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Henry Burrows is the CEO and founder of Hoptrail, a UK-based blockchain analytics firm.
A recent study by crypto payments service Triple A found that there are now over half a billion cryptocurrency owners worldwide. That number has attracted a lot of headlines. But the more eye-opening statistic is that an estimated 34% of 24–35 year olds globally own crypto. This age group is by far the largest cohort of crypto holders.
Underlining how important crypto is for younger generations, in May 2023, FINRA Investor Education Foundation in the USA released a research study on investment trends among Gen Z, those aged 18–25. The study examined attitudes and behaviors around investing among young people in the USA, the UK, and Canada.
The numbers for the UK were stark when it came to cryptocurrencies: 50% of Gen Z investors owned crypto. In the USA, the trends were similar: 55% of Gen Z investors primarily invest in crypto, rising to 57% for millennials.
And this adoption is driving wealth creation. In its own study, Henley & Partners estimates there to be almost 173,000 crypto millionaires globally, of which over 85,000 of those are Bitcoin millionaires. More recently, a Capgemini survey indicated that around 71% of high-net-worth individuals had invested in digital assets.
So, what does this mean? Well, crypto remains a young person’s game, albeit less so than before. But more importantly, it confirms that crypto is an increasingly important component in the wealth creation story globally.
Among previous generations, by and large wealth derived from property and stocks. But today, it stems from Bitcoin, Ethereum, NFTs, initial coin offerings, mining, yield farming, and staking. And in many cases, staggering returns are made from relatively small amounts of initial capital.
In 2017, when Bitcoin first rose to genuine public prominence, it increased by over 1,800% within that year. Since its launch in 2015, Ethereum has grown by a massive 82,000%, making millionaires out of its 8,000 or so early investors. In a two-month period in late 2021, the price of Shiba Inu — currently the 13th largest cryptocurrency token by market capitalization — increased tenfold.
We really are entering a brave new world of wealth accumulation.
But there’s a catch. Crypto wealth struggles to move. It remains extremely challenging for crypto millionaires to move or use their funds in traditional financial settings: to diversify, to purchase a house, or simply to cash out.
To a compliance officer, a crypto wealth generation story may seem outlandish: too fast, too complicated, and fraught with risk. The speed with which money is created may seem unbelievable when compared to other asset classes.
The perception that crypto is awash with scammers, money launderers, and fraud does persist. But, in truth, the danger is remote. Analytics firm Chainalysis estimates that on-chain crime in 2023 was around 0.34% of total transaction volumes. That figure has never exceeded 1.29%, demonstrating the relatively low incidence of illicit activity across the sector.
But aside from perceived financial crime risks, crypto can be intimidating — difficult to comprehend or unpick — and at times overwhelming. As a result, crypto prospects are often unfairly written off as too risky or too complex.
As regulated institutions increasingly find themselves exposed to crypto investors, they are coming up against new and unique anti-money laundering (AML) challenges — particularly around provenance and legitimacy of funds.
Those challenges are yet to be properly resolved across the banking sector. And for this reason, a huge amount of wealth is trapped in the crypto ecosystem, unable to transition into more traditional settings. At the moment, crypto is a USD 2 trillion market, with over half a billion players, and almost no definite exit points.
The answer to the compliance conundrum arguably lies in very technology that allowed for this wealth creation in the first place: the blockchain.
Far from it being just a ledger of record, the blockchain is an incredibly powerful compliance tool. Answers to financial crime and source of funds issues are almost always found on the blockchain.
From a source of funds perspective, blockchain technology has three unique characteristics. Firstly, every single transaction is publicly available, secondly, every action is recorded, and thirdly, the data is immutable. In other words, it can’t be tampered with.
This means that client onboarding can be done with rigor, efficiency, and certainty. You can see every transfer that someone has done, from start to finish, and you can discern how they did it.
Far from being anonymous, the blockchain provides banks with an AML ally, helping to shine a light on their prospects’ financial activity on-chain. Getting to grips with this reality would unlock massive opportunities for those willing to take that step.
As a crypto analytics firm, Hoptrail has seen the fortunes of nurses, builders, students, and teachers change overnight because of crypto. In many ways, we are seeing a democratization of wealth creation within digital assets; and a sea change in the profiles of high-net-worth individuals globally. This is one of many positive aspects to crypto. But without the ability to move assets seamlessly between the traditional and digital worlds, the financial success of young people is trapped.
This means there is a multi-billion-dollar opportunity out there waiting to be released.
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