checks, comprised of $1,200, $600, and $1,400. With this money, you could have paid bills, reduced debt, or established an emergency fund. Alternatively, you could have also invested in cryptocurrency. Let’s examine what would have happened if you chose the latter option:

How much would you have if you invested your stimulus checks in crypto?

For simplicity, let’s consider you had three options for investing your stimulus check in crypto: Bitcoin (BTC), Ether (ETH), or Dogecoin (DOGE). Given the prices at the time of receipt, your stimulus money would have allowed you to purchase 0.212 BTC, 9.02 ETH, or 755,000 DOGE.

Today, those holdings would equate to $5,063 in BTC, $14,281 in ETH, and $59,645 in DOGE. These results really surprised me, as even after multiple market crashes and a crypto winter, you would have still earned a 58% profit in BTC, a 346% profit in ETH, and a 1,764% profit in DOGE.

Of course, this is assuming you didn’t hold your crypto in FTX…

All-Time High/Low

If you had perfectly timed the market and sold your positions in BTC or ETH in October 2021, or in DOGE in May 2021, you would have made $14,819 from BTC, $41,432 from ETH, or an impressive $477,158 from DOGE.

However, if you sold at the least favorable time (December 2022 for BTC and June 2022 for ETH and DOGE), you would have made a small profit on BTC ($3,380). Nevertheless, you would have still achieved substantial profits on ETH ($8,957) and DOGE ($39,260).

Did this really happen?

I must emphasize that I do not encourage using stimulus checks to speculate in the crypto markets. However, these outcomes were surprising. It is widely known that the crypto market rally in 2021 was partly fueled by a significant number of new investors entering the market.

The lockdowns have been suggested as a contributing factor to the crypto market surge, as they provided more disposable income to a significant portion of the population and the appeal of “gamification” in trading was attractive to those confined at home for extended periods.

During this time, two major online crypto trading platforms reported substantial growth in their monthly active user base: Coinbase went from 1.0 million to 11.4 million users (11.4x), and Robinhood increased from 4.3 million to 17.3 million users (4.0x).

The Federal Reserve Bank of Cleveland reported a noticeable rise in Bitcoin purchases worth $1,200. This increase came after the initial stimulus checks authorized by the CARES Act were disbursed in April 2020. According to the Fed, the total trading volume of Bitcoin increased by approximately 3.8% in response to the first stimulus check distribution.

A survey by CNBC and research firm Momentive queried 5,530 adults and found that 11% of the participants used their stimulus money to purchase cryptocurrency.

A January 2023 study analyzed the impact of government financial aid during the COVID-19 pandemic on the demand for crypto assets and the effect of crypto interest on the goals of stimulus programs. It found that government lending to small businesses (PPP) significantly boosted households’ interest in crypto assets:

“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.”

The study also found that approximately 5–14% of PPP loans were redirected towards purchasing crypto assets, reducing the efficacy of PPP in retaining employment. The findings are more pronounced in areas with lower levels of education, indicating the role of the “house money” effect.

What lessons can we learn?

In my opinion, the results of the iterations between relief funding and crypto investing raise two questions: first, is it better to distribute welfare directly as money or through alternative mechanisms? And second, how should we approach consumer protection and education for an asset class that is still not well understood?

Is it better to distribute welfare as money?

This viewpoint, that government welfare should be distributed as cash, has been advocated by many conservative and libertarian economists, including Milton Friedman. He believed that distributing welfare as cash leads to less distortion in market incentives and thus more efficient outcomes. I tend to agree with this.

But I acknowledge that crypto adds a challenging dimension to this reasoning, because in the traditional model, welfare recipients didn’t have a “viable” investment option, which is what crypto is, or hopefully will become.

How should we approach consumer protection/education when it comes to crypto?

The second lesson comes from consumer protection and financial education. Even though my generation witnessed the birth of crypto and were among the first investors, we are becoming increasingly risk-averse to it. We are now witnessing regulators and other bodies issuing ominous warnings — after the facts, by the way — , ignoring data, and demonstrating their own lack of financial literacy as a result of the crashes and the crypto winter.

When you see the types of regulatory actions that stem from this line of thinking, it is hard not to be wary of how they are actually hindering people’s chances of making sound economic decisions.