Next generation ultra-rich to increase wealth through cryptocurrency investments

The new generation of digitally-savvy investors, who will be responsible for the wealth transfer in the next decade, are likely to increase their wealth by investing in the growing digital assets space, the chairman of open-source blockchain platform Tezos Foundation said.

The shift of wealth from family offices to the younger generation would happen in the next five to 10 years, and these people – those aged 20 to 30 – are not expected to invest in gold or other traditional assets, opting for cryptocurrencies because of their familiarity with the digital dynamics involved and having grown up in the age of the internet, Hubertus Thonhauser said.

"We are seeing a generational shift: for millennials who were not able to participate in the upswing of equity markets that were available for older generations, cryptocurrencies are the only real upside they have in the wealth generation and wealth shift we are seeing right now," Mr Thonhauser told The National in an interview on the sidelines of the TiE Global Summit at Expo 2020 Dubai Exhibition Centre.

The cryptocurrency market continues to maintain its strength, expanding in popularity as it gains more acceptance among investors and with more players entering the sector, which creates competition.

As of Thursday, cryptocurrencies' market capitalisation is more than $2.268 trillion, according to CoinMarketCap. Bitcoin and Ethereum continue to be the largest, enjoying market shares of 40.6 per cent and 21.4 per cent, respectively.

Bitcoin, the world's first and most popular cryptocurrency, was trading at $48,621.83 on Thursday evening, up almost 3 per cent in the past 24 hours, CoinMarketCap data showed. It hit a record high on November 9, blowing past $68,000, but has since lost a third of its value.

Cryptocurrency advocates are pushing for mainstream adoption, which Mr Thonhauser believes will happen within a decade, perhaps as soon as a "couple of years".

Although digital assets are still in their "very early stages", it might not take decades for mainstream adoption, Changpeng Zhao, chief executive of the world's largest cryptocurrency exchange, Binance, told The National in October. However, the implementation of full-fledged regulatory frameworks for digital assets could take decades to realise.

"Decades are way too long. It underestimates the fact that this is a technology that grows with network effects and grows exponentially," Mr Thonhauser said. Both, though, agree that the rapid pace of adoption will accelerate the process.

"We are seeing more adoption because of use cases and price action, as more people are involved and get comfortable with using digital assets as an investment vehicle," Mr Thonhauser said.

Cryptocurrencies' volatility – Bitcoin's, most notoriously – is turning off potential investors, but this can be addressed by spreading its allocation and transparency, he said.

"One issue with Bitcoin is that you still have a pretty large number of individual holders that basically control the overall supply; 70 per cent of all Bitcoin are treasuries held by a very small number of people or institutions," Mr Thonhauser said.

"Second, we need more transparency, numerous tools and transparent information of on-chain analytics of Bitcoin, so you can really see and anticipate its movements."

On central bank digital currencies (CBDCs), Mr Thonhauser said more of a political will is needed than a technological will to provide the technology that offers more transparency. In theory, enforcing this could also leapfrog traditional banks.

CBDCs are digital versions of fiat currencies. China was the first to implement a "digital yuan", with other major economies such as the EU also progressing with the development of their own versions.

"If you want to send payments to citizens, instead of printing money, giving it to banks and channelling it down to end consumers, with CBDCs you can push it down directly to the wallet of the end users," he said, alluding to removing middlemen that are slowing down the services in the financial industry.

With interest rates near zero or negative, gold trading sideways and stock market shares highly valued, he says that cryptocurrencies are a safe bet, despite the volatility, which is normal for an asset class.

"Cryptocurrencies are the only digital asset in the market that is really gaining institutional acceptance with exchange-traded funds. You shouldn't be worried about fluctuations that happen on a month-to-month basis because it's a long-term asset," Mr Thonhauser said.

The first Bitcoin ETF in the US, ProShares, began trading on the Chicago Mercantile Exchange in October. Some financial analysts believe this is going to be a big deal that will drive its price higher by giving institutional investors the confidence and security to invest in Bitcoin.

He also cautioned against allocating a huge part of portfolios to digital assets, advising investors to define a threshold that is in proportion with their other assets.

"Also, don't listen to all the YouTube hype videos telling you what to buy. Very often, the good coins are those that aren't hyped; they're sleeping giants and these are the ones you should probably consider."