Ric Edelman, Edelman Financial Engines Founder joins the Yahoo Finance Live panel to discuss the latest with the crypto market.
– Welcome back. In today’s Crypto Corner, a legendary registered investment advisor, a top ranked RIA by “Barron’s” for the last three years, in fact, is making a big shift into crypto as another sign of the adoption cycle staying power this time around. Ric Edelman founded Edelman Financial Engines back in 1986 with his wife, grew the business to assets under management of $270 billion. He joins us now. And Ric, it’s good to have you back on the show, man. Talk to me about this crypto push. I mean, we were just talking in the commercial break. You’ve been in this space for a while, but now, why is it so important to kind of be the voice bringing people on board now?
RIC EDELMAN: Great to be with you, Zack. Well, my focus as a financial advisor has always been on looking toward the future. Where is the economy headed? Where is the investment world headed? What are the opportunities and the risks that our clients are facing? And I’ve been engaged in the digital asset community since 2012, and I’ve learned, really, two fundamental things in this time.
Number one is that blockchain technology and its derivatives of digital assets and NFTs and CBDCs and tokens and all that kind of good stuff, this is the most impactful commercial innovation since the development of the internet itself. This is huge. It’s going to have a tremendous impact on global commerce. And second, most financial advisors don’t realize this.
Most financial professionals been in business a long time, very successful, very talented, and experienced, but the more experience, the more talent you have, the more professional designations, the more college degrees in this space you have, the more difficult it is to get your head around Bitcoin. And I use Bitcoin as a proxy for all digital assets. There are thousands of them. And it’s important to recognize this is a completely new and different asset class that doesn’t have anything in common with anything else we’re familiar with. Stocks, bonds, real estate, oil, gold, commodities. This is totally new and different.
And it’s the first genuinely new asset class in about 150 years. Gold was the last, most recent new innovative asset class. And oil has now been around a long time, 150 years. And so this is new and different. And it has tremendous investment opportunities. It doesn’t take much to have a material impact on your portfolio. So my job at the RIA digital assets council, the company I invented three years ago, Zack, is designed to teach financial advisors about this space and to help them learn how to help their clients as well.
– Ric, how do you think investors should be looking at this? I mean, on the one hand, you’re trying to educate. Clearly, you see a risk in not really increasing exposure to the space. We heard from Paul Tudor Jones today in an interview this morning saying that he sees it more of a defensive position. It’s not necessarily that he’s bullish on crypto per se, but you can’t just not have exposure. How are you looking at the investment basis?
RIC EDELMAN: Yeah, it’s time to get off zero. We need to recognize that Bitcoin and digital assets broadly are non-correlated to stocks, bonds, real estate, other asset classes, which makes them an ideal addition to a diversified portfolio. You lower the risk while giving yourself the opportunity to improve returns. And I’m a big fan– I’m the guy who invented the 1% asset allocation strategy for Bitcoin. Just 1%. Which ordinarily you would say, why bother investing something with such a small portion of your portfolio?
But because of the incredible price volatility that we’ve all experienced with Bitcoin, a 1% allocation can materially improve the return, but if something goes bad, it’s only 1%. It won’t hurt you. So adding a small token portion, 1%, 2% of your portfolio, which was confirmed by a study done by Stanford in 2018, this can be a materially beneficial way to improve your overall returns over the long term.
– Yeah. When it comes to maybe why financial advisors have resisted it, I wonder how much of that’s just kind of the risk relative to other assets that might be included in that portfolio. And the way that investors really need to understand that things can go up by a wide margin, but they can also go down by a wide margin. You got to be prepared for that. And especially once you move farther and farther along in this, beyond Bitcoin, it only gets more volatile. So I mean, talk to me about how maybe that’s a piece of this. Or if there’s something else that maybe you’ve seen that keeps them hesitant to really get off the sidelines.
RIC EDELMAN: Well, if you really believe in portfolio diversification and rebalancing, which are two fundamental approaches most advisors use, Zack, you ought to love Bitcoin because if you believe in diversification, that means you own assets even though you might not like them. If you have a truly diversified portfolio of 16 or 18 asset classes and market sectors, you probably have assets in your portfolio you don’t like. But you own them anyway because that’s what you do.
And second, if you’re rebalancing that portfolio over time, you love volatile investments because volatility creates the opportunity for rebalancing. You get to sell high and buy low, and that’s a wonderful combination for long term wealth creation. So advisors need to get rid of their bias. They need to be willing to look at this with open eyes and genuine curiosity. And the more you learn about the tech, the more you understand the commercial use cases, you begin to realize that there is a there there. We’re not talking about tulip bulbs and Beanie Babies in this conversation.
– No, definitely not. And I mean, I’ll press you a little bit more here too because when we talk about diversification on some of these things, Dogecoin’s one that always I love chatting because it’s frowned upon, it gets smacked all the time by people who are very serious investors, who wear ties and suits. But if you are about the diversification piece, it’s not necessarily correlated.
The last I checked, the least correlation with Bitcoin among some of these larger assets here. So I mean, is that maybe something that people should be remembering here, that diversification and uncorrelated assets are important. If you go farther into these, that something like a Dogecoin should be taken, maybe, seriously.
RIC EDELMAN: You know, I’m not wearing a suit or a tie today. I invented the no tie zone in my firm decades ago, but I will say that Doggy-coin, which is the other pronunciation for this, misspelling of the word doggy, D-O-G-E, is the bad boy of crypto. I am strongly opposed to Dogecoin, Doggy-coin, because it was invented as a joke. It was not serious. It has no legitimate use case. It is not something that I think is doing the crypto community any good in its efforts to generate credibility and legitimacy in the financial marketplace, or approval by the SEC
So it is– I believe that does fall in the category of fad. And you could even argue fraud, as it’s engaging– it’s a victim of a pump and dump scheme by certain very famous wealthy individuals who shall be nameless here on the program. Elon Musk. And so what I think we have to focus on here is that there is still a Wild West environment that exists, largely because in an absence of a Bitcoin ETF– meaning the SEC isn’t doing its job by providing the oversight it does to ETFs, because there is no ETF.
And that’s creating the environment for people to do crazy things in crazy chat rooms, creating a bump and dump environment of people who are trying to get rich quick, which is not what I’m all about and what I’m trying to help people understand. So there’s a big difference between Ethereum and Bitcoin and jokes like Doggy-coin.
– So let’s talk more strategy then, Ric. If we’re talking 1% exposure, those investors who are just trying to sort of dip their toes, what other assets beyond Bitcoin do you think they should be investing in?
RIC EDELMAN: I’m actually more excited about Ethereum than I am about Bitcoin, although I’m bullish on both. And there’s a whole variety of others. But I would say if you’re just getting started, Bitcoin and Ethereum are about 80% of the market. That’s plenty. So just go ahead and do those. You can buy them directly at outfits like Coinbase or Kraken, or a number of other– Gemini– a number of other exchanges. You can even buy on PayPal to buy Bitcoin.
Or better yet, my preference is a fund. Using Grayscale, Osprey, Bitwise. These funds are readily available if you’re an accredited investor, investments such as SkyBridge, that allow you to invest in it the way you invest in any kind of mutual fund or ETF. OTC trust, these are diversified portfolios. Bitwise offers, the top 10 crypto index fund. I’m an investor in Bitwise, disclosure there. So there are a lot of ways now. We don’t have to sit back and wait for the SEC to offer a Bitcoin ETF.
In fact, there is an ETF in the marketplace from Simplify that is an S&P 500 index fund that has a 10% allocation to Grayscale’s Bitcoin Trust. So if you put 10% of your money into this S&P 500 fund, you’ll end up with 1% of your money in Bitcoin. Simple, easy. No muss, no fuss. There are lots of ways to do this. Investors no longer need to sit on the sidelines, and they no longer have to take big risks, and they don’t have to pay high fees. They can integrate it in their portfolio simply and easily, and their advisors need to show them how to do it.
– Yeah, and the time between, you know, how long it took for Bitcoin to get to that level and Ethereum building on it, I mean, vastly shorter waits for investors to get involved there. So you’re right. No excuses. But Ric Edelman, always love having you on. Congrats again on the new shift into crypto. We’ll continue this conversation soon. Thanks again for the time.