A lot of people hate cryptocurrencies… but no one seems to hate them more than wealthy investors.
According to one poll, households making more than US$100,000 per year are 33 percent less likely to buy crypto than the average American.
When I bring up bitcoin with wealthy investors, they’re quick to dismiss it. I’ve spent a lot of time trying to get them to change their minds. And even though they’re missing out on potential 10x, 20x, or 50x returns, they’re content to sit on the sidelines – for now. As I’ll explain today, I think that’s about to change.
But first, let’s look at why many wealthy investors have avoided cryptocurrencies…
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1. The current banking system is designed to serve the wealthy.
Why take millions of dollars out of a 200-year-old bank, and use it to buy bitcoin that you have to store yourself?
Insured bitcoin custody solutions are developing (more on that below), but if you’re wealthy, the modern banking system already has everything you need. Deposit accounts are insured and wire transfers are relatively inexpensive if you’re moving large sums of cash around the world.
“I don’t see a need for bitcoin,” I’ve been told. That’s true when you’re not worried about a US$45 wire transfer fee. But US$45 isn’t pocket change for everyone. It’s 15 percent of a minimum wage earner’s weekly income in the U.S.
Worldwide, 22 percent of the population is unbanked. That’s 1.7 billion people without access to the modern banking system. Another 340 million people live in countries with inflation rates of 20 percent or higher. The current banking system simply doesn’t serve everyone equally.
2. Wealthy investors hate regulatory risk.
It doesn’t matter if you’re rich or poor – bitcoin is hard to understand, and it’s easy to misunderstand (see 5 myths about bitcoin that have got to die). I’ve been obsessed with bitcoin for six years, and I’m still learning new things about it.
The wealthiest people I know aren’t interested in how bitcoin works. They’re seeing scary headlines in financial publications. Often, they conclude that governments would never let a digital currency achieve mainstream adoption.
However, radical new technologies often force governments to adapt rather than the other way around. We’ve seen that happen with ride-sharing apps like Uber. Governments at various levels around the world have modified their rules to reflect the market Uber created. I believe the same will happen with bitcoin.
When governments take a hard stance on crypto, they risk losing start-ups (and their potentially enormous tax revenues) to friendlier jurisdictions. China’s experienced it already. After banning crypto exchanges, dozens of them – including the world’s largest exchange, Binance.com – moved offshore, where they continue to operate today. More progressive governments are choosing to regulate crypto companies instead… making money off them in the process.
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3. Wealthy investors have more opportunities.
“Business opportunities are like buses,” British business titan Richard Branson once said. “There’s always another one coming.”
With that perspective, it’s not surprising that many wealthy investors are willing to let regulators and the market sort bitcoin out before buying it. After all, it’s still unproven technology. For example, bitcoin takes longer to process transactions than Visa, Mastercard and PayPal, and it only handles a fraction of the volume.
And the wealthy who are interested in investing in bitcoin can do it indirectly. For example, they can invest in services that look to profit off the crypto industry.
As accredited investors (individuals with incomes north of US$200,000 or a net worth of US$1 million or more), they get access to private equity offerings the middle class can’t touch. Sharespost.com, for instance, gives accredited investors access to shares in Robinhood, a free stock and crypto trading platform, Circle, which owns the crypto exchange Poloniex, and Ripple, which developed XRP, a crypto token designed for banking.
But change is on the horizon
On average, every 1.2 days, an economist, news site, or wealthy investor proclaims that bitcoin is dead, according to 99bitcoins.com. Nonetheless, bitcoin just celebrated its 10th birthday. Every day it survives strengthens the argument that there’s a need for an inflation-proof digital currency that’s free from government manipulation.
And Wall Street is coming.
A December survey of 150 financial advisors found 22 percent of them plan to start a new crypto allocation (or add to an existing one) in client accounts this year. Fifty-five percent of advisors also expect bitcoin prices to climb over the next five years. Their average price target for the end of 2023 is US$17,571.
We’re seeing increasing evidence that Wall Street believes deep-pocketed investors will want access to bitcoin. And just about every major investment bank and brokerage house is working to bring crypto products to the market.
In March, Asset manager Fidelity, which manages US$2.5 trillion in assets, will launch a bitcoin custody platform that gives investors a place to buy and store bitcoin. Citigroup is working on a similar product. Meanwhile, investment bank Goldman Sachs has partnered with BitGo (a blockchain security company)… and Japanese investment bank Nomura has partnered with Ledger, which makes hardware to protect cryptos.
The most anticipated offering of all, though, is coming from Intercontinental Exchange (ICE), the team that operates the New York Stock Exchange and 11 other major exchanges. ICE plans to launch a start-up crypto exchange called Bakkt this spring.
Twelve investment funds and global companies poured more than US$180 million into Bakkt’s first round of funding last month. Why? Because Bakkt could become the go-to platform for institutional funds and money managers to trade bitcoin.
Not only will Bakkt’s holdings be insured (meaning traders shouldn’t need to store their bitcoin themselves), the platform can draw on ICE’s reputation and decades of experience. What the NYSE is to stocks, Bakkt will be to crypto.
Finally, Wall Street money managers will have a place to buy and store bitcoin that’s as trusted and secure as the NYSE itself.
As soon as it launches, massive amounts of money could start flowing through it. For a lot of institutional (or big-money) investors, this will be the first time they can safely and easily buy bitcoin.
If ICE can’t get the attention of deep-pocketed investors, no one can.
Bitcoin will get too big for anyone to ignore
Every day, more and more people and businesses are getting involved in the crypto space.
Coinbase, the world’s largest crypto exchange, now has more than 25 million users. And it’s adding 25,000 new users every day. For comparison, the biggest stock brokerage firm in the U.S. has 21 million brokerage accounts.
And companies across almost every conceivable industry are investing in blockchain technology (you can learn more about the blockchain here). Auditing firm PwC recently surveyed 600 executives from 15 territories. They found that 84 percent of organizations have at least some involvement with blockchain.
It’s possible, global auditing firm PwC says, that by 2030, 10-20 percent of the global economic infrastructure will run on blockchain-based systems. Global tech research firm Gartner agrees. It forecasts that blockchain will generate some US$175 billion in annual business value by 2025 and US$3 trillion by 2030.
In short, soon, bitcoin will be too big for anyone – including wealthy investors – to ignore. And Bakkt will give money managers a safe and secure place to invest in bitcoin.
So if you haven’t invested yet, now is a great time to get in.
Good investing,
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Fred Marion
Cryptocurrency Analyst, Stansberry Pacific Research
P.S. If you want to make big money in cryptocurrencies, it’s urgent that you get in right away. In our recent report, we explain the big event happening soon in cryptocurrencies. It could cause a massive amount of money to flow into the space – and some cryptos could soar 100x. You can get the full story here.
