There's a good reason the myth of the crypto millionaire exists. According to the latest Crypto Wealth Report, there are more than 88,000 people around the world who have become crypto millionaires.
And (perhaps no surprise here) the one crypto that is responsible for 40,500 of those millionaires is Bitcoin (BTC +0.31%). While it's certainly no guarantee that investing in Bitcoin will put you on the path to millionaire status, this crypto has several characteristics that make it ideal for building long-term wealth. Let's take a closer look.
1. Worldwide adoption and growing utility
Many people, when they think of Bitcoin, view it only as a form of digital gold. But there are several other uses for it beyond just acting as a long-term store of value similar to gold itself. All of them build on the original notion of it as a peer-to-peer electronic cash system, as first proposed by the pseudonymous Satoshi Nakamoto in the original Bitcoin white paper.
In its Big Ideas 2023 report, Ark Invest outlines eight potential uses for Bitcoin. When you add up all of them, and make a few extrapolations about future growth, you can come up with a very large potential valuation for Bitcoin. For example, in the bull-case scenario, Cathie Wood of Ark Invest says it could be worth as much as $1.48 million per token by 2030.
2. Bitcoin as a new asset class
When thinking about how to construct an investment portfolio, two of the most popular asset classes are equities and fixed income (i.e., stocks and bonds). But there are also so-called alternative asset classes such as real estate, commodities, and private equity. And now, according to a growing number of influential voices on Wall Street, there's also Bitcoin.
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If Bitcoin is a unique asset class with a very distinctive risk-reward profile, it becomes much more appealing for institutional investors. To achieve an optimal portfolio blend, they now need to take it into account. And that means that they could choose to allocate anywhere from 1% to 2.5% of their portfolios to the crypto.
In its base-case scenario, for example, Ark Invest uses the 1% number, while in its bull-case scenario, the firm uses the 2.5% number.
Given that these institutional investors manage trillions of dollars in assets, even 1% of their total assets under management could be a huge number. For example, BlackRock (BLK +0.00%) has about $9 trillion in assets under management. So 1% of that would imply billions of dollars potentially headed to Bitcoin.
These investors, most likely, won't be investing in the digital coin directly. Instead, they will be investing via spot Bitcoin exchange-traded funds (ETFs) that mirror and track the performance of Bitcoin.
The arrival of the first spot Bitcoin ETF is now expected in the first quarter of 2024. Already, some are projecting that these new ETFs could result in a huge influx of new money into Bitcoin. And that, of course, is going to push up the price over time.
3. The 100-year plan
In a world driven by quarterly financial results and annual returns, how many companies have put into place a 100-year strategy? Few, if any. Of all the companies in the S&P 500, only a small number have been around for 100 years or more. These are among the oldest and most respected companies in America.
But did you know that Bitcoin has a 100-year plan in place? It's all determined by a computer algorithm, but the rate of new Bitcoin creation is very carefully controlled. Every four years, the rate of new token creation drops by one-half, as part of a process known as the halving.
Given the current circulating supply of 19.5 million bitcoins and the maximum lifetime supply of 21 million bitcoins, it is possible to extrapolate that there will be about 30 more halving cycles. Sometime around the year 2140, the Bitcoin last will be mined. That's more than 100 years from now!
All of this helps to make Bitcoin a fantastic buy-and-hold asset that you can literally hold on to for your entire lifetime. This perceived long-term stability is part of what makes Bitcoin so attractive to crypto investors.
How likely is it that you become a millionaire?
Just keep your hopes for becoming a crypto millionaire in check. Yes, there are a reported 40,500 Bitcoin millionaires. But there are also 1 million crypto wallets worldwide that hold at least one whole Bitcoin. Thus, just based on these figures, your chance of becoming a millionaire (even if you choose to invest $43,000 for a whole Bitcoin today) could be less than 5%.
But that 5% is a special breed. These investors identified an opportunity early. They held on to that investment through bear markets and unpredictable sell-offs. And they realized that Bitcoin could become an important part of a diversified portfolio. If you're looking for one crypto to put you on the path to millionaire status, it's Bitcoin.
