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Galaxy: The impact of large-scale wealth transfer on the cryptocurrency market.

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The large-scale transfer of wealth represents a substantial demographic shift that will inspire a stronger inclination towards encryption among the digital native population.

Summary: Large-scale wealth transfer represents a substantial demographic shift, which will strengthen the stronger encryption trend among digital natives.

The Great Wealth Transfer & its Impact on Crypto

Author: Charles Yu

Translation: Luccy, BlockBeats

Editor's Note:

In the next two decades, millennials will become the primary beneficiaries of wealth inheritance, and by 2030, their adoption or acceptance rate of cryptocurrencies will be at least three times higher.

Galaxy Digital researcher Charles Yu conducted an in-depth analysis of the transfer of wealth in the United States, focusing on the large-scale wealth transfer from the baby boomer generation to the millennial generation. The shift from traditional financial systems to cryptocurrencies not only reflects the differences in investment behavior and values between millennials and older generations, but also brings new opportunities and challenges to the cryptocurrency market. The article provides an in-depth analysis of the younger generation's preference for cryptocurrencies and the profound impact this trend may have on the market.

Charles Yu also pointed out that although the "large-scale wealth transfer" cannot solve all the financial problems faced by the younger generation, it marks a transition of power and wealth, providing more autonomy for the digital native generation.

In the coming decades, the older generation will pass on trillions of dollars in money and assets to their children, which will greatly change the pattern of wealth in the United States. The younger generation of "digital natives" have significantly different investment preferences compared to their parents, including a higher willingness to invest in Bitcoin and cryptocurrencies.

Core Points

The millennial generation is about to experience the largest wealth transfer in history. Although the baby boomer generation and older generations make up less than one-third of the adult population in the United States, they collectively own two-thirds of the country's household wealth ($96 trillion), which is more than 11 times the wealth of the millennial and younger generations. Over the next two decades, Cerulli Associates estimates that $84.4 trillion in wealth will transfer from the baby boomer and older generations to the younger generation, with the millennial generation being the primary beneficiaries. Coldwell Banker estimates that by 2030, the wealth of the millennial generation will increase by five times compared to the beginning of this decade, mainly due to inheritance.

The millennial and Gen Z generations are significantly different from older generations when it comes to cryptocurrency, as they are more inclined to choose cryptocurrency. The millennial and Gen Z generations are the first batch of digital natives, and compared to their parents and grandparents, they are more diverse in terms of race, education, and social awareness. Influenced by multiple economic recessions, high housing costs, and heavy debt burdens, these younger generations are more willing to accept alternative financial systems and investments, including cryptocurrency. Many surveys measuring the adoption of cryptocurrency among different generations have found that compared to the baby boomer generation, the adoption or acceptance rate of cryptocurrency among these younger generations is at least three times higher.

The transfer of wealth to those who are friendly to cryptocurrencies may lead to a significant increase in demand for Bitcoin and other crypto assets. If a large-scale wealth transfer (The Great Wealth) were to occur today, we estimate that there would be an additional $160 billion to $225 billion flowing into the crypto market due to the higher acceptance rate of this technology among the younger generation compared to the baby boomer generation. As most of the wealth of the baby boomer generation and older generations is expected to be passed on to the younger generation by 2045, our estimate shows that the impact of wealth transfer may result in a daily increase of $20 million to $28 million in purchasing pressure on the crypto market over the next 20 years.

Although wealth transfer may not solve all financial problems for millennials and the next generation, it is expected that only a small portion of the population will receive any inheritance. Wealth transfer may not flow to the low-income groups who are most likely to benefit from inheritance. For those who are expecting to inherit, the actual amount of wealth transferred may be lower than expected due to longer lifespans, higher medical expenses, poor financial planning, shifting spending priorities, and fewer benefits.

However, the shift of wealth/power to the younger generation is inevitable, which is a good sign for cryptocurrencies. Even if massive wealth transfer cannot substantially alleviate the financial burden of the millennial generation, the handover from the baby boomer generation to the younger generation will have profound impacts on society and politics - all of which bode well for the further adoption and future development of cryptocurrencies in the United States.

Large-scale Wealth Transfer

According to the Federal Reserve's Survey of Consumer Finances, as of the second quarter of 2023, the total wealth of American households reached $146 trillion. Of this total, the baby boomer generation and older (born in 1964 or earlier) collectively held $95.6 trillion, or about two-thirds of the total wealth in the United States, despite accounting for less than one-third of the adult population.

In recent years, the millennial generation has surpassed the baby boomer generation to become the largest population in the United States. Despite their numerical advantage, the millennial and younger generations (including Generation Z) collectively hold $8.3 trillion (about 5.7% of total wealth), which is approximately 11.5 times the amount held by the baby boomer and older generations, or about 15.5 times less per person.

In the next two decades, the millennial generation is set to be the primary beneficiaries of what many refer to as the "great wealth transfer," with the older generation passing on trillions of dollars in wealth to their children.

Cerulli Associates predicts that by 2045, the total amount of wealth transferred through inheritance will reach $84.4 trillion, of which $73.6 trillion (87% of the total) will be passed down to heirs and the remaining $11.9 trillion (13% of the total) will be donated to charitable organizations. The Baby Boomer generation (ages 59-77) is expected to transfer $53 trillion (63% of the total transfer amount), while the Silent Generation (currently aged 78 and above) is expected to primarily transfer around $16 trillion (19% of the total) over the next decade. Coldwell Banker estimates that by 2030, the wealth held by the Millennial generation will be five times what it was at the beginning of the decade, largely due to inherited wealth.

Generational Divide

Recognizing the key differences between these different groups and identifying intergenerational trends provides valuable insights for individuals, investors, businesses, and policymakers who want to understand user behavior and preferences, take advantage of market opportunities, or evaluate the impact of policy decisions.

Each generation experiences a series of significant and influential events and challenges during their growth process, which help shape their life principles and priorities. As young adults, the Silent Generation experienced World War II; the Baby Boomers experienced global conflicts and civil rights and counterculture movements after World War II; Generation X experienced the fall of the Berlin Wall, significant inflation in the 70s and 80s, and the dot-com bubble; the Millennials experienced the Great Recession and initiated the Occupy Wall Street movement; and Generation Z entered the workforce after experiencing the COVID era. These significant growth events have influenced the way we interact with the world, including our attitudes towards work and investment preferences.

In the table above, we have listed several key developments during the formation period of each generation, as well as certain characteristics and values of each group. These features and traits of most generations are related to the global political and socio-economic conditions (such as war, capital markets, employment markets, housing, etc.) in which each generation grew up, while others may be the result of technological progress or other trends beyond the control of central banks and decision-makers (such as increased access to information, availability of technology and media, globalization).

The millennial generation and Generation Z stand out as the first "digital natives" due to being the first group to grow up alongside the internet. Compared to the older generation, they are more diverse in terms of race, have higher levels of education, and are more socially aware. There is also a generational gap between the young and old. Today, the older generation often views the younger generation as lazy, arrogant, materialistic, and sensitive. Conversely, the younger generation may view the older generation as out of touch, stubborn, and narrow-minded.

Regarding these suggestions, there is no doubt that there is controversy over the pros and cons of both sides. However, the millennial and younger generations undoubtedly have to deal with unique financial difficulties and challenges that the older generation did not experience at a similar age. They not only experienced two major economic recessions in their early adulthood, but also faced higher education costs (and student loans) and housing costs, which have affected their savings and wealth:

· For millennials and Generation Z, student loans are a more severe problem than for Generation X and baby boomers. Not only is the cost of not attending college constantly rising, but the cost of education has also significantly increased, surpassing income growth, leading to an expansion of student loan levels for the younger generation. From 1982 to 2022, the average cost of attending a four-year college has risen from $11,840 to $30,031 (a 153% increase over 40 years). In the 15 years from 2008 to 2022, student loan debt increased by 163%, reaching $1.74 trillion. As of the third quarter of 2023, the number of federal student loan borrowers has increased by 45%, reaching 43.5 million Americans, and the average student loan debt per graduate has increased by 33%, reaching $37,650. Compared to baby boomers at age 30, millennials are more likely to have some student loan debt at the same age (about 40% compared to around 20%), and they face an economic burden that is four times that of debt-to-income ratio (40% compared to 10%).

· Housing costs have become even more expensive for the younger generation (mainly benefiting the wealth of the baby boomer generation due to the increase in the value of real estate assets). Over the past 40 years, housing has become increasingly unaffordable as the median price of new homes has exceeded the median household income, leading to an increase in unpaid mortgage debt and slowing down the homeownership rate of millennials compared to previous generations (further impacted by interest rate hikes in the past two years). The homeownership rate of millennials lags behind that of the older generation: in 2022, only 43% of millennials own their own homes at the age of 30, compared to 52% for the baby boomer generation at the same age.

These economic challenges have had a negative impact on the net wealth to income ratio of the millennial generation, resulting in their ability and inclination to invest or save at a similar age lagging behind that of the baby boomer generation. Higher levels of debt may delay the age at which investment begins and the amount saved, and may also have an impact on the risk behavior of the younger generation. In addition, traditional retirement income sources have shifted from social security and defined benefit pensions to defined contribution plans (i.e. 401(k) plans), which shifts the burden of savings and investment management onto employees. The millennial generation will be the first generation to retire without a defined benefit pension plan for the majority, and social security may no longer be a reliable source of retirement income. Therefore, according to a survey by the Transamerica Institute, early access to retirement savings - i.e. loans, early withdrawals, hardship withdrawals - has become more common among the younger generation. The survey also found that the younger generation is more concerned about their mental health and ability to save for retirement.

Attitudes and Adoption of Cryptocurrencies among Different Generations

The traditional financial system served the baby boomer generation well - they enjoyed relatively high incomes, low living costs, and many years of economic prosperity compared to the millennial and younger generations. Therefore, studies show that they are more likely to have more confidence in the financial system and choose to maintain the status quo.

On the contrary, many millennials and younger individuals are disillusioned with the financial system, believing that it has failed to meet their needs as it did for their parents and grandparents. Particularly after the 2008 financial crisis, concerns about inflation and a decline in institutional trust have led these digitally native groups to be more open to alternative financial systems and investments. Compared to the older generation, they are more likely to use non-traditional digital brokerage applications and robo-advisors, and have a higher preference for investments in technology, ESG, social impact, and alternative investments.

Therefore, naturally, the idea of having an alternative financial system that uses digital native currency outside of the control of banks and governments has resonated with this group of people. The appeal of Bitcoin and cryptocurrencies aligns with the values of the younger generation, as it is a digital-first, accessible, permissionless, privacy-focused, and always-online independent personal finance method.

Bitcoin/Cryptocurrency Adoption Rates by Generation

Coinbase estimates that 52 million Americans own cryptocurrency (about one-fifth of adults), with the highest ownership rate among millennials (45%) and Gen Z (39%). The survey results are somewhat similar to those of Pew Research, which found that 8% of adults over 50 have invested, traded, or used cryptocurrency, while 25% of those aged 30-49 and 28% of those aged 18-29 have done so, indicating that adoption levels among younger generations are three times higher than those over 50.

Other investigations into the adoption of cryptocurrencies between different generations have slightly different estimates, but each has come to similar findings: the adoption rate of cryptocurrencies among millennials is several times that of baby boomers, averaging 5.0 times across the surveys included in the table below (detailed information and links for each survey are included in the appendix):

· Most of the wealth expected to be transferred is held by a few wealthy families. If the total wealth held by the baby boomer and older generations is transferred to the remaining approximately 250 million Americans, each person would receive about $380,000, which could easily solve all existing debts of the younger generation. However, the wealth transfer will not be evenly distributed - Cerulli estimates that 42% (35.8 trillion US dollars) of the total transfer is expected to come from high net worth and ultra-high net worth families, which together account for only 1.5% of all households. A study by the University of Pennsylvania on historical inheritances found that the top 5% of households in income received inheritances that were 4 to 12 times the amount received by the bottom 80% of households. In addition, the probability of receiving an inheritance in any given five-year period is only 7.4%, but this probability increases in higher income groups.

· For those who expect to inherit, the actual inherited wealth may be lower than their expectations. A study by the Federal Reserve found that in the past three years, those who received inheritance estimated that they would receive an average of $72,200 (actually received an average of $46,200), indicating a gap between expected and actual inherited wealth. This gap is even more significant for the bottom 50% of the wealth population, as they estimated to receive an average of $29,400 (actually received an average of $9,700). In terms of "massive wealth transfer", a survey by Allianz Credit Union found that 52% of millennials who expect to inherit said they expect to inherit at least $350,000, while 55% of baby boomers who plan to leave an inheritance said they will not be able to pass on more than $250,000.

· With the extension of life and the reduction of pensions/welfare, the baby boomer generation spends more on themselves. A study by Fidelity found that a retired couple at age 65 can expect to pay $300,000 in medical and healthcare costs during retirement (an 88% increase since 2002). A study by Coventry found that 85% of retirees prioritize their own financial security and health, and over 75% of those surveyed do not plan to leave any inheritance.

· The first few intergenerational wealth transfer events in history led to greater wealth inequality. A study report by the US Bureau of Labor Statistics (BLS) on previous intergenerational wealth transfer events (tracking inheritance from 1989 to 2007) found little evidence of an inheritance surge - the proportion of inheritance and gifts in net assets averaged 19%, continuing a downward trend, indicating that over time, inheritance and gifts accounted for a smaller proportion of family wealth accumulation.

Therefore, any millennial who expects wealth transfer to immediately bring economic prosperity to repay all debts should moderate their expectations and make other preparations. Most of the wealth inherited from the older generation is unlikely to flow to the low-income groups that need to inherit it the most. Nevertheless, any inheritance amount can still improve personal financial status and provide greater investment capabilities, and Bitcoin and other crypto assets may become the primary beneficiaries.

Outlook

The baby boomer generation experienced a prosperous economic growth after World War II, profoundly changing the entire American society. However, they have significant generational differences with the millennial and younger generations, who face greater economic pressures than their older counterparts. In addition to the huge wealth gap, the social values of the digital native generation are also radically different, especially in terms of their acceptance of technology, social awareness, and trust in institutions. This makes these groups more willing to accept alternative financial systems such as Bitcoin and cryptocurrencies.

As the last batch of baby boomers step into retirement, the millennial generation will become the primary beneficiaries of the "massive wealth transfer" process, which will pass on nearly $100 trillion in wealth from the older generation through inheritance. Although the "massive wealth transfer" may not solve all the expanding debt problems faced by the younger generation, it represents a substantial demographic shift that will strengthen the stronger crypto inclination of the digital native population. Over time and as people age, cryptocurrencies may see more inflows of funds and find a more widely adopted and supported path.