For the First Time, Millionaires Own Bitcoin. Here's Why.
Updated: Mar 18
Millionaires Are Buying Bitcoin
CNBC's bi-annual Millionaire Survey was released this week chronicling how and where they keep their money, and for the first time, they came across something incredibly surprising: 47% of millennial millionaires surveyed have over 25% of their wealth stored in cryptocurrencies. Over one third of millennials have at least half of their wealth invested in digital assets. And when you survey the millionaire landscape as a whole? 83% of American millionaires have a total of $0 invested in crypto. NONE! And according to CNBC, only 1 in 10 keeps more than 10% of their wealth in crypto assets.
This stark contrast between millennials and everyone else highlights the "digital first" schism between generations in their investing mindsets. With millennials growing up around computers and smartphones, never paying with cash and being indoctrinated into the Venmo generation, digital assets are a natural progression for millennials, and potentially Gen-Z. An increasing number of millionaires are beginning to look past stocks and bonds in order to build wealth-focused portfolios, and there are a few key reasons why:
Related: Should I Invest In Bitcoin In 2022?
Excluding the dramatic crypto crash of 2018, Bitcoin has consistently outperformed the stock market. A study out of the United Kingdom studied asset returns over the past 10 years and found that the FTSE 100 (the British equivalent of the S&P) returned a 7,38% annualized return on assets. Bitcoin in that same time frame consistently outperformed the market on an annualized basis, and only lost money on 11% of the days surveyed. That is RIDICULOUS performance.
Take the last 12 months as a perfect barometer -
S&P 500: +41.96%
Ethereum: +1,200% (35% down from all time highs)
A back-tested study of crypto portfolio allocation also found that only a 5% allocation in Bitcoin within your portfolio would have "boosted the cumulative return of the portfolio to 65.1%, more than doubling the return of the Traditional Portfolio."
Cryptocurrency is remarkably volatile. For the average older investor, volatility is not your friend. You want to meet with your advisor, find a stock and bond allocation that provides modest returns while limiting volatility, and then you want to retire with as much money as possible. For millennials, these conversations are literal decades in the future. Short term volatility means absolutely nothing when we aren't retiring for 30 or 40 years. Will we take the risk of volatility if it means being able to 5x or 10x our investments by the time we're 65 and ready to retire? Of course! Bonds be damned. Sorry Fed.
The World Is Trending Digital
As millennials gain a foothold in the wealth landscape, asset management firms are going to be forced to play ball. Want to attract millennial clientele? You'd better be crypto-focused, or we're going somewhere else. And this trend has already started, with a recent survey by the Financial Times finding that hedge funds are planning to allocate 7% of their total portfolios into crypto by 2026. This en masse purchasing of crypto assets by the whales of Wall Street will only serve to drive prices higher, in turn causing more buying, in turn driving prices higher. The Whale Effect.
The Bitcoin Bears
Not everyone is as bullish on cryptocurrency as an asset class. J.P. Morgan called the constant Bitcoin rallies "unsustainable," and Goldman Sachs calls it a "fail for retail investors." Jim Cramer also abandoned ship, saying that he sold all of his crypto assets after China's recently imposed crypto mining ban. Goldman qualitatively tested cryptocurrency against what they deem to be a checklist to ensure that an asset class is "investable:"
Achieve a stable, reliable cash flow on a contractual basis
Generate income by engaging in economic growth
Providing consistent and reliable diversification benefits for a portfolio
Providing consistent and reliable evidence to hedge against inflation or deflation as a store of value
According to Goldman, Bitcoin (and cryptocurrency as a whole) missed every single criteria. They also listed the available data on cryptocurrency as "poor quality." This is all despite Goldman publicly stating several months ago that they are looking to provide Bitcoin exposure to their wealth clients...
The SEC has also joined in on the party, raising security concerns with the asset class but stating that they have "no plans to regulate cryptocurrency in 2021." The SEC's agenda shows that it will focus instead on the topics of share buybacks, short selling (thanks GameStop), climate risks and market modernization. It doesn't list crypto anywhere, including the popular topic of a crypto ETF sometime in the future.
What Bitcoin Means To You
The back-tested study I mentioned earlier has some advice: Don't allocate more than 5% of your total portfolio to crypto. I know. You see numbers like "65.1% over-performance" and run to your Coinbase account to throw your home equity in there. But this study found that a consistent dollar-cost-averaging into Bitcoin, along with consistent re-balancing, was the best way to maximize your potential crypto returns without exposing your portfolio to too much volatility. This is especially important during times of extreme draw-downs in the cryptocurrency space, like we saw in 2018. This maximum 5% allocation will shield your portfolio from the extreme volatility, while still exposing you to a potential outperforming asset class in the process.
Are you ready to join in on the crypto craze and add (no more than 5%) crypto to your portfolio? You can purchase using either Robinhood or Coinbase using my referral links below to get free crypto to get started:
Robinhood - Get a free stock on Robinhood
Coinbase - Get $10 worth of Bitcoin for FREE
Do you love Bitcoin? Do you hate it? Let me know in the comments below, and I'll see you tomorrow for our first product review!
The author has a long financial position on Bitcoin and Ethereum. Please do your own research prior to investing. For investing help, please contact an investment professional.