Trading-Guru

How Much BTC Do You Need to Create Generational Wealth?

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BITSTAMP:BTCUSD   Bitcoin / U.S. Dollar
Hi Tradingviewers, in this article I am going to break down this question into smaller items and try to give a concrete answer to the question: “How Much BTC Do You Need to Create Generational Wealth?”

First, we’ll have to define what ‘wealth’ means. Then we need to define how we look at the ‘generational’ part. Lastly, we also need to take into consideration long term outlooks on Bitcoin . Let’s try and put some actual numbers on this and see how much BTC you would actually need.

I’ve been on Twitter a lot lately (putting some more effort into my account!) and got inspired to answer this question as this was a very common topic on Twitter . The interesting thing is that I saw a lot of people talking about this, but nobody actually made an effort to go through the math. Without further ado, let’s dig into the numbers.

First let’s look into some options to define wealth. Using data from the World Inequality Database and Statistics Canada), it takes about $488,000 to be considered part of the top 1% in the U.S in 2019. Let’s assume that this applies to the number needed in a family/household. Let’s make ~$500,000 our first option, I’d say belonging to the top 1% in the US would be a pretty fair definition of wealth.

If we look further than the US, we can also use this same 1% methodology to define wealth on a global scale. In that case you would need at least $744,400 in combined income, investments, and personal assets according to the global wealth report from the Credit Suisse Research Institute. A slightly more ambitious goal compared to our first option but we could define this as ~$750,000.

Another option to look at wealth is to look at financial independence. My preferred way to define financial independence is to have enough wealth such that you can completely live off the dividends. A common rule used by the FIRE community (Financial Independence, Retire Early) is the 4% rule. The 4% can be summarised as a safe withdrawal rate that will not lower your total wealth over the long run. Even when there are temporary downturns in the global economy. This assumes you invest all your money in the stock market.

The median household income in the US is $61,937 per year. We could consider a passive income of the median household income as wealthy. If we divide $61,937 by 4% from the safe withdrawal rate above we get to a total of $1,548,425. So using this logic you would need roughly ~$1.5M in total assets in order to be considered wealthy.

Now, let’s discuss the generational part. Honestly, I was surprised when I found the exact definition: “generational wealth represents assets passed down from one generation to the next. If you can leave behind a notable inheritance to your descendants, that constitutes generational wealth. These assets can include real estate, stock market investments, a business, or anything else which contains monetary value. I had somehow expected it would be something more ambitious such as that for x generations they would all have to be considered “wealthy too”.

Achieving generational wealth would then be relatively easy given method one and two. You would just need to make sure something is left of your $500,000 or $750,000 respectively. Option three even has it implied. The whole idea behind option three is to never actually spend any of your wealth, you’re simply living off the dividends.


This leaves us with the most difficult one: how much Bitcoin would you need? The first and most obvious approach is to directly calculate the amount of bitcoin that represents our different definitions of wealth given the current price. If we take a Bitcoin price of $30,000 that would give 16 bitcoin for option 1, 25 bitcoin for option 2 and 50 bitcoin for option 3.

Now let’s bring in some of the nuance. First of all if you’re expecting to live off your dividends you cannot have all of your wealth be in bitcoin itself as it doesn’t pay any dividends directly. Normally the wealth would be in the stock market or in real estate.

Also, if you assume that the value of bitcoin will keep rising you would obviously need far less bitcoin today to achieve generational wealth later. For example, Bloomberg analysts have predicted a price target of $50,000 for Bitcoin in 2021, implying a $1 trillion market cap for just this cryptocurrency. JP Morgan analysts estimate the price of Bitcoin to grow more aggressively, as they estimate a value of $650,000 by the end of 2022.

Let’s be more conservative on the date, but keep an aggressive price target for the sake of the argument here. If we take a $300,000 price target by the end of 2031 how much bitcoin would you need today to achieve generational wealth? This would give us 1.6 bitcoin for option 1 2.5 bitcoin for option 2 and 5 bitcoin for option 3. Specifically for option three it would still mean though that you would have to cash out all your crypto assets and convert them into dividend generating assets instead.

Also, with a possibility to see hyperinflation later given that 35% of all dollars in existence have been printed during the last 10 months it is questionable whether thinking of generational sustainable health should even be expressed based on dollar figures to begin with. I wouldn’t know how to express it in any other way, but am really curious to hear if anyone has good alternatives on this point.

I am really curious to hear your views on this. I used many assumptions here, how would you have approached this? Are there any flaws you see in my logic? Feel free to comment on anything, and please feel free to absolutely destroy it! I’d love to have the discussion.


Just to summarize, based on this you would need today:
  • 16 bitcoin to be considered among the top 1% wealthiest in the US
  • 25 bitcoin to be considered among the top 1% wealthiest in the world
  • 50 bitcoin to achieve generational financial freedom


Trading-Guru

p.s. You might have seen a few reposts of this article as Tradingview was struggling with a faulty spam detector. The moderators kindly helped blocking and unblocking some posts. Thanks @scheplick!
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Comments

Like I said in the article, I am using quite a lot of assumptions here. Feel free to challenge anything! I'd love to have a discussion about how we could actually establish a concrete number to answer such a big and open question.
+1 Reply
premium info, well done. great presentation and content.
very useful for new and advanced traders.
Reply
One way to measure generational wealth would be in Real Estate terms. For instance, what would $500,000 buy you in RE in today's value? If price of bitcoin goes up to $300,000 and real estate that is $100,000 today is worth $250,000 in 2031 then by logic you will need .83 bitcoin today and hold on to it for next 10 years. Can an investment in RE of $30,000 today translate to $300,000 in next 10 years? what about same amount invested in stock market yield that return? I don't know - I am just throwing some ideas for people to measure their wealth a decade out in BTC terms.
Reply
Trading-Guru cryptotapas
@cryptotapas, I love this point of view. Definitely a great way to look at it. Did some early research and found that stocks have generated roughly 7% per year over the long run after accounting for inflation. The average home value has risen by roughly 1.% per year. So the stock market has generated returns at more than four times the rate of real estate appreciation. But then, this is more focused on home owners. What if you rent it with tenants etc, will continue this research!
Reply
cryptotapas Trading-Guru
@Trading-Guru, awesome...we are not talking about rental real estate property but even those come with hefty tags of expenses/maintenance/etc.,
Reply
Andych99 Trading-Guru
@Trading-Guru, Most of 60% BTC on market now was hold by Whales. then only whales richest in this world?
Reply
Thanks for the time and sharing this article.
Reply
Trading-Guru ForecastCity_World
@ForecastCity_World, Sure! Thanks for the comment too. Honestly, it was very fun to write!
+1 Reply
Nice and educational, Thanks a lot Guru
Reply
Trading-Guru hldvtrader
@hldvtrader, Appreciate the kind words! Would love to hear someone challenge it too. If there's anything you disagree with let me know
Reply
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