Ric Edelman speaks at an event for the Digital Assets Council of Financial Professionals, an … [+]
Ric Edelman brings a buy-the-dip mentality to cryptocurrencies, even when those dips are as steep as the first drop on a roller coaster, and he thinks other financial advisors should do the same.
A pioneer among RIAs – who have fiduciary duties to their clients – Edelman is not fazed by the latest crypto crash, which has seen declines far greater than the 20% that marks a bear market in stocks with the total crypto market cap down roughly 70% from highs last November. He said customers may be dipping their toes into the crypto waters without consulting their advisors.
“People have been calling me crazy about crypto for 10 years,” he said. “The majority of advisors are oblivious to whether or not and to what degree their clients own digital assets because they’re not talking about it with their clients and assuming their clients are not participating, and that’s simply not the case.”
Many advisors remain unconvinced.
“When investors hear crypto I want them to think about tulip mania or the South Sea Bubble,” says Mark Matson, founder and chief executive of Matson Money, a $9 billion asset management firm. “There are absolutely no fundamentals, none whatsoever, that say that this thing should have any value.”
When asked about how an advisor, much less a fiduciary, could recommend investment in cryptocurrencies, Edelman cited some large tech stocks that have also had larger losses, including Netflix NFLX (down 67% year to date), Meta (down 54% year to date) and Amazon AMZN (down 40% year to date). Edelman’s enthusiasm has its limits; he only advocates investors hold 1% of their portfolios in crypto.
Still, the sector’s downdrafts have been much steeper than the S&P 500’s 19.9% drop this year, which may be giving potential investors and their advisors pause.
Financial advisors must tread warily. The U.S. Securities and Exchange Commission and the Financial Industry Regulatory Authority have been unclear about the appropriateness of investments in specific currencies, leaving exchange-traded funds, grantor trusts and exchange-traded securities as ways to gain exposure, including ETFs taking short positions that would benefit from further declines.
Edelman said advisors can help clients invest in companies involved in crypto infrastructure, ranging from computer-chip manufacturers like Nvidia to blockchain-technology developers such as IBM IBM . There are also stocks that can act as proxies for cryptocurrencies: The business-intelligence company MicroStrategy, for example, has holdings of Bitcoin BTC that peaked at over $6 billion and is now at about $2.6 billion.
MicroStrategy is certainly cheaper than it was, down 68% this year. But that may be insufficient to lure buyers in a cooling market for Bitcoin and other cryptocurrencies.
“The reality is it is not a topic of discussion currently,” says a Forbes/Shook Top Advisor at a major wirehouse, who asked not to be named. “When I speak with clients off the record I tell them I am not a proponent of it as an investment but also have to make it clear I can’t discuss it much further with them.”
This advisor said he sees a lack of government regulation as a reason crypto does not have long-term viability. For now, he says clients and advisors have enough on their plate, from inflation to a bear market to fears of a recession, that cryptocurrency is at the bottom of the list.
Staking out a middle-ground position, Jeff Grinspoon, a Forbes/Shook Top Advisor with VWG Wealth Management said his practice has no restrictions on giving advice on the crypto market, but he would have to ask his parent company, Hightower, for approval if he wished to buy crypto for clients.
For now, his lack of due diligence on the major exchanges and of technical knowledge about self-custody crypto has meant his investment on behalf of clients has been limited to the Grayscale Bitcoin Trust, which is down over 62% year to date. Despite the recent plunge, Grinspoon continues to be interested in investing in not only digital assets but the underlying blockchain technology.
“What I’ve told clients is that from a team and company perspective, we’re not recommending individual cryptocurrencies because our clients are not looking for a home run, they’re looking for preservation of capital and growth,” Grinspoon adds. “Until that market matures, we’re just not paying attention.”
Grinspoon said he’s a believer in Bitcoin as a store of value while describing most other tokens as “crap.”
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