How Ethereum Could Help You Retire a Millionaire

Key Points

• Ethereum has a handful of different growth drivers that will play out over the long term.

• Asset tokenization is perhaps the most important of those at the moment.

• If you're willing to lock up your coins, you can also build some extra wealth via staking.

• 10 stocks we like better than Ethereum ›

Ethereum (CRYPTO: ETH) is an asset that has a high potential to turn your patience into future purchasing power. While it definitely won't mint any new millionaires overnight, it can certainly help disciplined investors get there the slow way.

Here's how and why diligent investment into this cryptocurrency could pay off significantly by the time you retire, assuming that it's at least 10 years out.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

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This chain is positioned to gain from the right trends

For Ethereum to gain in value over time, there need to be more reasons for people to buy it and hold it in the future than there are today. Given that every transaction on its blockchain costs a gas (user) fee paid in Ethereum, more activity on the chain equates to rising demand for the coin. And there's no shortage of long-lived trends that will continue to do just that.

Decentralized finance (DeFi) is Ethereum's cornerstone, as is its smart contract capability.

Services that once required interacting with financial institutions and filing reams of burdensome paperwork are now at least partially automatable by code. Banks and other institutions are going to be moving their financial plumbing over to Ethereum to cut down on the manual work they need to do. So, the chain is going to become an important fintech tool for the big players in the traditional financial system, in addition to being the home of DeFi, making it a critical nexus for all sorts of capital.

One particularly important area of that transition is in asset tokenization. If you aren't familiar, tokenization is the process of putting the ownership records for real-world assets, like U.S. Treasury bills or even real estate, onto a blockchain as a transferable crypto token. Today, about $8.3 billion in tokenized assets are tracked on Ethereum's chain, not including the $162.2 billion in stablecoins that are also parked there.

Major asset managers like BlackRock are putting their tokenized assets on the network because it's already the place where they can access the deepest liquidity and tap the most resources for critical tasks like borrowing, lending, and generating a yield via staking or DeFi platforms. Ethereum's early lead in asset tokenization means that today it has a 52% share of all of the tokenized assets in the crypto sector. That's important, as banks expect the value of tokenized assets to balloon, with trillions of dollars of growth this decade alone. When capital flows, it tends to pool precisely where there's already a lot of other capital, and that is likely to help drive significant returns for holders of this coin.

So, Ethereum could help you to become a millionaire by the time you retire by virtue of becoming a platform that Wall Street favors to move large volumes of capital. And that process is just starting to pick up speed.

Make a practical plan

With its long runway for growth in mind, there are two pretty easy ways to make investing in Ethereum work well for a retirement plan.

The first is to dollar‑cost average (DCA) into Ethereum on a set cadence, regardless of news or price. This will ensure that the coin's volatility works in your favor by spreading out your cost basis among both lower and higher price points, and it takes your emotions out of the investing loop, which is very valuable. The coin has gone through prolonged downturns in the past, and it will probably do so in the future as well -- but those who continued buying it came out ahead anyway.

The second approach is to consider staking some or all of the Ethereum you accumulate. Native staking yields between 2% and 4% are available through reputable providers, though rates float, and staking requires locking up your coins for a while and not being able to withdraw them without a delay of a few days. The staking yields won't ever make you rich, but the point here is that it will help to juice your returns a bit, which can make a big difference over the long run if you do it consistently.

Assuming that tokenization keeps increasing, and new capital on-ramps like exchange-traded funds (ETFs) continue to lower frictions for new buyers, Ethereum's growth should continue for quite some time. More assets and more on-chain activity will bring more developers and encourage them to develop more decentralized applications (dApps) and other products, which then attract more users and capital, including from financial institutions. This is essentially an adapted version of the "network‑effects" investment thesis that has rewarded patient investors in the tech sector many times before.

If your goal is to retire with more financial flexibility than you have today, Ethereum can play a role, even if it will be a long marathon for an investor building a position today to make a sum as large as $1 million. Keep your contributions automatic, keep your expectations grounded, and let compounding and the adoption curve of this financial technology grind onward to deliver returns.

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Alex Carchidi has positions in Ethereum. The Motley Fool has positions in and recommends Ethereum. The Motley Fool has a disclosure policy.