Galaxy: The Impact of Large-Scale Wealth Transfer on the Cryptocurrency Market

Original Title: The Great Wealth Transfer & its Impact on Crypto

Original Author: Charles Yu

Original Compilation: Luccy, BlockBeats

Editor’s Note: Over the next two decades, the millennial generation will become the primary beneficiaries of wealth inheritance, with their adoption or acceptance rate of cryptocurrency being at least three times higher by 2030. Galaxy Digital researcher Charles Yu conducts an in-depth analysis of the transfer of wealth in the United States, focusing on the massive wealth transfer from the baby boomer generation to millennials. The shift from traditional financial systems to cryptocurrencies not only reflects the differences in investment behaviors and values between millennials and older generations but also brings new opportunities and challenges to the cryptocurrency market. The article delves into the younger generation's preferences for cryptocurrencies and the profound impact this trend may have on the market. Charles Yu also points out that while the "Great Wealth Transfer" may not solve all the financial issues faced by the younger generation, it marks a shift in power and wealth, providing the digital-native generation with more autonomy.

In the coming decades, the older generation will pass on trillions of dollars in money and assets to their children, significantly altering the landscape of wealth in the United States. This younger generation of "digital natives" has distinctly different investment preferences compared to their parents, including a higher willingness to invest in Bitcoin and cryptocurrencies.

Key Points

The millennial generation is about to experience the largest wealth transfer in history. Although the baby boomer generation and older generations account for less than one-third of the adult population in the U.S., they collectively hold two-thirds of American household wealth (approximately $96 trillion), which is over 11 times the wealth of millennials and younger generations. In the next two decades, Cerulli Associates estimates that $84.4 trillion will be transferred from the baby boomer generation and older generations to the younger generation, with millennials being the primary beneficiaries. Coldwell Banker estimates that by 2030, the wealth of millennials will increase fivefold compared to the beginning of this decade, primarily due to inheritance.

Millennials and Generation Z are significantly different from older generations regarding cryptocurrencies, showing a greater inclination towards choosing cryptocurrencies. Millennials and Generation Z are the first 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 downturns, high housing costs, and heavy debt burdens, these younger generations are more willing to embrace alternative financial systems and investments, including cryptocurrencies. Many surveys measuring cryptocurrency adoption across generations have found that these younger generations have an adoption or acceptance rate of at least three times higher than that of the baby boomer generation.

The transfer of wealth to these cryptocurrency-friendly individuals may lead to a significant increase in demand for Bitcoin and other crypto assets. If the Great Wealth Transfer were to occur today, we estimate that an additional $160 billion to $225 billion could flow into the crypto market due to the younger generation's higher acceptance of the technology compared to the baby boomer generation. Given that most of the wealth held by the baby boomer generation and older generations is expected to be passed on to the younger generation by 2045, our estimates suggest that the impact of wealth transfer could lead to an additional daily buying pressure of $20 million to $28 million in the crypto market over the next 20 years.

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

However, the demographic shift of wealth/power towards the younger generation is inevitable, which is a positive sign for cryptocurrencies. Even if the Great Wealth Transfer does not substantially alleviate the financial burdens of millennials, the handover from the baby boomer generation to the younger generation will have profound social and political implications—all of which positively influence the further adoption and future development of cryptocurrencies in the U.S.

The Great 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 generations (born in 1964 or earlier) collectively hold $95.6 trillion, accounting for about two-thirds of the total wealth in the U.S., despite this group comprising less than one-third of the adult population.

In recent years, millennials have surpassed baby boomers to become the largest generation in the U.S. Despite their demographic advantage, millennials 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 generation and older generations, or about 15.5 times less per person.

In the next two decades, millennials are set to be the primary beneficiaries of what many refer to as the "Great Wealth Transfer," where the older generation will pass on trillions of dollars in wealth to their children.

Cerulli Associates predicts that by 2045, the total amount of wealth transferred will reach $84.4 trillion, with $73.6 trillion (87% of the total) being inherited by heirs and the remaining $11.9 trillion (13% of the total) being donated to charities. The baby boomer generation (ages 59-77) is expected to transfer $53 trillion (63% of the total transfer), while the Silent Generation (currently aged 78 and older) is expected to primarily transfer about $16 trillion (19% of the total) over the next decade. Coldwell Banker estimates that by 2030, the wealth held by millennials will be five times that of the beginning of this decade, primarily due to inheritance.

Intergenerational Differences

Recognizing the key differences between these groups and identifying intergenerational trends provides valuable insights for individuals, investors, businesses, and policymakers who wish to understand user behavior and preferences, capitalize on market opportunities, or assess the impact of policy decisions.

Individuals from each generation have experienced a series of significant influential events and challenges during their formative years, which have helped shape their life principles and priorities. As young adults, the Silent Generation experienced World War II; the baby boomer generation experienced post-war global conflicts as well as civil rights and counterculture movements; Generation X witnessed the fall of the Berlin Wall, significant inflation in the 1970s and 1980s, and the dot-com bubble; millennials experienced the Great Recession and initiated the Occupy Wall Street movement; Generation Z began entering the workforce after experiencing the COVID era. These significant formative events have influenced the way we interact with the world, including attitudes toward work and investment preferences.

In the table above, we list several key developments during the formative periods of each generation, along with certain characteristics and values of each group. Most of these intergenerational characteristics and traits relate to the global political and socio-economic conditions in which each generation grew up (e.g., wars, capital markets, job markets, housing, etc.), while others may result from technological advancements or trends that central banks and policymakers cannot control (e.g., increased access to information, availability of technology and media, globalization).

Millennials and Generation Z stand out as the first generations to grow up alongside the internet, often referred to as the first "digital natives." Compared to older generations, they are more racially diverse, better educated, and more socially conscious. There is also an intergenerational gap between young and older individuals. Today, older generations often perceive younger generations as lazy, arrogant, materialistic, and sensitive. In contrast, younger generations may view older generations as out of touch, stubborn, and narrow-minded.

While the pros and cons of these perceptions are undoubtedly contentious, millennials and younger generations undeniably face unique financial dilemmas and challenges that older generations did not encounter at a similar age—they not only experienced two major economic downturns during early adulthood but also face higher education costs (and student loans) and housing costs, which affect their savings and wealth:

• For millennials and Generation Z, student loans are a more severe issue compared to Generation X and the baby boomer generation. Not only has the cost of not attending college risen, but education costs have significantly increased, outpacing 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 rose from $11,840 to $30,031 (a 153% increase over 40 years). Between 2008 and 2022, student loan debt increased by 163%, reaching $1.74 trillion, and as of the third quarter of 2023, the number of federal student loan borrowers increased by 45%, reaching 43.5 million Americans, with the average student loan debt per graduate rising by 33% to $37,650. Compared to the baby boomer generation at age 30, millennials are more likely to have some student loans (about 40% vs. around 20%), and they face a debt burden that is four times greater (debt-to-income ratio of 40% vs. 10%).
• Housing costs have also become relatively more expensive for the younger generation (primarily benefiting the wealth of the baby boomer generation due to rising real estate asset values). Over the past 40 years, housing has become less affordable as the median price of new homes has exceeded median household income, leading to an expansion of outstanding mortgage debt and slowing homeownership rates for millennials compared to previous generations (recent interest rate hikes have further impacted housing affordability). The homeownership rate for millennials lags behind that of older generations: in 2022, 43% of millennials owned their homes by age 30, while the homeownership rate for the baby boomer generation at the same age was 52%.

These economic challenges have negatively impacted the net worth-to-income ratio of millennials, leading to a lag in their ability and inclination to invest or save compared to the baby boomer generation at a similar age. Higher debt levels may delay the age at which they start investing and the amount they save, and may also affect the risk behaviors of the younger generation. Additionally, traditional sources of retirement income have shifted from Social Security and defined benefit pensions to defined contribution plans (i.e., 401(k) plans), which shift the burden of saving and investment management onto employees. Millennials will be the first generation to retire without a defined benefit pension plan for most people, and Social Security may no longer be a reliable source of retirement income. Therefore, according to a survey by the Transamerica Institute, early withdrawals from retirement savings—such as loans, early withdrawals, and hardship withdrawals—have become more common among the younger generation. The survey also found that younger generations are more concerned about their mental health and their ability to save for retirement.

Attitudes and Adoption of Cryptocurrency Across Different Generations

The traditional financial system has served the baby boomer generation well—they enjoyed relatively high incomes, low living costs, and many years of economic prosperity, which contrasts with the experiences of millennials and younger generations. Therefore, studies show that they are more likely to have greater confidence in the financial system and choose to maintain the status quo.

In contrast, many millennials and younger individuals feel disillusioned with the financial system, believing 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 declining trust in institutions have made these digital-native groups more willing to embrace alternative financial systems and investments. Compared to older generations, they are more likely to use non-traditional digital brokerage apps and robo-advisors, and they have higher investment preferences in technology, ESG, social impact, and alternative investments.

Thus, the idea of having an alternative financial system that uses digital-native currencies outside the control of banks and governments resonates with this demographic. The appeal of Bitcoin and cryptocurrencies aligns with the values of the younger generation, representing a digital-first, accessible, permissionless, privacy-focused, and always-on approach to personal finance.

Bitcoin/Cryptocurrency Adoption by Generation

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

Other surveys tracking cryptocurrency adoption across different generations have slightly different estimates, but each has reached similar conclusions: the cryptocurrency adoption rate among millennials is several times that of the baby boomer generation, averaging 5.0 times across the surveys included in the table below (details and links for each survey are included in the appendix):

Other Notable Findings:

• Cryptocurrency adopters tend to be individuals with higher education and financial literacy levels. An empirical study on cryptocurrency adoption found that "individuals with higher subjective financial literacy levels are more likely to perceive the benefits of using cryptocurrency and exhibit a higher willingness to use it." An Investopedia survey found that 69% of millennials reported having a moderate to advanced understanding of digital currencies, compared to 23% among the baby boomer generation.
• The younger generation likes cryptocurrencies as much as stocks and has a larger allocation in this asset class. The same Investopedia survey found that millennials are more likely to invest in cryptocurrencies (38%) than in stocks (37%). A survey conducted by FINRA/CFA found that Generation Z investors are most likely to invest in cryptocurrency for the first time (44%), followed by individual stocks (32%) and mutual funds (21%). The FINRA/CFA study also found that Generation Z reported a median investment of $1,000 in cryptocurrency, which is about a quarter of their median total investment portfolio of $4,000. A survey by BNY Mellon found that the "next generation" allocates an average of 5% of their investment portfolios to cryptocurrency, compared to an average allocation of only 1% among North American family offices.
• Stances on cryptocurrency may be a key theme influencing voter decisions. Millennials and Generation Z adults currently make up about 40% of the voting-age population and are expected to become the majority of U.S. voters by 2028. A survey by Coinbase found that 44% of millennials believe that politicians and policymakers should support cryptocurrency/blockchain. Among the 52 million cryptocurrency owners, 55% indicated they might vote for candidates who support cryptocurrency in 2024, with millennials being the highest at 78%, surpassing Generation X (71%), Generation Z (69%), and the baby boomer generation (51%).

Thus, across all these intergenerational surveys, regardless of how they are phrased, millennials and Generation Z are more likely to be supporters of cryptocurrency than the baby boomer generation. Therefore, the transfer of wealth from the older generation to this cryptocurrency-friendly demographic may lead to more funds flowing into Bitcoin and the broader category of crypto assets.

The Impact of the Great Wealth Transfer on Bitcoin/Cryptocurrency

As of November 27, 2023, the value of the crypto market is approximately $1.5 trillion. Assuming its distribution is similar to the U.S. share of global wealth (31%), we estimate that the value of the U.S. crypto market is about $465 billion.

If we apply the average cryptocurrency adoption rates from the surveys to the census population data, we estimate that a total of 51 million Americans own cryptocurrency (consistent with Coinbase's estimate of 52 million), with the baby boomer generation and older generations accounting for about 10% of the U.S. crypto population (while Generation X accounts for 27%, and millennials and younger account for 63%). Assuming the estimated $465 billion in U.S. crypto wealth is evenly distributed, we estimate that the baby boomer generation and older generations currently hold about $45 billion in crypto wealth.

If the Great Wealth Transfer were to occur today, we estimate that an additional $160 billion to $225 billion could flow into the crypto market as wealth flows into the crypto space more favored by the younger generation. This assumption is based on the younger generation having a 3.5 to 5 times higher adoption rate compared to the baby boomer generation (using the average from survey data, with a 3.5 times ratio for Generation X/baby boomer as the lower limit and a 5 times multiplier for millennials as the upper limit), and this is equated to the younger generation's crypto wealth being 3.5 to 5 times more than what the baby boomer generation currently holds.

Since most of the wealth held by the baby boomer generation and older generations is expected to be passed on to the younger generation before 2045, our estimates suggest that the impact of wealth transfer could bring an additional daily buying pressure of $20 million to $28 million to the crypto market over the next 20 years.

Please note that the described approach may underestimate the impact of wealth transfer on the crypto market, as it uses a rough estimate of the crypto wealth held by the baby boomer generation as baseline data, which essentially means that while cryptocurrency adoption rates increase, the inclination to invest in crypto assets remains unchanged. Conversely, it is more likely that due to millennials and younger generations typically allocating a larger proportion of their investable wealth to crypto assets rather than traditional financial assets, including stocks and bonds, an additional multiplier effect will occur.

This approach also implies conservatism, as it takes a static view of today's crypto preferences and wealth potential, without considering the higher income potential of today's younger generation or including the compounding growth effect of investment returns over time. As infrastructure and application layers continue to develop, and the potential benefits of technology prove themselves over time, the acceptance and adoption rates of crypto should continue to grow.

Expectations for the Financial Impact of the Great Wealth Transfer Are Moderated

While some economists estimate that the wealth transfer will increase the overall wealth of millennials by 5-10 times, potentially significantly improving the financial situation of the younger generation in economic distress and triggering economic (crypto) prosperity, several reasons suggest that the impact of the wealth transfer may be much smaller:

• Most of the wealth expected to be transferred is held by a small number of affluent families. If the total wealth held by the baby boomer generation and older generations were to be transferred to the remaining approximately 250 million Americans, each would receive about $380,000, which could easily resolve all existing debt for the younger generation. However, the wealth transfer will not be evenly distributed—Cerulli estimates that 42% (approximately $35.8 trillion) 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 families in the top 5% of income distribution receive inheritances that are 4 to 12 times greater than those of the bottom 80%. Additionally, the probability of receiving an inheritance in any given five-year period is only 7.4%, with this probability increasing among higher-income groups.
• For those expecting to inherit, the actual wealth transferred may be lower than anticipated. A study by the Federal Reserve found that individuals who received inheritances in the past three years estimated they would receive an average of $72,200 (with an actual average of $46,200), highlighting the gap between expected inherited wealth and actual inherited wealth. For the bottom 50% of the wealth population, this gap is even more pronounced, as they estimated an average of $29,400 (with an actual average of $9,700). Regarding the "Great Wealth Transfer," a survey by Allianz Credit Union found that 52% of millennials expecting to inherit indicated they anticipated inheriting at least $350,000, while 55% of the baby boomer generation planning to leave inheritances stated they would pass on less than $250,000.
• With longer lifespans and reduced pensions/benefits, baby boomers are spending 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 increase of 88% since 2002). A study by Coventry found that 85% of retirees prioritize their own financial security and health, with over 75% of surveyed retirees planning to leave no inheritance.
• Historical intergenerational wealth transfer events have led to greater wealth inequality. The U.S. Bureau of Labor Statistics (BLS) report on previous intergenerational wealth transfer events (tracking inheritances from 1989 to 2007) found little evidence of an inheritance surge—inheritances and gifts accounted for an average of 19% of net worth, continuing a downward trend that indicates that over time, inheritances and gifts represent a smaller proportion of family wealth accumulation.

Therefore, any millennials expecting the wealth transfer to immediately bring economic prosperity to pay off all debts should moderate their expectations and prepare for other outcomes. Most of the wealth passed down from the older generation is unlikely to flow to the low-income groups that need inheritance the most. Nevertheless, any amount of inheritance can still improve individual financial situations and provide greater investment capacity, with Bitcoin and other crypto assets likely to be major beneficiaries.

Outlook

The baby boomer generation experienced prosperous economic growth after World War II, profoundly changing American society as a whole. However, they exhibit clear intergenerational differences from millennials and younger generations, who face greater economic pressures than their older counterparts. In addition to the significant wealth gap, the social values of the digital-native generation are also markedly different, particularly in terms of technology acceptance, social awareness, and trust in institutions. This makes these groups more willing to embrace alternative financial systems like Bitcoin and cryptocurrencies.

As the last cohort of baby boomers enters retirement, millennials will become the primary beneficiaries of the "Great Wealth Transfer," a process that will pass nearly $100 trillion in wealth from the older generation. Although the "Great Wealth Transfer" may not resolve all the mounting debt issues faced by the younger generation, it represents a substantial demographic shift that will enhance the stronger crypto inclination of the digital-native population. Over time, as people age, cryptocurrencies may see more inflows of funds and find a more supportive path toward broader adoption.

Appendix: Survey Data

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