It's simple and straightforward: Cryptocurrencies are growing in popularity. The proof is in the numbers. A recent study conducted by Bank of America (BAC -0.49%) shows that more and more young investors are driving growth of the new asset class.
The published report observed 1,000 individuals with a net worth of at least $3 million and aimed a better understanding of the current investing approaches between different age cohorts. Participants were split into two age groups; those aged 21 to 42, and those 43 and older. And you can probably guess that among that younger demographic, traditional investing practices are being challenged.
Before we get into the study, we should make a disclaimer. Clearly a net worth of $3 million isn't the norm. However, following the behaviors of wealthier investors can provide insight on what assets are growing in demand. As more capital flows into an asset class, the less speculative it gradually becomes and subsequently becomes more mainstream for all investors.
Out with the old, in with the new
One of the most shocking findings in the study showed that 75% of investors in the younger age group don't think it's possible to achieve above-average returns solely by investing in stocks and bonds. Only 32% in the older cohort shared that belief.
So if younger generations don't think stocks and bonds are viable assets, what are they investing in?
Bank of America found that the alternative assets being targeted by younger investors include private equity, commodities, real estate, and cryptocurrencies. Furthermore, this younger group is allocating roughly half as much of their portfolio to stocks (25%) than their older counterparts (55%).
Of most interest was what asset class younger investors believed had the most growth potential in the future. Unsurprisingly, the younger investors believe that crypto has the greatest growth opportunity, and nearly half of the surveyed investors currently own some.
Bank of America wrapped up its survey by summing up one key factor that could further propel the rise of cryptocurrencies: One of the largest generational wealth transfers is set to occur over the coming decade. It's estimated that somewhere around $84 trillion is expected to pass from the baby boomers to Gen X and Millennials by 2045. A shift of this magnitude will provide the fuel for younger investors to pursue those newer strategies that are becoming more evident.
Numbers don't lie
Don't believe Bank of America's study is comprehensive enough? I've got more numbers for you.
One of the most informative metrics we can use to quantify this growing trend is the number of digital wallets created. Since blockchain data is open source, we can look directly at the data to see just how much growth is occurring. Let's focus on Bitcoin (BTC -0.10%) and Ethereum (ETH 0.04%) since these are the most valuable cryptocurrencies by market capitalization.
The number of Bitcoin wallets between 2019 and today has increased from around 460 million to more than 1 billion, roughly a 117% increase. Due to its role in decentralized finance (DeFi) applications like lending, staking, and NFTs, the number of Ethereum wallets has skyrocketed as well. Since 2019, the number of unique Ethereum wallets has gone from 77 million to more than 208 million today.
As some of the most high-profile cryptocurrencies, it makes sense that Bitcoin and Ethereum have garnered some of the most growth over the last few years. Furthermore, if the trends discovered in Bank of America's study continue to materialize, then these cryptocurrencies have the most to offer investors over the coming years.
Cryptocurrency is in a similar position to the internet in the 1990s and Big Tech in the 2010s. During those periods, these technologies were pioneered by the younger generations before becoming mainstream. Recognition of this trend early on is an easy way for investors to capitalize on lucrative returns over coming decades. Fortunately, it's not too late to take advantage of this opportunity.