Were Bitcoin and other investments intended to be the destination for government money?
Image by mohamed Hassan from Pixabay
On March 12th the Biden-approved stimulus checks for $1400 per person started arriving with recipients. This time around there were cut-offs to who would be eligible to receive them - an individual earning $80,000, the head of a household earning $120,000 or a couple earning a combined $160,000 would all miss the cut.
Notionally it seems right to many that such cut-offs exist. First, there's the desire (and very real need) to ensure that the money that finds its way into the hands of those who need it most.
Secondly, there's the driver to keep the cost of the stimulus package down as much as possible - don't forget that most, if not all of the actual money that is being distributed as part of the $1.9 Trillion stimulus package known as the 'American Rescue Plan Act of 2021' is money that's been notionally printed out of thin air.
While there's a clear and present need to help out citizens, there will be long term economic consequences of this, for the value of the dollar and the debt carried by Americans for generations to come.
With these factors in mind, it may be alarming to some, that many legitimate recipients of stimulus checks who don't actually need the money (by most simple definitions) are choosing instead to invest the 'free' money in occasionally controversial and 'risky' investments such as Bitcoin and tech stocks.
Many are openly and blatantly sharing their intent on social media:
Source: Twitter
As you can see from the example, it tells a bigger story - of those who did the same with their first stimulus check from 2020. Based on the returns, some might argue that those who've chosen to invest their stimulus in Bitcoin or even index funds might have made a smart move in preparing themselves for an uncertain financial future?
It relies of course on them first and foremost not needing the money for food and rent, which is priceless too of course.
Trading and investing through the pandemic
With the lockdowns, shutdowns and the unfortunate and widespread loss or reductions in income, many have been forced to seek other ways of providing for themselves and their families. Many others have spent most of the last year working at home, and with time saved on commuting have had the time and opportunity to develop additional sources of income.
One way that many have attempted to do this has been through trading and investing.
In the course of the last year while the markets have presented something of a rollercoaster ride with as many downs as ups, the overall trend has been of meteoric growth.
Consider the following assets over the 12 months to March 2021:
- The Dow Jones Industrial Average rose from 20,487 to 32,825
- The Nasdaq Composite rose from 7,334 to 13,471
- Tesla Inc rose from $86 to $676 (including a 5:1 stock split)
- Bitcoin rose from $5,413 to $53,427 (having touched $61,000 in March 2021)
Investing as a means of weathering lockdown can’t have been easy, even in such a bullish market. But many have taken the opportunity to do just that. The stimulus check has, for many been their way of buying into the markets.
For many others who definitely did not need the money from early rounds of government stimulus, the money has also ended up invested in the markets. In many ways, this influx of additional money from various sources has likely played its part in inflating prices.
While there have been high profile diversions from normal behaviour in the markets (the GameStop and WallStreetBets episode for one), it’s evident through the rise in retail traders witnessed in 2020 (up by 4% in trading volume from 2019 and double that in 2010), that many have used trading to at least to supplement their incomes.
Controversially, as suspected given insights from social media, recent research from analyst firm Mizuho suggests that up to $40 Billion of the stimulus checks recently issued by the Biden administration are likely to end up invested into Bitcoin based on the intentions shared by recipients to their research.
There’s a whole other level of debate to be had over the irony of newly printed money (in the form of stimulus checks) being invested into a cryptocurrency that’s viewed as a potential hedge against inflation (typically caused by money-printing). While some will feel justified in questioning whether this is what stimulus money was intended for, it seems that some believe their economic salvation from Covid-19 will be in investing and trading.
Source: Twitter
The diverse purposes of stimulus checks
As I've already acknowledged, the purposes of stimulus funds are numerous - helping out citizens in need is the primary purpose of course. Another reason for the governments to issue money is to help stimulate the economy and to encourage spending and the flow of wealth throughout economic systems.
The idea is that by giving an individual $1,400, they will spend it! The money will flow to supermarkets, local stores and service providers who will then pass those same dollars onwards to other individuals and businesses, either by paying their employees or their suppliers - and so it continues.
The obvious issue that comes when the money is invested for future gain, is that it ceases to flow any further. It certainly doesn't serve any clear or immediate benefit for anyone, not even the person who's invested it - theirs is a long term view.
Preparing for the future
Before leaping on those who are investing their stimulus and labelling them greedy or selfish, it may be helpful to think of the purpose of investing - at its root we invest today to make a provision for our future selves. When we sacrifice spending money today, we are putting aside the purchasing power of those dollars for a time in the future when we might need it more.
And so, while there may be a sense that those who are investing their stimulus money in Bitcoin, or stocks in Apple, or an index fund don't really need the money - maybe we should consider instead that perhaps they see it as a means of setting aside the money for a future when they may need it more?
This doesn't avoid the other issue of course - that by issuing stimulus checks across the nation, the government is borrowing from the entire population's future selves - but it seems like a necessary evil right now? Time will tell!