The 2020 Technology Tools for Today conference kicked off Monday in San Diego with Edelman Financial Engines executive chairman and co-founder Ric Edelman making a case for investing client assets in Bitcoin.
While 72% of advisers say their clients own some Bitcoin, just 6% are recommending it in portfolios, Mr. Edelman said. The digital currency's infamous volatility is holding advisers back, as are fears that if Bitcoin tanks, angry clients will fire them.
But allocating just 1% of client portfolios to Bitcoin carries massive potential for returns with minimal downside risk, Mr. Edelman said. If a typical 60/40 portfolio saw a one-year return of 7% in 2017, when Bitcoin’s value skyrocketed 1,500%, a portfolio with 1% in Bitcoin would have grown 22%.
[More: Ric Edelman is bullish on Bitcoin, calls much of the advice industry ignorant of its potential]
When Bitcoin’s value plummeted 84% in 2018, that same portfolio’s two-year returns still beat a traditional portfolio. And if Bitcoin’s value went all the way to zero, it would only trail the returns of a traditional portfolio by 1%, Mr. Edelman said.
“The upside reward compared to the downside risk is totally out of whack,” he said. “Won’t they fire you for failing to suggest it?”
One of the biggest benefits to adding Bitcoin to clients’ portfolios is it has low correlation with other assets, Mr. Edelman said. Advisers can use it as a hedge against geopolitical risk.
And because digital currency like Bitcoin are not issued by any government, they are inflation proof, Mr. Edelman said.
After 2019 brought significant maturity to the cryptocurrency market, such as Fidelity announcing it would start trading Bitcoin, Mr. Edelman believes several catalysts will propel the market even further in 2020.
Mr. Edelman was joined by Matt Hougan, managing director and global head of research at BitWise, a firm creating cryptocurrency index funds (and one which attracted an investment from Mr. Edelman in 2018).
Mr. Hougan said he sees Bitcoin not only as a digital solution to the archaic nature of currency, but also as a sovereign store of money outside of government settings.
“One way to think of Bitcoin is as a Swiss bank account with limited space that you have to buy from someone else,” Mr. Hougan said. “I think people will always want an escape valve from fiat currency.”
For that reason, Mr. Hougan is bullish on the value of Bitcoin and is advocating for SEC approval to bring a cryptocurrency ETF to market.
Some advisers disagree that client money should be used to make bets on technology. On Twitter, XYPN co-founder Alan Moore said he doesn’t understand putting Bitcoin in a portfolio unless currencies are already a part of your investment strategy.
“I understand the idea of investing in the platforms that support cryptocurrency if you think that’s the future, but that’s a great way to lose a bunch of money," Mr. Moore said. “Most advisers aren’t doing VC/Angel investing for their clients, and the level of risk associated with this type of investing is at that level (or higher) so it’s not in their fiduciary scope to do so.”
There are still many skeptics about cryptocurrencies, including President Donald J Trump, who said its value is “based on thin air” and are used to “facilitate unlawful behavior.”
Mr. Edelman sees Bitcoin as the “only direct play in blockchain,” the distributed ledger technology underlying digital assets like Bitcoin, which Mr. Edelman believes will be as transformational as the Internet. He also dismisses criticism that Bitcoin is a fad, pointing out that popular cryptocurrency exchange Coinbase has more account holders than Schwab, and 94% of asset managers now own digital assets.
Despite Mr. Edelman’s enthusiasm for the currency and his investment in BitWise, his own firm does not recommend clients buy Bitcoin or other digital assets because there isn’t yet an approved Bitcoin ETF.
He urges people to research and understand the technology before investing, and recommended keeping the investment small. Continued volatility should be expected, and investors should also be prepared for a possible 100% loss.
"If you're willing to invest within in these parameters, it makes sense," Mr. Edelman said.
Some T3 attendees, like Wealth Consulting Partners president Gavin Spitzner, put an anti-climatic cap on an otherwise compelling argument for Bitcoin.
“As one of the leading ETF distributors, I'm sure he's actively pushing the industry forward towards pooled crypto vehicles,” Mr. Spitzner said.
Rajesh Markan earlier this year pleaded guilty to one count of criminal fraud related to his sale of fake investments to 10 clients totaling $2.9 million.
From building trust to steering through emotions and responding to client challenges, new advisors need human skills to shape the future of the advice industry.
"The outcome is correct, but it's disappointing that FINRA had ample opportunity to investigate the merits of clients' allegations in these claims, including the testimony in the three investor arbitrations with hearings," Jeff Erez, a plaintiff's attorney representing a large portion of the Stifel clients, said.
Chair also praised the passage of stablecoin legislation this week.
Maridea Wealth Management's deal in Chicago, Illinois is its first after securing a strategic investment in April.
Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.
Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.
