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A surprising percentage of high-net-worth individuals own crypto. And it's not just high-profile tech titans in Silicon Valley. According to new Motley Fool research, a whopping 68% of American millionaires own cryptocurrency.
That raises an interesting question: Did they start buying crypto after they became self-made millionaires, as a way to further diversify their portfolio? Or did they use targeted crypto buys over an extended period of time to generate life-changing wealth?
Which cryptocurrencies are millionaires buying?
The two most popular cryptos, as might be expected, are Bitcoin (BTC +2.11%) and Ethereum (ETH +6.31%). Nearly 60% of crypto-owning millionaires hold Bitcoin, and 55% hold Ethereum. That's not terribly surprising, given that Bitcoin and Ethereum together account for 70% of the total market cap of the crypto market.
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But a surprising number of American millionaires also have owned a meme coin such as Dogecoin (DOGE +4.16%) or Shiba Inu. Dogecoin, in fact, was the third-most popular cryptocurrency. Nearly one-half (48%) of millionaire crypto investors have put their money into Dogecoin. And 33% of millionaire crypto investors have put their money into Shiba Inu.
Other popular cryptocurrencies include BNB, XRP, Tether, Cardano, and Solana. In other words, just about every top cryptocurrency ranked in the top 10 by market cap can be found in the portfolios of millionaires.
Reasons to buy cryptocurrency
According to the Motley Fool research from December, there are several core reasons millionaires are buying cryptocurrency for their portfolios. By far, the most important reason (cited by two-thirds of crypto-owning millionaires) is the potential for strong returns. That makes sense, given that Bitcoin has routinely been the top-performing asset in the world for the better part of the past decade.
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But some also bought crypto as a potential hedge against inflation, while others bought crypto as a safe store of value. Most likely, they are buying Bitcoin for this reason, given its perception among some investors as digital gold. Until recently, the growing consensus was that Bitcoin was a long-term store of value and a potential safe asset. Even Federal Reserve Chairman Jerome Powell has alluded to Bitcoin as a virtual, digital version of gold.
How much should you allocate to crypto?
Another interesting takeaway from the Motley Fool research is just how big of an allocation crypto is in the portfolios of millionaire investors. For nearly two-thirds of these crypto-owning millionaires, crypto accounted for at least 50% of their overall portfolio. This suggests crypto may have been a significant contributor to their wealth.
That 50% figure is much more than the suggested portfolio allocation for crypto of just 1%-2%. Even for risk-seeking investors, the conventional wisdom is that crypto shouldn't account for more than 5% of a total portfolio.
Otherwise, it's just too risky. Case in point: Bitcoin has fallen almost 45% since reaching an all-time high in October. As a result, many of those millionaires who are overweighted in crypto may now only be "half-millionaires," given how precipitously Bitcoin has fallen in value in such a short period of time.
To be sure, I'm following the smart money and putting money into crypto. The potential for outsized returns is just too high. When you add in the additional portfolio diversification benefits, the case for making crypto part of your broader portfolio is clear.
