Though crypto’s volatile market performance in recent weeks may be giving some pause, recent dips shouldn’t discourage curious clients from allocating to digital assets, according to Ric Edelman.
Edelman, the founder of Digital Assets Council of Financial Professionals, spoke with WealthManagement.com about clients' crypto prospects during the Wealth Management EDGE conference, taking place this week in Hollywood, Fla. Edelman also gave a presentation and participated in a town hall–style meeting urging advisors to become better acquainted with crypto for client conversations (even if they hated it).
Earlier last month, bitcoin dipped to $26,000 from a previous high of more than $60,000 (though it’s since slightly rebounded into the low 30s), but Edelman stressed bitcoin's long history of volatility and argued if investors stay focused on the underlying tech and its adoption in the coming decade, it’s easier to understand that we're still early in the “crypto evolution.”
Additionally, the lower price also offers an attractive buying opportunity for investors who have refrained thus far.
“It’s a volatile asset class that is still evolving, and there remains uncertainty as to the future, and this is why you should allocate low single digits to this asset class,” Edelman said. “You don’t need to allocate more than is prudent, but that doesn’t mean you should do zero. If you do zero, you’re 100% wrong.”
During his town hall, Edelman offered five different approaches for crypto novices (and for advisors guiding such clients) to engage. In one possibility, he recommended buying bitcoin only. Bitcoin is a business brand, the most proven coin and the coin most institutions are buying.
“If this whole thing blows up and goes to zero, bitcoin will be the last man standing,” he said. “It has the most name recognition, and your clients have heard of it, even if they don’t know what it is.”
Or clients may prefer solely going with ethereum; many proponents argue the coin has a better business case than bitcoin (it’s the second-largest coin, and is widely adopted by businesses). Investors can opt for a combination of the two with a 50/50 or 60/40 split, allocating only 1%–3% of assets to the purchase. Additionally, clients could opt for the Bitwise 10 Crypto Index Fund (BITW), which contains the top 10 digital assets by market cap, rebalanced monthly. Likening it to an S&P 500 for the crypto space, Edelman said investors could use the crypto fund in the same way they’d use a mutual fund for portfolio diversification.
Often, Edelman said, advisors ask clients about aspects of their financial lives they don’t manage, from cash reserves to life insurance, annuities or rental properties, and he stressed advisors need to also now ask about digital assets. Too many advisors, he believes, aren’t doing so, either because they dislike crypto as an option or don’t know what or how to ask.
“And that’s the fundamental error,” he said. “You need to be able to ask about digital assets the same way you ask about all the other stuff they own that’s outside your purview.”
Edelman's views exist in stark contrast to those expressed earlier in the conference by Nouriel Roubini, a New York University Stern School of Business professor of economics. He offered a decidedly more scathing view on cryptocurrencies, arguing they didn’t serve as an effective hedge against inflation and were far too volatile, speculative and subject to manipulation.