The rise of the crypto poor millenials

Nick Rodriguez By Nick Rodriguez - Updated: March 27th, 2018
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With Bitcoin still in the mainstream for younger investors and the promise of getting rich quick, there's a sort of wider fomo developing that is pushing younger investors especially into taking bigger risks and avoiding almost entirely traditional investments such as a 401k, mutual funds, bonds, etc..

The millennial generation, expected to be the biggest demographic in the US by 2019, has never been one to take the stock or housing markets seriously, as they have no choice but to remain on the sidelines as the economy spirals into an inevitable debt crisis. But maybe they will own the crypto currencies as the defining investment of the generation, similar to what houses and the 401k were for the baby boomers.

And it makes sense as the crypto currencies are not only purely digital and easily used with mobile devices, but also designed to be decentralized and empower the individual. So the millenials who have always felt shut out of traditional markets and sold out by their political leaders, for the first time have hope for the future. It's an asset they can truly claim as their own.

But as we've seen with any asset promising a quick way to make money, it can be tempting to go too far and allocate most if not all of your funds into a single asset. Like we saw with the house poor baby boomers before them, it's now looking like a common theme for millennial investors looking to get rich quick.

So let's look at some reasons why individuals may choose to allocate most of their net worth into crypto currencies, leaving little left to actually live on, hence the term crypto poor.

The promised gains are unbelievable.

One big draw of the crypto currencies is the big return that most people expect of them. Looking back at 2017, it's not unheard of to see 100x gains in a single year, which is unbelievable for any asset class. Combine that with the ease with which they can be bought and sold, and that becomes music to the ears of most millenial investors. And with the promise of extreme gains comes extreme risk as investors look to hit it big by going all in.

Taxes encourage long-term holdings.

Even though crypto currencies such as Bitcoin, Litecoin, and Bitcoin Cash are designed to be used as currencies, they are still treated like an asset to the IRS. This means that if you buy and sell them within a year, those gains will be treated as regular income. So like any capital asset like stocks or bonds, it makes more sense to hold onto them for the long-term rather than using it for quick cash. And if you're going all in for the reason explained above, it can mean having a large portion of your net worth locked up and inaccessible for months at a time.

The dollar is fading away as a reserve currency.

Ever since the complete collapse of the gold standard in 1971, the dollar itself has become the world's reserve currency. It's had a good run, but as the financial situation in the US continues to deteriorate, younger investors will begin to look towards the future and Bitcoin will appeal to them as a safe haven and possible replacement of the dollar and gold as a reserve asset when the next financial crisis inevitably hits.

Inflation is here and getting worse.

It's getting more difficult to ignore or adjust for the rising prices of almost everything. Whether it be rent, food, gas, retail goods, or health care, everything seems to be increasing at a much faster rate than before. And because we are living in a zero interest rate, debt-based economy that discourages savings, it's tempting to go for broke investing in something risky, because the alternative is to lose money via inflation.

Drowning in debt.

Whether it be student loan debt or credit cards, debt of all kinds has reached record levels. That combined with a seemingly endless barrage of bills and creeping inflation can leave people feeling anxious and hopeless. Living paycheck to paycheck and barely scraping by isn't a fun way to live your live, even if you do have a good job. For many crypto currencies can be a shining light in an otherwise hopeless and dark world.

Conclusion.

Whether or not you believe crypto currencies are in a bubble, the millenials will still be enticed by the thought of striking it rich and building real wealth for themselves. They've been largely left out when it comes to the great economic opportunities that their parents were given, and so may seize this opportunity to build a name for themselves. After all what have they go to lose? #yolo.