Crypto is Still the Key to Building Generational Wealth

Oct 20, 2022

Written by Kimberly Smith, Chief Capital Formation Officer at Techstars

Opportunities to create generational wealth – that is, wealth that is significant enough to be passed down from generation to generation among families – do not come around very often. The early years of the United States, when land was widely available, was one; the gold rush and oil boom years of the 19th century were others. Today, homeownership is the most common way for average Americans to build wealth and pass it down to their children.

But the real impact that comes from generational wealth isn’t just the money, but also what it allows you, your children, and their descendants to do with their lives. It opens doors, frees up decisions, and makes a real, middle-class life possible, no matter what else is happening in the economy.

Not surprisingly, according to Bloomberg, Baby Boomers held the majority of U.S. wealth as of 2021, with a total of nearly $60 trillion. Gen X claims “only” $28 trillion in wealth, but even that is 10x what Millennials control.

But it is not age-based wealth disparities that really matter when considering the impact of generational wealth, but rather the racial wealth gap. Minority groups in this country today control less wealth than they did in the 1960s, thanks to practices like redlining that imposed higher APRs, fewer loan approvals, and higher risk profiles for mortgage applicants of color. That has led to follow-on impacts like higher property taxes, less infrastructure, and reduced access to homeownership in these communities.

Without access to wealth-creation opportunities, this cycle continues.

That is one of the things that has always excited me about cryptocurrencies: They represent a new opportunity for minority groups to generate true, generational wealth after having been locked outside of the traditional financial system in this country for so long.

Take Coinbase, for instance.

They were the first crypto platform that allowed for very small investments and dollar cost averaging, making it easy for investors to get involved without having to put up large sums of money. Just like small investors did in the equity markets a generation ago, dollar cost averaging into crypto broadly has become a way for small investors to build generational wealth without taking on excess risk.

There are even more opportunities in cryptocurrencies to make these kinds of transformational changes than in the equity markets. There is a better chance that the value of Bitcoin and Ethereum will increase by a greater amount over the next few years than Coinbase and other blue chip stocks will. Those that have done incredibly well in crypto were in it from the earliest days or just got incredibly lucky. The opportunity is still there, but it is changing, even despite the recent volatility in the crypto markets. 

Up until now, the significant wealth in crypto has been created from the top 10-20 projects. Once you take Bitcoin and Ethereum out of the mix, you're left with barely a third of the market. It's a much smaller pot that is left, but when you consider that the crypto market topped out at about $3 trillion, that is less than 1% of global wealth. It is still a drop in the bucket. Where I see this going is an expansion of the types of assets that people invest in beyond just today’s crypto tokens including smart contracts, digital representations of equity and bonds, and more.

Generating wealth in crypto over the long term will become about research, investing in projects you believe in, and then being able to allocate some more traditional instruments to invest in via digital assets. Someday, we might someday get to the point where holding some Bitcoin and Ethereum in a 60-40 (stock-bond) portfolio is not only possible, but also common. 

And, for underrepresented investors, that access might make all the difference.