How Ethereum Might Enable You to Retire as a Millionaire

When it comes to producing crypto millionaires, Bitcoin ( BTC 0.84%) tends to be in the spotlight. The 2024 Crypto Wealth Report indicates that there are currently 85,400 individuals who hold at least a million dollars in Bitcoin, which accounts for roughly half of all crypto millionaires globally.

However, Ethereum ( ETH 4.68%) shouldn't be underestimated. As the second-largest digital currency, Ethereum has actually surpassed Bitcoin in performance this year and arguably offers even greater long-term potential. For those aiming to reach millionaire status through crypto, Ethereum might be the catalyst that gets you there.

Ethereum's historical performance

Over the last five years, both Bitcoin and Ethereum have shown strikingly similar results. Within this timeframe, Bitcoin delivered an annualized return of 59.1%, while Ethereum achieved a five-year annualized return of 60.4%. This suggests that Ethereum has actually edged out Bitcoin in terms of performance over the past five years.

But when analyzing these figures, it's important to dig deeper to really understand what drives them. Ethereum's impressive track record is largely due to two standout years—2020 and 2021—when it posted gains of 472% and 395%, respectively. This surge happened during the last major crypto bull run, as more investors began to appreciate Ethereum's long-term promise.

Following a rough 2022 that saw the entire crypto sector plummet, both Bitcoin and Ethereum managed to recover. In 2023, Bitcoin gained 156% and Ethereum rose by 93%. For 2024, Bitcoin climbed 121% while Ethereum increased 46%.

This variability makes it challenging to accurately gauge Ethereum’s future growth potential. Can this cryptocurrency realistically repeat the 400% annual growth rates seen in past years? So far this year, Ethereum’s gains are about 33%, suggesting a more plausible yearly growth rate may fall between 30% and 45%.

Let’s break down the numbers. If we estimate Ethereum’s annual returns at 30%, how long would it take for $1,000 to become $1 million? With a compound annual growth rate (CAGR) of 31.8%, an initial $1,000 could grow to $1 million in 25 years.

Ethereum's blockchain ecosystem

That’s certainly promising. But what could allow Ethereum to consistently achieve nearly 32% annual returns over the next quarter-century?

The answer lies in Ethereum's robust blockchain ecosystem. As a smart contract platform, Ethereum provides a foundation for both users and developers to build upon. Projects launched on Ethereum benefit from the main blockchain’s strengths, which is why Ethereum dominates many areas of blockchain, including non-fungible tokens (NFTs) and decentralized finance (DeFi).

So, when considering Ethereum’s future potential, investors should look at the activity across its entire blockchain ecosystem. A glance at the top 50 cryptocurrencies by market cap quickly shows why Ethereum holds so much value.

For example, leading stablecoins operate on Ethereum. Several major meme tokens are built on its platform. Most significantly, many of the top DeFi protocols and decentralized exchanges are based on Ethereum.

The explosive growth of DeFi in 2020 and 2021 was a key driver behind Ethereum’s massive gains, as investors regarded it as the backbone of the next generation of financial services, which sent DeFi-related assets soaring.

That trend appears to be continuing, especially in the realm of stablecoins. Citigroup ( C 0.63%), for instance, predicts the stablecoin market could grow tenfold in the next five years—a surge that would certainly benefit Ethereum.

No guarantees with Ethereum

Keep in mind, however, that nothing is guaranteed with Ethereum. Reviewing the past seven years, Ethereum has delivered two outstanding years (2020 and 2021), two solid years (2023 and 2024), one poor year (2019), and two exceptionally bad years (2018 and 2022). Interpreting these results isn’t straightforward.

Cryptocurrency markets tend to move in four-year cycles, and as a long-term investor, it’s nearly impossible to avoid the downturns. In both 2018 and 2022, most cryptocurrencies lost at least 60% of their value, regardless of which asset you held.

Investing in crypto means relying on the hope that the good years are strong enough to offset the losses during the bad ones. This approach carries significant risk, but it is also the type of risk required for those who aspire to join the ranks of crypto millionaires.