The Great Wealth Transfer Will Boost BTC in the Long Run

KEY TAKEAWAYS 

  • USD68 trillion in asset value is expected to be passed to younger generations by 2044
  • USD29.4 trillion will go to Millennials, who have already allocated 1.84% to GBTC according to the quarter SDBA report of Charles Schwab
  • Additional allocations ranging from USD530 billion to USD3.4 trillion will flow to BTC or BTC related products by 2044, dwarfing BTC’s floating market value of USD219 billion. 

Cerulli Associates, a research firm specializes in global asset management, projects that as much as USD68 trillion will be handed down from aging generations to their heirs, or donated to charities over the next 25 years. 88% of these assets, approximately USD60 trillion, is expected to go to heirs, and 12% or USD8 trillion to charity. The firm forecasts that the majority of wealth-in-motion over the next decade will wind up in the hands of Baby Boomers, born between 1946 and 1964.

Gen X: the Biggest Beneficiaries

However, the biggest beneficiaries of the Great Wealth Transfer are those born between 1965 and 1980, known as Generation X. By the time the two-decade process is complete, not only will Generation X emerge as the wealthiest generation, but they’ll also receive valuable estates from their parents and grandparents. Millennials (those who are born between 1981 to 1995) too, stand to receive a sizable share from the incoming wealth transfer.

Source: Cerulli
Source: Cerulli

Generation X will be the primary beneficiary of what’s being dubbed as the Great Wealth Transfer, inheriting 57% of the total wealth within the next 25 years, which is around USD39 trillion. Millennials will inherit around USD29.4 trillion. 

Millennials Champion Shift to Fintech

Most studies foresee that the Millennial generation will lead the transition from traditional finance  to fintech by championing Bitcoin adoption through the coming decade. Substantial evidence, such as the quarterly SDBA report released in Q4 2019 by Charles Schwab – the San Francisco-based brokerage firm – suggests that there is a huge demand for cryptocurrency exposure among Millennials. The report is based on data collected from approximately 145,000 retirement plan participants who currently have balances between $5,000 and $10 million in their Schwab Personal Choice Retirement Account. With 1.84% allocation, Grayscale Bitcoin Trust (GBTC) is ranked fifth in the top ten holdings across the Millennial generation. 

Source: Charles Schwab

In case some of you wonder, the total assets of U.S retirement accounts is estimated to have exceeded USD30 trillion, while the total assets under Individual Retirement Account (IRA) amount to USD9 trillion. The results of the SBDA report indicates that Millennials are more inclined to allocate assets in crypto-related funds. 

Source: Statista

BTC’s Rebalancing Act

Why is that the case? First off, GBTC is popular as an investment instrument owing to its IRA-friendly structure. Furthermore, BTC is an excellent diversification tool for traditional investors, and its low correlation to traditional assets will help improve the overall portfolio performance. 

Research conducted by Grayscale mobilized a hypothetical model based on historical data and found that adding BTC to the traditional Global 40/60 portfolio can significantly improve the portfolio’s return and Sharpe ratio. A mere 5% BTC addition could improve annualized returns by at least 6.1% to 11.5%. Conversely, annualized risk was raised slightly, from 7.7% to 8.5%. The improvements in Sharpe Ratio jumped by 86% from 0.68 to 1.27. 

Source: Grayscale

Let’s consider the case of wider crypto adoption among Millennials. Assuming the effective inheritance tax is 2% and the BTC allocation is on par with the current level, the total allocation toward BTC is estimated at USD530 billion at the end of the Great Wealth Transfer. If Generation X were to play a part as well, we’d see a total allocation of USD1.2 trillion, if all else remains unchanged. 

Now suppose we increase the allocation rate to 5% BTC adoption by Millennials alone would amount to USD1.4 trillion, and with Gen X the figure more than doubles to USD3.4 trillion. 

By 2044, the BTC supply will increase by 2.5 million, an increment rendered insignificant in comparison with the surge in allocation demand. The unparalleled allocation inflow would overshadow BTC’s market value, estimated at USD 219 billion as of Aug 6, 2020. 

At any rate, it is safe to conclude that the impending Great Wealth Transfer, even with only a tiny fraction of the Millennials’ heirlooms and assets allocated to BTC, will inexorably drive the price of BTC out of this atmosphere and onwards to the moon.