Crypto Capital

The development of the cryptocurrency industry could not go unnoticed by the global rich. Where do the ultra-wealthy stand on crypto?

The rich get richer. According to the Wealth-X consulting company, in 2020, the number of ultra-high-net-worth individuals worth $5 million–$30 million in the world increased by 1.7% to 295,450 people; the combined net worth of this group increased by 2% to $35.5 trillion.

Observing the investment preferences of rich individuals and institutional investors is instructive. They have access to exclusive information and analytics to inform their investment decisions, and their investments are often supported by an army of advisers, employees of family offices and wealth managers.

Due to the instability in world politics and high inflation in many parts of the globe, 2021 marked a trend for the wealthy to search for new investment growth points. Traditional assets, on which the fortunes of the establishment are usually based — real estate, securities, deposits — are currently under great pressure. According to economist Ziad Abdelnour, 70% of wealthy families in the United States lose their wealth in the second generation, and 90% lose capital in the third generation.

In order to save their clients’ money and their own business, global investment managers have been rebalancing investment portfolios throughout 2021 in an attempt to minimize the consequences of the COVID-19 epidemic and geopolitical shocks.

In 2022, the world faces larger-scale problems related to the conflict between Russia and Ukraine in Europe and tensions in the Middle East. Inflation, rising prices for gold, wheat, oil, palladium and other commodities, and general economic instability in many countries are forcing rich people to consider investing in cryptocurrencies.

Diverging views

Representatives of “old money” and “new money” tend to have different views on crypto assets. For example, Elon Musk said that apart from the stock in his own companies, Tesla and SpaceX, cryptocurrency is his only major personal investment. Many Millennial millionaires’ main assets are digital.

However, most millionaires of older generations continue to treat cryptocurrencies cautiously or even openly negatively. American billionaire investor and vice chairman of Berkshire Hathaway Charlie Munger said that Bitcoin is “disgusting and contrary to the interests of civilization.” Lloyd Blankfein, former senior chairman at Goldman Sachs, said that Bitcoin was not useful as a means of saving capital due to its volatility.

Nevertheless, many American asset managers have caved in to the pressure of the crypto industry. JPMorgan, Goldman Sachs and other large investment companies are already doing extensive research on crypto — mainly Bitcoin (BTC) and Ether (ETH) — and even predict changes in the value of cryptocurrencies.

Crypto enthusiasts with big money

The philosophy of decentralization that lies at the core of the cryptocurrency movement is consonant with many Millennial entrepreneurs’ worldviews. According to Wealth-X, in contrast to popular conceptions of wealth, most ultra-rich individuals across the globe (84%) are self-made, meaning that they have attained their success through education and hard work. Almost 90% of those with a general interest in crypto have created all their own wealth, with just 0.5% relying solely on inheritance.

Self-made wealthy individuals accustomed to taking risks are more open to the volatile nature of cryptocurrencies than most second- or third-generation wealthy “aristocrats.” The average age of the global wealthy population is just over 60, and the average age of wealthy individuals with a general interest in crypto is 53.7.

Speaking to Cointelegraph, Tim Frost, founder and CEO of digital wealth platform Yield App, said that, according to the company’s regular surveys of its client base, “The largest majority of users sit within the 25–45 age bracket, but Yield App has thousands of users aged 50 and above all over the world.”

A pronounced feature of crypto-focused millionaires is, according to Wealth-, their interest in technology and philanthropy.

It is the founders and executives of the technology sector, such as Musk and Tim Cook, who are global entrepreneurs of cryptocurrencies. They draw the attention of thousands of people around the world to this sector, thereby making it more liquid and attractive to investors, including the ultra-wealthy.

Futile denial

The resistance of representatives of old money and old methods of money management to crypto is gradually weakening. The crypto industry is dealing more and more blows to the once-thriving financial machine founded on stocks, bonds and real estate. Today, the futility of ignoring cryptocurrencies is becoming more and more obvious. The statements of Munger and Blankfein, even among like-minded peers, are becoming increasingly perceived as mere grumbling.

Swiss banks have an excellent reputation for being safe and anonymous. For centuries, the richest representatives of the global establishment used to choose the Swiss banking system as a place to store and manage their capital. The reliability of Swiss banks is often compared to the reliability of Swiss watches.

Carole Morgenthaler, a representative of Swiss private bank Lombard Odier, commented that the bank’s investment convictions are based on long-term growth and stability to ensure that the clients’ assets can grow and be passed down to future generations. She added, “Investing in cryptocurrencies does not currently have the required quality and guarantees.”

Despite such a cautious view of crypto assets, the bank is engaged with tech companies in the field of blockchain, specifically Taurus and Wecan Comply, and is “closely looking at the technology.”

The conservative world of Swiss banking might not be in a rush to embrace cryptocurrencies, but it is certainly watching the industry and striving to understand it.

Cryptocurrencies are not a magic investment pill suitable for all categories of investors. Yet in the near future, it will be possible to observe a certain convergence in the positions of crypto enthusiasts and crypto skeptics.

It will take quite a long time for the crypto asset market to become sufficiently “institutional” so that the most conservative investors, who traditionally prefer gold and real estate, start paying real attention to it. The market will have to become less speculative and volatile, getting rid of the main charges brought against it by investment ultraconservatives.