Did American taxpayers, via a pandemic-era economic relief program, help prop up the great crypto gold rush of 2020-21?

A group of researchers at Washington University in Saint Louis make a compelling case that they did in a new study suggesting that a not-insignificant amount of the pandemic relief money doled out in 2020 as part of the Paycheck Protection Program was used by recipients to speculate on cryptocurrencies.

In what is described as the first study to chart how government aid was diverted to purchase cryptocurrencies, the researchers tracked online searches, the creation of new online “wallets” for holding cryptocurrencies, new accounts on crypto exchanges such as Coinbase, and trading volume on those exchanges and compared them with the timing and location of the Covid relief payments.

What the researchers discovered was that such activity surrounding cryptocurrencies increased dramatically during the periods immediately after large disbursements of PPP money. They also note that between the time the program was initiated in March 2020 and June of the following year, the price of cryptocurrencies such as Bitcoin and Ether jumped 450 percent and 1,500 percent, respectively.

A 100 percent increase in PPP disbursements was “accompanied by a 2 percent increase in the number of new wallets, 10 percent higher trading volume, 23 percent 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 authors of the study — Jeremy Bertomeu, Xiumin Martin, and Sheryl Zhang — concluded.

The PPP was part of the $2.2 trillion Coronavirus Aid, Relief, and Economic Security Act passed by Congress in spring 2020. Under the program, the Small Business Administration offered forgivable loans of up to $10 million to help businesses cover payroll and other expenses during the Covid lockdowns. In all, some $800 billion in loans were handed out to 11.47 million businesses. More than 10 million of those loans, worth $758 billion, were later forgiven.

The amount of fraud associated with the program overall has been described as “staggering” by federal officials. By some estimates, as much as $80 billion was handed out to bogus applicants.

The Department of Justice has charged dozens of people with fraud involving the use of Covid relief funds to purchase cryptocurrencies. Among the most recent cases, a Dallas man who owns a crypto firm called HODL LLC was indicted in November and charged with applying for and receiving $413,000 from the program and transferring at least $155,000 of the proceeds almost immediately to a crypto exchange.

The authors of the Washington University study suggest that activity by small retailer investors in cryptocurrencies — not just high-dollar whales acting illegally — jumped in the periods immediately following the weekly paycheck protection disbursements by the Small Business Administration. That many of the accounts were new ones buying cryptocurrencies from long-time holders “suggests that the aid was effectively transferred from taxpayers to wealthy or overseas investors supplying crypto assets,” the authors said.

“To the best of our knowledge, our study is the first to provide evidence of the diversion of government aid into speculative assets and its adverse real effects,” they concluded.