Bitcoin
Is Bitcoin a creator of millionaires? | The motley fool
Bitcoin still has the potential to make you a crypto millionaire. But it’s not as easy as before.
According to the latest Crypto Wealth Report from Henley & Partners, there were 40,500 Bitcoin (Bitcoin 0.23%) millionaires in the world at the end of last year. That’s more than any other cryptocurrency and it’s not even close. So we know that Bitcoin it definitely has a track record of creating crypto millionaires.
But that was then, this is now. Nearly a decade ago, some investors became millionaires by investing when Bitcoin was still trading for less than $1,000. Today, Bitcoin trades at around $63,000, so the task of becoming a millionaire is much more daunting. Does Bitcoin still have the power to turn you into a millionaire?
The positive potential of Bitcoin
The starting point for answering this question, of course, is to look at the various Bitcoin price predictions on Wall Street and find one that you feel comfortable using. Obviously, the higher the price estimate you use, the easier it is to predict that you will one day become a millionaire.
As for me, the only price estimate I’m using is Cathie Wood of Ark Invest’s $1 million price prediction. She made this prediction in 2022, well before the arrival of spot Bitcoin ETFs or the recent Bitcoin halving. Since then, it raised the future price estimate to $1.48 million and then US$3.8 million.
To arrive at his initial $1 million price estimate, Wood analyzed eight primary use cases for Bitcoin and then made some projections about the growth rate for each. So, for example, she projected that institutional investors would eventually increase their Bitcoin allocations to 6.5% by 2030.
Given that Wood made this prediction before the new Bitcoin ETFs arrived in cash, it actually looks quite smart today. But it’s still a relatively aggressive prediction given that Bitcoin portfolio allocations today are typically closer to 1%.
Dollar Cost Averaging in Bitcoin
Once you have a price estimate that you feel comfortable using, it’s time to step back and figure out how much effort it takes to become a crypto millionaire. If you have $63,000 to invest today, almost no effort will be required. You could just invest all your money (yikes!) in Bitcoin right now, hang on for dear life, and by 2030 you could wake up a crypto millionaire.
Image source: Getty Images.
But this is not practical for two reasons. On the one hand, it ignores the concept of portfolio diversification. Sure, you might have $63,000 to invest right now, but you’d probably want to spread that money across a few diversified investments. Never put all your eggs in one basket, right?
Second, unless you are already a member of the Top 1%, you may not have $63,000 to invest in crypto right now. Therefore, you would first have to create a strategy to build a “starter” nest egg of $63,000. And you’ll probably need a lot more than that, because the price of Bitcoin will likely have increased at the same time you’re struggling to get to that initial $63,000.
One way to solve this problem is by using a dollar-cost averaging strategy. Simply put, you would commit to investing a certain amount in Bitcoin, every month, like clockwork, until you reach your goal of $63,000. So, for example, you might decide to invest $1,000 a month, every month, for the next five years. That would put him close to his goal of $63,000.
Do you have a millionaire mindset?
But unfortunately, being a patient, long-term investor is not the only part of becoming a Bitcoin millionaire. This is because Bitcoin is a very volatile asset and price swings can be dramatic. Yes, Bitcoin has the potential to skyrocket in value, but it also has the potential to go on some epic portfolio losing streaks.
In fact, Cathie Wood has documented at least four different “Bitcoin drawdowns” in which the price of Bitcoin fell by more than 77%. This includes the nightmarish “crypto winter” of 2022, when the value of Bitcoin completely plummeted.
So imagine a hypothetical scenario in which you have finally accumulated $500,000 in Bitcoins, on your way to millionaire status. But what if next year sucks and you lose 77% (or more) of your investment? You would be back to square one, trying to pick up all the pieces of your broken Bitcoin nest egg.
That being said, I think Bitcoin still has the potential to make millionaires. But the stakes have risen sharply since Bitcoin’s launch in 2009. Back then, you could have become a millionaire with just a small investment of $1,000 or less. But now, given Bitcoin’s high price, you may need $63,000 or more to reach this mythical milestone.