Digital Assets, Wealth & Succession

The idea behind ‘Digital Assets’ is relatively new and novel.

For most of recent history, we think of ‘assets’ and think of real estate, cars, equities, and cash. The Baby Boomers, on the balance, have amassed fortunes in these types of assets and are set to pass down more than $80 Trillion in assets by 2045.

Gen Z on the other hand are more likely to hold a wallet the size of a USB drive (“Digital Wallets“) that possesses $Millions in cryptocurrency, millions that they one day hope will turn into multi-millions.

Millennials are in the middle, and typically like to play both sides of the spectrum. They are on pace, however, to inherit those $Trillions in Boomer assets at an increasing pace over the next 5 years.

When we think about the future, how will Digital Assets and everything in between shape Wealth, Succession and the next generation of businesses?

Digital Assets , Wealth & Succession

Digital Assets Minted Many Millionaires

Bitcoin’s launch has reshaped the view of what constitutes an asset, as the coin itself is valuable enough to mint billionaires, let alone the other $Billions in competing blockchain assets it has helped spur on.

The recent launch of the Bitcoin ETF helps further solidify ‘Digital Assets’ as real assets:

  • Are Digital Assets the major new category of wealth going into the future?
  • Or is it all a modern-day shell game designed to flip into real assets?

Wealth can be printed and then ‘rugged’ in an instant in the game of cryptocurrency.

Simultaneously, those who have built long-term holdings of Bitcoin, Ethereum, and other major Digital Assets will have seen their wealth progressively multiply over time.

It is estimated that 88,200 have become millionaires in crypto, with 40,500 of those having done so in Bitcoin alone.

What’s the end game though?

Ultimately, the majority of wealth created in the digital space flows back into the mainstream economy.

It seems that the plan for many in the younger generations – who have found it exceedingly difficult to generate income in the current economy – is to make their money in crypto and try to gain an upper hand in the real world.

The Great Wealth Transfer

On the flip side is the Baby Boomers, many of whom will never hold any Digital Assets (other than in ETFs) but have amassed significant wealth in their lifetimes in ‘Real Assets.’

Baby Boomers are currently the richest generation on the planet, with the average Boomer being worth $1.2 million, according to Fortune.

Newsweek

The Great Wealth Transfer from the Baby Boomers to the Millennials has begun, shfiting over $68 Trillion in wealth by 2030.

Millennials are expected to hold five times as much wealth as they do today by the 2030s.

Forbes

This doesn’t mean that the transfer of wealth will be ‘equitable’ or evenly distributed.

A little over 25% of that wealth is in real-estate assets. A certain % will be in cars and other physical goods. Another % scattered across equities, fixed income, and other liquid assets. And perhaps most complex will be those assets tied up in family businesses, which will be discussed below.

Nevertheless, the wealth transfer has begun and will accelerate over the next five years.

While many Millennials will use the money to pay debts, make purchases, and save for the future, there is a likelihood that many will be putting that money into their own businesses in the years ahead in order to grow the wealth they receive.

Debt, Unemployment & Entrepreneurship

Debt levels are up.

Unemployment (or underemployment) levels are up.

Entrepreneurship levels are at all time highs (in the US):

Nearly 1 in 5 adults — 19 percent — are in the process of founding a business or have done so in the past 3½ years, according to the Global Entrepreneurship Monitor

Babson College

Simply because rates of ‘new business formation’ are high doesn’t correlate into success, however, and the likely reason that entrepreneurship rates are so high right now (highest level since the survey began in 1999) is because people are looking for ways to generate extra income.

Higher interest rates have crimped startup investment.

Therefore, we can presume that with entrepreneurship rates up and startup investment down, people are funding their endeavors through:

  • a) personal savings
  • b) debt
  • c) friends and family investment

As the Great Wealth Transfer takes shape, and more Digital Asset millionaires are minted, it makes sense that the money will start to pour into small businesses and firms with an eye towards the future.

Succession and the Family Business

Empires rise and they fall.

Most of what dictates the timing of the rise and the fall is the economy, which is why the rapid increase in interest rates (from historic, all-time lows) has caused so much shock in the economy.

Those who are able to defy the odds and build a successful long-term business typically want to keep it in the family. This is where the term ‘succession’ comes from, in addition to it being a hit HBO TV Series.

Businesses with less than 500 employees make up more than 99% of the economy, and the vast majority of small businesses are owned and operated by families. Yet succession is a tough topic to broach for the vast majority.

In fact, the National Bureau of Economic Research’s Family Business Alliance reported in 2019 that only 15% of family-owned businesses have any sort of documented succession plan in place

Forbes

Perhaps with all the animosity generated across generations over the last 10 – 15 years due to economic and financial conditions, it has created a rift between members of different generations.

Family business transitions are also difficult to manage even with a proper succession plan is put in place. That’s partially why we have seen many new marketplaces spring up to help family businesses efficiently sell the firm to other investors.

Nevertheless, in an era of ‘side hustles’ and delivery driving on the weekends, family businesses are typically well-run, profitable businesses with a base of customers to build on.

If anything has come out of all the research on Business Model Analytics, it’s that developing new customers is hard and retaining them long-term is harder.

Family businesses have good mechanics, typically, and can benefit from the younger generations knowledge of technology and automation.

In these difficult economic times, and in line with the trends listed above, will the Great Wealth Transfer lead to a resurgence in succession and a new breed of family-run businesses?

Bridging Generational Divides to Fund Business

Whether its the newly-minted millionaires from Crypto, or the Baby Boomers with millions across physical assets and their own businesses, we are coming to a time where investment into private business needs to come from within family + friend circles.

The next five years look like they will bring levels of uncertainty and volatility to economies worldwide, especially to those in what would historically be considered secure roles. AI + other technological trends will enable larger businesses to automate certain functions, and cut costs where they see fit.

But as we have seen above, a new crop of businesses are starting in their wake. These are companies being built out of economic necessity. For many, the future of their families will depend on their success.

Simultaneously, many are minting millions in cryptocurrency and the stock markets as a whole, and looking for new ways to deploy that capital.

Family business, private business, and local business are the future. Funding will likely need to come from new sources, and returns are not going to be short-term.

Nevertheless, if we go back to the 1920s and subsequent decades, many of the greatest companies in our current history were born out of that era. Woolworths was one example, and there were many others.

The same can probably be said of the companies that will emerge out of the era we are living in now.