Why this veteran advisor says it's speculative not to have crypto in portfolios

By Barbara Kollmeyer

Ric Edelman says it's irresponsible for advisors to not recomment crypto right now

"Owning crypto is no longer a speculative position; failing to do so is."

That's our call of the day from Ric Edelman, veteran wealth manager and founder of the firm that became Edelman Financial Engines. His recently published white paper - "The Death of 60/40 - and Why Your Crypto Allocation Should Be 10% to 40%" - makes that case.

Crypto is what he calls a "once-in-a-generation" opportunity for investors that most of the financial services industry is not acknowledging, he said.

"There are three things that are all happening independently, but simultaneously that have coalesced to create a singular moment in history," Edelman, who also founded the Digital Assets Council of Financial Professionals, told MarketWatch on Tuesday.

Longevity is the first and he urges advisers to update financial planning projections for clients who will likely live longer - their money needs to keep up.

The second is growth in exponential technologies surrounding healthcare that cure diseases and aids longevity, driven by such developments as bioinformatics, 3D printing and big data.

The third he calls an interim step that dictates portfolios allocate more toward exponential technologies. Among these is blockchain, now benefiting from increasingly friendlier regulatory policies.

As humans live longer, Edelman said a 60-year-old, for example, should shift a traditional 60% stocks/40% bonds portfolio to one with 80% to 90% in riskier investments.

"I'm not just talking about the Magnificent 7, but more broadly, the companies that are using and developing these technologies," he said.

As for crypto, he suggests an aggressive portfolio should have half of the 80% risky segment in cryptos, while a more conservative portfolio or someone who "can't stomach volatility" should opt for 10%.

Edelman rattles off plenty of options for crypto exposure, such as exchange-traded funds - Grayscale Bitcoin Trust ETF GBTC to name one - bitcoin miners, crypto exchanges or custodians, and more than 100 companies with large bitcoin allocations such as Strategy (MSTR), formerly known as MicroStrategy.

As for the risks, he said five years ago he was recommending a 1% allocation because of real concerns that bitcoin might disappear or get banned by governments. Current government support, institutional engagement and crypto technological advances to global commerce have cast those doubts aside, he said.

He points out, though, that just 5% to 10% of the global population is exposed to cryptocurrency, as he notes some investors remain afraid due to past crises. That's as much of the investment advisory community, which controls two-thirds of all wealth in the U.S., is still not yet recommending crypto, he said.

"An adviser who is not recommending bitcoin is acting irresponsibly. The firms that don't allow their advisers to allocate to crypto, I believe are violating their fiduciary obligations," he said.

Other investors may feel they have missed the boat - Edelmen himself started investing in bitcoin in 2013 when it traded at $700, and said he intends to keep holding. But his updated forecast calls for bitcoin (BTCUSD) to reach $500,000 by 2030, up from $450,000 a year and a half ago. Bitcoin was trading at just under $109,000 early on Wednesday.

He gets to that number by adding value of all the assets in the world, stocks, bonds, real estate, oil, gold cash, artwork, roughly $800 trillion, owned by governments, corporations, institutions and individuals.

"If all of the owners of those assets were to allocate just 1% of their portfolios to bitcoin, that would be $8 trillion of flows into bitcoin. And that would translate to about $400,000 per bitcoin. You add that to the $100,000 that is bitcoin's current price and you get to $500,000 per bitcoin."

While bitcoin can't repeat the zero to $100,000 feat, "history tells us that as technologies mature, adoption rates rise," he said. As the other 95% of the world gradually adopts to crypto, he sees the price of bitcoin "highly likely to rise dramatically, far faster than any asset class," with over 19 million of 21 million bitcoins already been mined, meaning the price must grow as supply is finite, he said.

Edelman, who started his financial planning practice in 1986, said he's driven by the internet call he missed in the 1990s.

"I don't know of anybody who made that call correctly. I think everybody severely underestimated the internet from a technological and financial perspective. It is because of that experience I'm determined that we should not miss this one. This is the internet 3.0."

The internet of 1.0 connected people via texts, email and Facebook, internet 2.0 was cars and things talking to each other, he said. "Internet 3.0 is the internet of money, and that has been brought about by blockchain technology. With this technology, we can now move money as quickly and easily as we send a text. This is revolutionary."

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The markets

U.S. stock futures (ES00) (NQ00) (YM00) are edging higher, Treasury yields are steady, gold (GC00) is down and copper (HG00) is giving back some of Tuesday's surge.

Nasdaq composite Last 5d 1m YTD 1y S&P 500 6225.52 -0.03% 3.38% 5.85% 10.50% Nasdaq Composite 20,418.46 0.12% 4.09% 5.74% 9.50% 10-year Treasury 4.414 13.00 -1.30 -16.20 12.40 Gold 3299.1 -2.07% -2.28% 25.00% 38.74% Oil 68.13 0.89% -0.25% -5.20% -17.33% Data: MarketWatch. Treasury yields change expressed in basis points

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-Barbara Kollmeyer

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