The Network Effect of Wealth: Why Crypto Belongs in HNW Portfolios

The dynamics of crypto are often misunderstood when viewed solely through the lens of volatility. What actually defines this space is its powerful network effects, its alignment with broader technological adoption curves, and its ability to reshape financial infrastructure itself. For those accustomed to asymmetric returns and early-stage bets, crypto is less of a risk than a missed opportunity.

This report explores the data-driven reality behind the rise of crypto among HNW investors. From surging user adoption to the deepening involvement of hedge funds, centi-millionaires, and next-gen wealth holders, the case for strategic allocation to digital assets has never been stronger. As blockchain enables tokenization of real estate, fixed income, and private equity — unlocking liquidity, transparency, and efficiency — it becomes increasingly clear that crypto is not just a new asset class; it’s a new architecture for capital. For forward-thinking LPs and GPs, the next great wealth-building opportunity may not lie in competing with institutional capital, but in getting there before it does.

Crypto usage, still climbing to new heights

Cryptocurrencies have long been critiqued for their volatility, but this view fails to capture the underlying dynamics that make the asset class uniquely powerful — particularly for high-net-worth (HNW) individuals. Crypto is driven by network effects, meaning its value and utility grow as more users participate. This is not a hypothetical concept; it’s a well-documented economic phenomenon that has underpinned the rise of technologies from the telephone to the internet. 

The more participants a decentralized financial system has, the more reliable, secure, and attractive it becomes — not only to individuals, but to institutions, developers, and regulators. For HNW investors focused on long-term positioning, crypto represents more than just a speculative trade; it’s a frontier market that rewards early exposure and compounds in value as adoption expands.

The global trajectory of crypto user adoption clearly illustrates this momentum. According to data from Statista, the estimated number of crypto users has soared from just 5 million in 2016 to over 583 million in early 2024, with projections reaching 900 million by the end of 2025. This is not merely growth — it is exponential acceleration. 

Much like the internet in the early 2000s, crypto is transitioning from early adopter phase to mainstream utility. What makes this trend especially compelling is that each new user doesn't just increase the market cap; they enhance the ecosystem’s resilience, infrastructure, and liquidity. For wealth managers and sophisticated investors, this creates a compelling argument: crypto's value is not only in its performance, but in its structural inevitability. Allocating to this asset class is increasingly less about timing a trade, and more about securing a position in a maturing global financial network.

Key takeaways from chart:

• Exponential User Growth: The number of crypto users has grown from 5 million in 2016 to over half a billion in 2024, with a projected 900 million by 2025. This trend reflects an accelerating adoption curve akin to other major technological shifts.

• Network Effects Amplify Value: As adoption rises, the value of participating in the crypto ecosystem increases. This effect compounds over time, favoring early entrants and making the asset class more robust and attractive with each new user.

• Strategic Relevance for HNW Portfolios: Crypto is no longer a marginal asset. It is emerging as a legitimate component of diversified wealth portfolios, offering asymmetric upside potential and long-term optionality in an increasingly digital financial landscape.

• Structural Demand Drivers: Beyond speculation, real-world use cases — including payments, custody solutions, DeFi applications, and tokenized assets — are gaining traction. User growth fuels development, creating a reinforcing cycle of innovation and adoption.

• Underexposure Carries Increasing Opportunity Cost: With adoption scaling rapidly, the risk profile is shifting. For HNW individuals, the question is no longer whether crypto is too risky to include — but whether it is too significant to ignore.

Millionaire, centimillionaires, billionaires, all are in on crypto

While broad adoption is one signal, the distribution of capital across the crypto landscape offers an even sharper insight into the conviction behind the trend. Crypto is no longer the domain of hobbyists or speculative retail traders. Today, we’re seeing a material migration of sophisticated capital into digital assets — from millionaire wallets to billion-dollar holdings. 

According to Henley & Partners, there are now over 172,000 individuals globally holding more than $1 million in crypto, representing a 95% year-over-year increase. More striking still, the number of centi-millionaires and billionaires with meaningful crypto exposure has surged — a signal that crypto is no longer viewed as a fringe experiment, but as a credible, scalable asset class worthy of significant allocation from ultra-high-net-worth (UHNW) participants.

This is especially relevant for entrepreneurial LPs who understand the power of early positioning in exponential asset classes. The crypto market, valued at $2.3 trillion, has expanded nearly 90% year-over-year — and yet remains a fraction of the traditional financial ecosystem. 

The velocity of wealth accumulation among crypto-native investors is outpacing legacy sectors, and the data shows a clear directional bet from highly capitalized actors. Notably, Bitcoin-specific allocations are growing even faster, reinforcing its position as a macro asset and digital store of value. For those with a tolerance for innovation, disruption, and asymmetric upside, the smart money is not waiting for perfect clarity — it’s moving now, ahead of consensus.

Key Insights from chart:

• Sharp Uptick in Crypto Millionaires: Over 172,000 individuals now hold $1M+ in crypto, a 95% increase year-over-year — showing rising conviction and substantial capital flows into the asset class.

• Centi-Millionaire and Billionaire Participation: There are 325 centi-millionaires and 28 billionaires with crypto holdings, suggesting that crypto is gaining traction among those with the highest access to private deals and institutional intelligence.

• Bitcoin Remains the Institutional Favorite: Growth among Bitcoin millionaires and centi-millionaires is even steeper — +111% and +100% respectively — signaling continued institutional alignment with Bitcoin as a core position.

• Market Maturity with Headroom: The total crypto user base stands at 560 million, with a market cap of $2.3 trillion — still a small slice compared to traditional asset classes, suggesting long-term upside for early allocators.

Growth Signals from Smart Capital: The profile of capital entering crypto is evolving — less speculative, more strategic. For entrepreneurial LPs used to backing emergent trends, the message is clear: capital is going where growth is compounding.

Traditional hedge funds warming up to the crypto world

A revealing signal of crypto’s maturation is not just the entrance of retail users or individual HNW investors — it’s the steady and increasing allocation from traditional hedge funds. These institutions, with mandates driven by risk-adjusted return, long-term optionality, and tactical flexibility, are allocating to crypto in greater concentration year over year. According to PwC, both Bitcoin and Ethereum featured in 91% of hedge fund portfolios by 2023 — up significantly from 67% just two years prior. These aren’t casual toe-dips into the space. 

They’re directional commitments by professional allocators who’ve analyzed volatility, liquidity, custody, and counterparty risks and still found the risk/reward profile compelling. This speaks directly to entrepreneurial LPs, many of whom built wealth by entering markets ahead of institutional comfort zones.

Notably, there is also a clear bifurcation in preference within crypto asset classes. While the noise around NFTs, ICOs, and tokenized assets has cooled, the foundational infrastructure assets — namely Bitcoin and Ethereum — have surged in institutional prominence. This mirrors the behavior seen in venture: hype-driven segments fade, but infrastructure persists and compounds. 

The sharp rise in allocation to CEX-listed tokens and Ethereum-based applications signals a growing focus on utility, liquidity, and regulatory clarity. For entrepreneurial LPs who understand capital cycles and are used to asymmetric plays, the data makes a compelling argument: the smartest capital in traditional finance is not ignoring crypto — it’s concentrating on its most proven pillars.

Key insights for investors:

• Institutional Confidence Is Growing: By 2023, 91% of traditional hedge funds reported allocations to both Bitcoin and Ethereum — a dramatic increase from 67% in 2021, signaling deepening conviction.

• Flight to Quality Within Crypto: Allocations to speculative categories like NFTs, ICOs, and tokenized assets have declined or stabilized, while core assets like Ethereum and centralized exchange-listed tokens have gained traction.

• Ethereum’s Rise as Infrastructure Play: Ethereum maintained its 91% allocation rate alongside Bitcoin, reflecting its role not just as a token but as a platform for decentralized finance, stablecoins, and tokenized applications.

• Bitcoin Remains the Institutional Anchor: Its simplicity, liquidity, and emerging role as “digital gold” make it the default choice for hedge funds seeking a low-correlation macro asset.

Strategic Implications for LPs: The message from hedge funds is clear: the institutional bridge into crypto is being crossed at scale, and the capital is concentrating in assets with proven durability and long-term potential — exactly where sophisticated LPs should be looking.

New generations taking advantage

One of the most underappreciated forces shaping capital markets is generational preference — and nowhere is the divergence more stark than in digital asset allocation. According to Bank of America, investors aged 21–43 now allocate nearly 28% of their portfolios to crypto and digital assets, making it their second-largest asset class after real estate. In contrast, investors aged 44+ allocate just 4% to crypto, preferring traditional instruments like U.S. stocks and emerging market equities. 

This isn’t just a difference in age — it’s a reflection of fundamentally different worldviews on what constitutes value, risk, and opportunity. For entrepreneurial LPs — many of whom are navigating generational wealth transfer or advising next-gen capital allocators — this divide signals where future flows and conviction are heading.

The younger cohort — digital-native, innovation-first, and impact-conscious — is expressing clear investment alignment with crypto's thesis: decentralized, borderless, programmable money and assets. They view crypto not just as an alternative store of value, but as a core part of a new financial architecture. Private equity, direct investments, and personal ventures also rank high among younger investors, reinforcing a mindset geared toward control, customization, and exponential upside. 

For LPs accustomed to backing early-stage innovation, the message is clear: the rising generation isn’t waiting for traditional validation. They’re allocating around different rules — and crypto is central to their strategy. For those managing multi-generational wealth or positioning for long-term relevance, adjusting to this shift is not optional — it’s strategic.

Key takeaways for investors:

• Massive Generational Allocation Gap: Younger investors (21–43) allocate 28% of their assets to crypto/digital, compared to only 4% among those 44 and older — a 7x disparity that signals a profound realignment of investment priorities.

• Crypto as a Core Holding, Not a Hedge: For younger wealth holders, crypto ranks above private equity, public equities, and bonds — suggesting they see it as foundational rather than speculative.

• Values-Aligned Investing: Younger investors also show higher allocations to impact-driven companies and personal ventures, indicating a preference for autonomy, customization, and mission-led capital deployment — a natural philosophical fit with Web3 and crypto ecosystems.

• Legacy Bias in Older Allocators: Older investors remain overweight in traditional equities and underweight in emergent asset classes — highlighting a potential blind spot as capital formation shifts generationally.

• Implications for LPs and GPs: For entrepreneurial LPs advising or co-investing with next-gen capital, aligning with their risk framework and allocation logic is key. Ignoring crypto means missing the center of gravity for future capital decisions.

Tokenization of assets is the future

Looking forward, the tokenization of assets is emerging as a transformative force in portfolio construction, and high-net-worth (HNW) investors are preparing accordingly. According to EY, projected allocations to tokenized assets are set to more than double across all portfolio types between 2023 and 2027. Fixed income, real estate, and alternatives are all poised to see tokenization adoption climb toward the 9–10% range — a substantial shift given these portfolios are often anchored by illiquid, long-duration positions. What's notable is not just the growth rate, but the breadth of asset classes being touched. This trend suggests HNW investors are increasingly viewing blockchain technology not only as a gateway to crypto, but as a foundational infrastructure for modernizing legacy assets.

For entrepreneurial LPs, the implications are significant. Tokenization enables fractionalization, 24/7 liquidity, enhanced transparency, and potentially reduced intermediation — aligning perfectly with the broader push for efficiency and flexibility in alternative investing. As tokenized real estate, credit, and private equity become more accessible through regulated, blockchain-based platforms, the entire definition of “alternative” may shift. By 2027, nearly 10% of real estate portfolios and a similar share of fixed income holdings are expected to be tokenized, underscoring a dramatic reframing of how wealth will be stored, transferred, and accessed. For investors accustomed to backing frontier opportunities before they’re mainstream, tokenized assets represent the next logical extension of digital asset strategy — with the same asymmetric potential, but wrapped in familiar, yield-bearing structures.

Key Takeaways and Analysis:

• Accelerating Adoption Trajectory: HNW investors expect allocation to tokenized assets across all portfolio types to roughly double between 2023 and 2027 — from ~4–5% to 8–10%, signaling conviction in blockchain’s role in portfolio evolution.

• Broad Application Across Asset Classes: Tokenization is not limited to crypto-native instruments — it's expanding into fixed income (8.9%), real estate (10.2%), and alternatives (7.5%) by 2027, demonstrating its versatility and institutional relevance.

• Infrastructure-Driven Innovation: The interest in tokenization reflects deeper belief in blockchain as a financial infrastructure layer — enabling liquidity, compliance automation, and direct ownership in traditionally illiquid markets.

• Efficiency and Access as Catalysts: Tokenized assets may lower friction in private markets, unlock smaller-ticket participation, and improve price discovery — all of which align with the innovation mindset of modern LPs.

• Strategic Imperative for LPs: Entrepreneurs and investors who’ve thrived on recognizing capital market inefficiencies should treat tokenized assets as a parallel innovation curve — one that’s converging with crypto and redefining portfolio construction for the next decade.

Sources & references

Globenewswire. HNWI more likely to own crypto than average American. https://www.globenewswire.com/news-release/2025/03/13/3042248/0/en/High-Net-Worth-Investors-Are-More-Likely-to-Own-Crypto-than-the-Average-American-According-to-Data-from-Grayscale-Investments-and-The-Harris-Poll.html

Statista. Crypto allocation. https://www.statista.com/statistics/1446356/crypto-asset-allocation-by-traditional-hedge-funds-worldwide/

EY. Tokenization in Asset Management. https://www.ey.com/en_us/insights/financial-services/tokenization-in-asset-management

Henley Global. Crypto Wealth Report. https://www.henleyglobal.com/publications/crypto-wealth-report-2024

CNBC. Caution around crypto. https://www.cnbc.com/2024/10/07/among-the-young-and-wealthy-cautious-investors-hold-more-crypto.html

BofA. Generational divide. https://www.privatebank.bankofamerica.com/articles/generational-divide-wealth-study.html