When it comes to minting crypto millionaires, Bitcoin (BTC +3.02%) quite rightly gets all the attention. According to the 2024 Crypto Wealth Report, there are now 85,400 Bitcoin millionaires. That's about half of all crypto millionaires in the world.
But don't sleep on Ethereum (ETH +2.91%). The world's second-largest cryptocurrency is outperforming Bitcoin this year, and arguably has more upside potential over the long haul. If your goal is to become a crypto millionaire, Ethereum could provide the rocket fuel to get you there.
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Ethereum's historical performance
During the past five years, the performance of Bitcoin and Ethereum has been remarkably similar. During that time period, the five-year annualized return of Bitcoin is 59.1%, while the five-year annualized return of Ethereum is 60.4%. So a credible argument can be made that Ethereum has actually outperformed Bitcoin during the past five years.
CRYPTO: ETH
Key Data Points
However, anytime you're crunching the numbers, it pays to peek under the surface to get a better idea of what's actually happening. Ethereum's performance is driven largely by two monster years -- 2020 and 2021 -- when it delivered returns of 472% and 395%, respectively. This occurred during the previous crypto bull market rally, when investors began to fully recognize the long-term growth potential of Ethereum.
After a dismal year in 2022, when the entire crypto market tanked, Bitcoin and Ethereum soon regained their momentum. In 2023, Bitcoin returned 156%, while Ethereum returned 93%. In 2024, Bitcoin returned 121%, while Ethereum returned 46%.
That's why it can sometimes be difficult to get a handle on Ethereum's true upside potential. Is this a cryptocurrency that's really capable of growing at a rate of 400% per year, as it did several years ago? Year to date, Ethereum is only up about 33%, so a more realistic growth rate is in the 30% to 45% range.
So let's do the math. Let's assume 30% annual returns for Ethereum, and see how long it would take to transform, say, $1,000 into $1 million. If we assume a compound annual growth rate (CAGR) of 31.8%, then it's possible to transform $1,000 into $1 million within 25 years.
Ethereum's blockchain ecosystem
That's an encouraging sign, of course. But how exactly is Ethereum going to deliver 31.8% annualized returns during the next 25 years?
The answer to that question is Ethereum's blockchain ecosystem. Ethereum is a smart contract blockchain platform that users and developers can build on top of. Everything that gets built on top of Ethereum gets all the advantages of the core Ethereum blockchain. That's why Ethereum has become the market leader in so many segments of the blockchain world, from non-fungible tokens (NFTs) to decentralized finance (DeFi).
So, when evaluating Ethereum's future growth prospects, investors really need to take into account everything that's happening within the Ethereum blockchain ecosystem. If you take a look at the top 50 cryptocurrencies (as ranked by market cap), it's easy to get a very quick overview of why Ethereum is so valuable.
The top stablecoins, for example, use Ethereum. Many of the top meme coins are built on top of Ethereum. Most importantly, a number of the top DeFi protocols and decentralized exchanges are built on top of Ethereum.
Growth in DeFi is why Ethereum exploded in value during 2020 and 2021. Investors saw Ethereum as the future of finance, and everything DeFi-related soared in value accordingly.
To a certain extent, that's what's happening now, especially when it comes to stablecoins. Citigroup (C +0.55%), for example, sees the stablecoin market exploding in value by a multiple of 10 during the next five years. That type of turbo-charged growth is obviously going to benefit Ethereum.
No guarantees with Ethereum
Just remember -- there are no guarantees when it comes to Ethereum. Looking back at the past seven years of data, Ethereum has had two very good years (2020 and 2021), two good years (2023 and 2024), one bad year (2019), and two absolutely atrocious years (2018 and 2022). So making sense of the data can be challenging, to say the least.
Crypto typically follows a four-year cycle, and there's simply no way to avoid the down years if you're a buy-and-hold investor. In 2018 and 2022, nearly all cryptos lost 60% or more of their value. It didn't matter what you were holding at the time.
When investing in crypto, you simply have to hope that the up years are so amazingly good as to outweigh everything else that happens in the intervening years. That sounds like a risky strategy, and it is. But it's also the type of risk that you need to take if you want to become a crypto millionaire one day.
