← The Wolf Of All Streets
The Wolf Of All Streets
Wall Street Legend Rick Edelman: 40% of Your Portfolio Should Be Bitcoin And Crypto
00:56:12
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- [00:00]
A
Bitcoin grew up outside of our world, and Wall street hates things they don't invent. What is this? Explain it to me. How does it work? Should I buy it? How much? Where? How? And the advisor says bitcoin's bad for the planet. Ignore it first, kill it second. Nobody likes to be first. Everybody's happy to be second. In the meantime, bitcoin ain't waiting. It's skyrocketing. And that's the problem for the investor.
- [00:24]
B
Rick Edelman is a God to registered investment advisors in the United States and and recently put out a white paper that made huge waves by saying that aggressive investors should have 40% of their money in cryptocurrency and that conservative investors should have 10%. Obviously, that 10% is more than the most aggressive allocations being suggested by other registered investment advisors. Rick has the ear of hundreds of thousands of advisors, and we dove deeply into why he's recommending crypto to all of them. So I was recently having a conversation when your huge announcement, we'll call it, came out about crypto allocation to portfolios. And a friend of mine who's an RIA told me that you were the Michael Jordan of financial advice advisors. How do you respond to that?
- [01:30]
A
That's humbling, which is saying something because I'm not known as a humble guy, but that's very nice of him to say.
- [01:38]
B
Yeah. So effectively, there's this massive RAA structure that's largely under a few large roofs. I would assume the Charles Schwab's and the Morgan Stanley's and such. But then there's an entire world of financial advisors who are not under that roof. Is that correct? And effectively, that's where you've operated.
- [01:55]
A
Yeah. Most people are not aware of how the financial services industry really works. That's been one of my big goals in my engagement in crypto since 2012, was to teach the crypto community about the RAA community, because the two have to meet. And I created dacfp, the Digital Assets Council of Financial Professionals, to serve as that bridge connecting them to. You're absolutely right, Scott. You've got the big wirehouses, the big custodians, Merrill lynch and Morgan Stanley, J.P. morgan, Goldman Sachs. And then you got the big custod, Schwab, Fidelity, Vanguard, lpl, Commonwealth, et cetera. And there are a good few hundred thousand advisors who work in those firms. They're employees of those companies. So if you're a stockbroker at Merrill lynch, you're an employee of Merrill lynch and you sell whatever Merrill lynch makes available to you and so on. But then what a lot of people don't know is that there's this whole other world within the investment advisory field that consists of independent advisors. These are people who don't work for those big instead own their own shop or they, you know, a little mom and pop store, like a local accountant or a local primary care physician or the local butcher. Some of these little mom and pop shops start to hire other advisors to work with them, but they all consider themselves independent, meaning they don't have to sell what some big firm tells them to sell. They don't have proprietary product that they, you know, I work at Allstate, so I'm going to sell Allstate insurance kind of a thing. What most folks don't realize is that this RIA community, that's what they're called Registered Investment advisors. They're registered with the SEC. These folks number about 300,000 of us doing this, managing about $8 trillion in investor assets. So it is a juggernaut. It is massive in scale and scope. And while most of these firms are small mom and pop shops, there are a couple of dozen that are huge. There are maybe 70 of these firms that manage $10 billion or more. The firm I founded is the largest of them all, managing about 300 billion in assets with hundreds of advisors all across the country and over 150 offices.
- [04:12]
B
Which is why your recent statements made such a big splash. Maybe we can start there and we'll go back to how you arrived at these conclusions. But you recently put out a white paper, we'll call it, saying that aggressive investors, I believe, should have 40% in crypto. And it was kind of going down to conservative being at 10%. So we live in a world where we were fighting for anyone to mention us, much less say, hey, 1, 2, 3%, and you're coming in hot with 40%. And you also did it with pretty aggressive language, right? You basically told these advisors, hey, are you just a pencil pusher? Are you just doing what Merrill lynch tells you? Or are you going to actually act in the interest of your clients? So let's talk about why you made those recommendations. And I kind of want to back into how you got there after 13 years, as you mentioned, already looking at crypto.
- [05:06]
A
Yeah, I didn't go looking for crypto. None of us did. We just stumbled upon it, came upon it. We were introduced to it somehow or other. And that for me was 2012. And I didn't get it. You know, digital money, huh? What do we? What is it? What do we need that for? But the people mentioning it to me were pretty smart people, and I figured they know something I don't, and I don't get it. They seem to. I better look into it. Most, I have found, tend to be dismissive when introduced to something new. They just toss it out with a wave of their hand as either a fat or a fraud and they move on. But that's not me. I tend to be kind of a curious individual. So I started digging in, jumped down that rabbit hole, and spent much of 2013 trying to my arms around this, and concluded pretty quickly that there's a there there, that this is a transformative technology that's going to revolutionize global finance. But I also realized that my colleagues in the financial services industry didn't get that fact because bitcoin grew up outside of our world. And Wall street hates things they don't invent. They consider it competition rather than enlightenment. So Wall street did its best for the first decade to ignore this. Try to ignore it first, kill it second. And we know that history all too well. What I have recognized early on is that this is transformative. The outperformance potential of Bitcoin is massive. And when I wrote my book, the Truth About Crypto, which debuted at number one on Amazon in 2021, I acknowledged that although this is a really big deal, ordinary mere mortals, the ordinary everyday average investor and the typical investment advisor still don't get it, don't really want to get it, and are afraid of it. And so I said to them back then, in my book, 1% allocation to the point you made, Scott, you know, just, we're desperate to get people to get engaged at all. And I said, just do 1%. And my rationale was, if this thing performs as we think it will, a very tiny allocation will have a material impact on your portfolio in a good way. But if it blows up, if Bitcoin does become worthless, if the government does ban it, well, so what if you lose 1%? That's not going to harm you. It's not going to destroy your future financial security. In other words, it's safe to put a toe in the water. And I knew that once you got engaged and put a toe in the water and went down that rabbit hole, it would be the door opener to you increasing your engagement and eventually doing more. So I said 1% in 2021. And over the last four years, most in our industry have said that, as you've noted, low single digits was the phrase get off. Zero. Okay, fine. That made sense back then. Because back then we didn't know if the government would ban it. We didn't know if consumers would use it. We didn't know if investors would be interested. We didn't know if there would be technological obsolescence, might the next thing come out and ruin or destroy or make Bitcoin obsolete the way Netflix did to Blockbuster. So there was a lot of risk, but today it's totally different. Whereas we went through four years of Joe Biden and Gary Gensler and Kamala Harris, now we have Donald Trump, who has made it very clear that he wants to make the United States the crypto capital of the planet. We have every member of his cabinet personally owning Bitcoin, every economics member of his cabinet, the Secretaries of Treasury, of labor, of Health and Human Services. Oh, absolutely right. The head of the sec, the head of cftc, the head of the occ, head of fdic. Everybody is strongly supportive of crypto, which is why Congress, now, majorities in both houses supporting it, just passed the Genius act last week, along with two other major pieces of legislation that will get to the President within a month or so. This is transformative. Never happened before. In other words, from a risk perspective, Bitcoin is actually far less risky today than it was five years ago. But at the same time, the growth potential remains. In fact, it's even better than before because we're about to see institutional engagement on a massive global scale in a way we've never seen. And that is why you can feel very comfortable, even if you're a conservative investor, having at least 10% of your portfolio in crypto. And if you're an aggressive investor, 40% and everything in between at 10%.
- [09:42]
B
Is that specific to Bitcoin? Is it a blended index of the top tokens? How do you view that? Because I think many people have made the leap to your point to Bitcoin, but are still extremely confused when they go further down the risk curve or further down coin market cap to any other asset.
- [10:00]
A
Yeah, I'm agnostic publicly on that point because I do come from the financial advisory world. I'm dealing predominantly with advisors and their firms. And there's one thing advisors love beyond all else, and that's diversification. It's a mantra in our industry. We rely on modern portfolio theory, Nobel winning research. We believe in the efficient frontier. And so there are a couple of camps. One is filled by the bitcoin maximalists championed best by Michael Saylor, who I love and adore and who's a friend of mine. And Michael articulates extraordinarily well and convincingly why you should just do bitcoin. And let's face it, it's three quarters of the entire market cap. You could make a really good case for just doing bitcoin. However, that's a single asset. And many advisors are more comfortable giving their clients a more diversified approach. Don't put 12, you know, all your eggs in one basket kind of thing. So on that basis, you know, add Ethereum, Solana, Algorand, Polygon, you know, you name it, swe, et cetera, et cetera, knock yourself out. And then there's the crypto equities, the companies that are building or deploying businesses in the blockchain and digital asset space. Everything from Coinbase to bitcoin miners to Circle now with its recent ipo, et cetera, et cetera. So I'm agnostic. My point is, and I'm going to quote Warren Buffett, who everybody knows he hates crypto. He called it rat poison squared, as we all know. But I'm going to quote him and turn his own words against him. Warren is famous for saying a lot of things, but my favorite is better to be approximately right than precisely wrong. So rather than trying to make a big bet on a given coin, just be directional. In the world of crypto, if I do nothing but bitcoin and you spread out among a bunch of crypto in a broader way, and we're wondering which one of us is correct, in five years, we'll both be laughing at the person who did none. And that's really the point. Don't let your goal of getting it perfect stop you from getting it good.
- [12:11]
B
Okay, so most RIAs historically, to my knowledge, have recommended a 6040 portfolio. Yeah. @ least as a starting point. Right. Maybe a few people go riskier. Interestingly, 6040 stocks or equities and bonds already didn't even leave room for gold or metals or any alternative assets, much less something that people would view as riskier than crypto. If you're going to go 10% crypto at a conservative level, you're obviously cannibalizing either the 60 or the 40. So how do you view that in light of the rest of your portfolio?
- [12:46]
A
Well, you're absolutely right about that, Scott. And that's really the point of my white paper, which everybody's kind of ignoring because they're all looking at the headline of 10 to 40%. But we have to dive deeper. What my paper is really all about, and nobody is going to care about this except advisors. The crypto community couldn't care less. Ordinary investors couldn't care less. But this is a big deal for advisors. 60:40 is dead. The 60:40 has been around for 50 years and it emanated out of Harry Markowitz's Nobel Prize winning research that basically set the stage for acknowledging that investing is as much about risk as reward. In the past, people only went for reward. They didn't pay any attention to risk. And Markowitz said, no, if we pay attention to risk and reward, we can actually do better on both. But back then when he said this in the 1950s, you only had two asset classes, stocks and bonds. It hasn't been updated ever since. Even though we now have all these alternative investments that you just described, Markowitz was silent on all that stuff. So we have one other thing going on to add on top of that. And this is the real crux of my paper. Longevity. When Markowitz wrote his paper in the 1950s, life expectancy in the United States was about 65. Today, life expectancy is 85. And the scientists are telling us that if you're alive in 2030, odds are good you'll be alive to age 100 and beyond. And if you're going to live to age 100, the 6040 model fails because it doesn't give you enough equity, doesn't give you enough growth in the market to overcome taxes and inflation, giving you the ability to generate the income you need for as long as you're truly going to live. Premise is throw away the 60 40, replace it with 8020. And if you're going to have 80% of your money in equities, having only 10 of the 80 into crypto is really a pretty small allocation. It's really not.
- [14:58]
B
Okay, so it's coming from the equity side of the portfolio and you're still saying 20% in fixed income.
- [15:07]
A
Yes. And for a lot of people, zero in fixed income. The younger you are, the less you ought to have. And for people I would say under the age of 50, they should probably have zero in fixed income. And even if you are going to hold fixed income, it ought to be very short maturities and durations. Holding 30 year treasuries I don't think makes a whole lot of sense.
- [15:25]
B
Interestingly, you talk about Markowitz, which I talk about all the time, obviously with correlations being from minus one to one. And anyone who watches my show has probably heard me harp on this. The beauty of an asset like bitcoin, Even at the 1%, as you said, and going up to 2, 3, 4, 5 is that it has been largely uncorrelated. It's basically the holy grail of diversification. Right?
- [15:47]
A
Yes. If Markowitz had had Bitcoin available in the 50s, his head would have exploded. He would've left.
- [15:52]
B
Right. But even at a 5% allocation, what it does for your Sharpe ratio and for your portfolio is astounding because at least you have the chance that it might go up when everything goes down or even go down when everything goes up. But I constantly find myself having arguments about Bitcoin being correlated to the stock market or being correlated to risk. Actually, I find myself having arguments on one side with Goldbug, with people saying it's digital gold and should be trading like gold, others saying that it's trading like a stock or a risk asset. I think it's just a beautifully uncorrelated asset.
- [16:23]
A
Personally, I think you're right. There have been pockets of short periods of time where Bitcoin has gone in sync. It has correlated to the S&P 500. And that's why people argue that it is not a non correlated asset. They just look at these very brief periods of time and say see? Told you so, instead of looking at the bigger longer term period. So I do believe it is additive to diversification, which is what advisors love. I think the volatility is one of its biggest benefits. I think volatility is a feature, not a bug. It's one of the reasons to buy bitcoin, not to stay away from it. And I find it hysterical and ironic that advisors use volatility as an argument to stay out of bitcoin. It doesn't make any sense at all. And they know it when you press them on it.
- [17:12]
B
Especially in a world where Meta can drop 30 or 40% overnight when you can't even trade it, or Nvidia can have a 35, 40% drop when the broader market drops 20%. I mean the MAG7 are the largest stocks and companies in the world and trade with equal or more volatility now than bitcoin.
- [17:28]
A
Indeed. And here's what's funny is that when I mentioned the big deal for advisors as of course, you know, well, Scott, the fact that advisors love diversification. There's one other thing advisors love a whole lot and that's rebalancing. And so we say to an advisor, what does it take to effectively rebalance? They'll tell you volatility. We have to have an asset fall in value so I can buy it while it's low and I have to have it rise in value so I can sell it while it's high. I'm like, in other words, a really volatile asset improves your ability to rebalance. And they're like, yes, that's why we buy stocks. And I'm like, good. That's also why you should buy Bitcoin. Because if you like volatility for stocks, you have to love it for crypto.
- [18:12]
B
It's funny, I remember having a conversation with legendary trader Peter Brandt, the technical analyst, who I absolutely love, and he said to me, he's like, I told my children, buy a stock in a company you really like and hope it goes down 50% so that you can buy more. Right? I don't think most people can suffer the drawdown, but if you have a low time preference and you want to be holding something for decades, that's a gift. And when you start viewing it that way, bitcoin is the greatest asset ever because you get hungry to buy every single dip. The flip side of that, by the way, is when the crypto community or people criticize the Cathie woods and such of the world, every time you see they sold Coinbase stock or they sold their own ETF or they sold, it's because those have become so massively overweight because of their incredible performance. Why don't people understand these things?
- [19:01]
A
It's because people are just knee jerk reactioning. They are not really thinking through what they're saying. And it's easy to help them overcome their biases and their myths. That was a white paper I wrote six months ago, the six myths that are preventing you from buying bitcoin. And number three on that list is people say bitcoin is too volatile. It's a myth. It's not too volatile. As you pointed out, it's becoming less volatile every day, the more in value it grows. And it's not even, as you noted, as volatile as a whole lot of tech stocks.
- [19:28]
B
In your mind, does that volatility become less with time or smooth out as it becomes a more institutionalized asset and becomes a part of every Wall street portfolio?
- [19:39]
A
For sure, I think we will never again see a 70% decline in Bitcoin. I think it's impossible. I don't see how it could happen. Because we now have so many institutional investors who are engaging already and so many more who are still in the due diligence phase, ready, getting ready to engage, that if they see bitcoin fall 30 or 40 or 50%, they're going to Recognize the buying opportunity that it is, and they're going to put the floor on it, they're going to buy it. It'll never get down to a 70 or 80% decline like it had in the past when there were only retail investors buying it. So I think you could still see 30 or 40 like you can in Nvidia or any tech stock, or even the S and P overall, but I don't think you're going to see a 70 or 80% decline. Those days are gone. And that is evidence of the fact that it's been a maturing ass. This happens with every maturing asset. Bring up the chart of bitcoin's price performance since inception. We know how volatile that line is. But now bring up a chart of Amazon's first 15 years. You put them side by side, they're identical. And that kind of proves the point.
- [20:47]
B
Amazon had 95% drawdown.
- [20:49]
A
It almost went broke many a time. And that's the nature of a new innovative technology. Nobody quite knows what it is, how to figure it out, is it going to survive? And so the volatility is astonishing, which is why nobody I've ever met bought Amazon in 99. Everybody's happy to own it today, but nobody bought it back then.
- [21:06]
B
I don't know if it's true, but Mark Yusko always tells me this story that he says, how many people do you think still own Amazon from the ipo and how many. Mark. I know I've heard the story four times, but how many, Mark? Four, Jeff McKenzie and their parents. And that's it. Because everybody gave up on one of those drawdowns. 95% drawdown. Nobody's going to want to buy books online. To be fair, nobody knew that Amazon would become the behemoth that it is. But to your point, very few, I think, assets survive all that and then end up where bitcoin is now, with the luxury of having the volatility dampened.
- [21:41]
A
There's an equal side to that. Flip that coin. Not only did nobody in the early days is an owner today because they sold when it was low, as the price skyrocketed and they double, triple, quadrupled their money, they also sold it then out of a fear they'd lose and they wanted to secure their profit. So, you know, it's that I love when we always talk about bitcoin pizza day and we joke about the fact that those pizzas are worth a couple of billion dollars. But let's face it, there's no way that he held on to Those bitcoins, he doesn't own them today. He sold them long ago. That's just human nature. It's what behavioral finance is all about.
- [22:21]
B
Those bitcoin were worth two pizzas.
- [22:24]
A
That's right.
- [22:25]
B
The reality of the time, at the situation. And he had to actually sell them to somebody in cash who ordered him the pizza, which is the most interesting part of the story. It's not like Papa John's just took 10,000 bitcoins for payment. But people forget that part of the story. And to your most important point, almost everyone I know who was super, super early sold at 1000. 1000 was this crazy, unimaginable number for the price of, of bitcoin. And they exited en masse. There's so few people who had the conviction to still hold. And I want to talk about that in a second because they're, a lot of them are the ones who are very clearly selling right now at these prices.
- [23:03]
A
You know, we hit that psychological barrier. 100,000 is a nice round number. The next one will be either 200,000 or 250,000. I think there'll be a lot of selling at 250. There'll be a lot of selling at 500. But wait a minute. That means Bitcoin's at 250 or 500.
- [23:19]
B
Good.
- [23:21]
A
Exactly.
- [23:22]
B
But we have this interesting scenario you talked about. No more drawdowns of the same magnitude that we had in the past. Right. We even just saw, I think, 108 to 74 and right back to 120. Right. So maybe that's more of what we'll anticipate. And that obviously took the tariff panic to happen. But. But as we look at that floor and the reason that you described as to why price won't drop as much as it will because there's so many buyers on the sidelines, so many people who are still getting through risk management and due diligence. Are we seeing a new kind of market participant putting in the floor than we would have in the past? Because as I just said, we have on chain evidence, we literally just had a guy sell 80,000 bitcoin last week. 80,000 bitcoin that hadn't moved in over 10 years and nobody cared.
- [24:11]
A
Market didn't care.
- [24:13]
B
Right. But those were the guys that used to be the buyer of last resort. Those were the guys who put in the floor when it went down. 75, 80, 85%. Now it's those guys that are selling to these new buyers of last resort. So maybe actually we have to completely view this differently.
- [24:29]
A
I think you're absolutely right about that, Scott. We are in a totally new paradigm in Bitcoin and it's because of the institutional investors. The institutional investors dwarf the individual investors. The institutions collectively between pensions, endowment funds, public corporations, private corporations and governments and their sovereign wealth funds collectively comprise the vast majority of wealth in the world. And almost all of them are extraordinarily long term investors. And when I say long term, I don't mean decades, I mean centuries. Insurance companies, annuity companies, endowment and pension funds are thinking in the context of 50 to 100 years because they're recognizing they've got to provide pension benefits to their employees or members for the rest of their lives, which is half a century to go. Endowment funds have to provide money to their institutions forever. So they don't care what happens in a six month period of time or a two year period of time. So they'll look at any market downturn as a huge opportunity to buy. And that's the other point. One of the frustrating things about individual investors is that when I say to them when the market goes down, what a great buying opportunity, you know what they say to me? Great, but I don't have any money left. It's already been invested. But that's not what an endowment says or a pension fund because they're getting new money to invest every single day and that money has not yet been deployed. So when the market goes down, they do have cash on the sidelines ready to buy. They're not worried that the prior investment has gone down. They're excited that the current investment is coming in low. And that's a totally different perspective than bitcoin has experienced since its inception.
- [26:18]
B
Yeah, it's really just crazy having been here even for the nine years that I have to see the absolute sea change in the way that this asset is.
- [26:28]
A
So let me ask you a question. I'm wondering because of all this, does the halving matter the way that it used to?
- [26:36]
B
No, I don't think so. Which is funny because I was one of the more probably outspoken proponents for the four year cycle. Although my opinion was always, if it ain't broke, don't try to fix it. But now I think it's broke. Right. So this was kind of last fall, I was looking at it. I said we preempted the all time high because of the etf. So maybe that was a signal that it's going to be different this time. But for me to believe in the four year cycle, I would have really needed to see Altcoins going crazy for the last six or seven months. And that's really just started. And I think that the change to institutional adoption that you mentioned has really just broken the cycle. The halving is also just a rounding error at this point. I mean, Michael Saylor buys on a weekly basis more than the halving matters in probably six months. Yeah, I don't know the math.
- [27:22]
A
And so do the other public companies. And so I agree with you.
- [27:26]
B
I think the four year cycle actually may be more about elections and liquidity than it really is about the halving, because they all very conveniently align.
- [27:35]
A
That was a coincidence, wasn't it?
- [27:38]
B
The election which we all know what happens after elections is six months after the halving roughly every single time.
- [27:46]
A
Yeah, that's a good point. There's one other thing that's going on that is not yet getting a lot of attention and that's what's happening at the Department of Labor. The Department of Labor made it really clear under Joe Biden that they would not allow 401k plans to offer Bitcoin as an investment option. Fidelity tried to introduce it, as you know, and they got shut down pretty quick. The Trump administration has already had DOL rescind that rule. And now taking it a step further, actually proactively permitting Bitcoin and crypto into 401k plans. Plan sponsors, meaning employers, haven't yet adopted this, but they will be doing so over the next 12 to 18 months. And that is going to unleash tens of millions of workers who have most and in many cases all of their investments in their 401k at work suddenly having access to Bitcoin with that money. This is going to be one of the most profound shifts of asset flows. And it's not going to stop because you get more money to invest with every paycheck every two weeks or every month. This is going to be. And you never.
- [29:05]
B
And you fix it and forget it. People don't pay attention to what their 401k is investing in except for when either themselves or their employers set it up. Right.
- [29:14]
A
So it's going to be huge.
- [29:15]
B
Yeah. I believe the headlines said that was a $9 trillion unlock. Roughly.
- [29:22]
A
Sounds about right.
- [29:23]
B
The correct math, but that's what the headlines were saying. You know who I feel bad for is the self directed IRA companies.
- [29:31]
A
Yes. Although they certainly have been able to brag that, hey, bring your 401k to us. We'll let you do Bitcoin. Now you can argue, why bother? I can do it in My employer plan. We're not there yet, but we will be pretty soon.
- [29:44]
B
So I want to talk about something you sort of said passively earlier when we were talking about the 1% allocation. You mentioned that that's kind of been widely accepted and that most RIAs are pretty comfortable with that. That was actually. I don't know if that's exactly what you meant, but it was a bit surprising to me because it still feels like in my conversations. And actually, I don't know if you know this, but I do work with some RIAs. I run a new newsletter called the Crypto Advisor that's just for RIAs. We already have 80,000 of them so subscribed. So there's clearly a major thirst for this.
- [30:13]
A
Yep.
- [30:14]
B
It seems like most of them know nothing and either haven't even are just hearing of it or still aren't that comfortable with it, even with the ETFs being approved.
- [30:22]
A
Yeah. There are two things going on. The first is, can I? And the second is do I want to?
- [30:29]
B
Right.
- [30:30]
A
So let's talk about them one at a time. Can I? Most advisors still cannot. Meaning if you're a financial advisor, you can only recommend investments that are available to you on your platform or the platform provided to you by your custodian. And if your platform doesn't make it available, or if your employer doesn't make it available, then even if you love Bitcoin, you're not allowed to recommend it to clients. That's a regulatory issue. And that's where most advisors stand today. Even if they want to do it, their firms don't let them. So they're for them. The answer is I can't. And our survey research has found that half of all advisors personally own bitcoin. But only 20% of them are recommending it to clients. The other 80% are not because their firms won't let them do it. That's slowly changing, thanks to the ETFs, but we're not there yet. So that's the question of can I? Then there's the question of do I want to? And here's what's fascinating, Scott. The average advisor in this country is 64 years old. They've been in this business for 30 years or more. They are managing several hundred million dollars on behalf of a couple of hundred clients. They've been doing it for decades. They have done a good job. Their clients are happy, they're making money. The advisor's happy, making a lot of money, because this industry is well paid. And the advisor says, why Should I introduce something totally new and different, which is also, by the way, got some controversy surrounding it. Why should I bother busting my chops to convince the client to do this, which might only annoy the client and if nothing else, create new work for me for a lousy 1 or 2% allocation when everything's going fine in my life and I'm playing golf one or two days a week. So for a lot of these advisors, they simply don't care. Not because they don't like bitcoin or because they don't like it. It's because they don't understand it and they don't feel any need or impulse to try to understand it. That's where the advisory market has been for the past decade and that's what is slowly changing. Because they're discovering that their clients are asking them questions that they never used to have to ask. Because it's now in the news, Donald Trump is promoting it all the time. Bitcoin is at an all time high, best performing asset class, 12 out of 15 years. And investors and consumers are turning to their advisors saying what is this? Explain it to me. How does it work? Should I buy it? How much? Where? How? And the advisor says, I don't know. That's making the advisor look pretty foolish.
- [33:06]
B
It's making the advisor look foolish. That was literally the premise of us even starting this well newsletter. It's free, so I would call it a business, maybe a future business. We just really deeply wanted to help educate Rias, but on average they're 64. I understand why the guy one to five years from retirement doesn't care, but their firms certainly care and they're certainly going to lose this wall of boomer money that's going to go to the younger generation if they don't start to care. So that was seemingly. You get this panicked sweat when you talk to these guys and say, well, do you think that this $10 million client of yours, you think his son is going to continue with you? Maybe you should understand bitcoin. Maybe you should know what an NFT is as far down the risk curve as you to go. You've probably heard of Doge. I'm not saying I recommend those, but you probably should have an answer. Our idea was to at least give them some education and answers. But you would think that anyone who's not just their own ship floating on the sea like a one man shop would care because the business is going to leave.
- [34:13]
A
Yeah, the smart ones do recognize that. I think this is a big reason Larry Fink changed his opinion. I think this is a big reason why Jamie Dimon is allowing J.P. morgan to get so engaged in crypto activities. I think it's a big reason that Fidelity is so strong at this and why Abby has been a real huge champion of bitcoin for the past decade. Plus, I think it's why Rick Wurster at Schwab is now paying an awful lot of attention to this subject. But it's rare for those CEOs at these companies to get engaged personally. Jenny Johnson and Franklin Templeton is another great example of getting engaged. But that's a rarity. Most of these folks have delegated it to their teams, their risk management team, their compliance team, their investment committee. And these folks aren't thinking like CEOs. They aren't thinking what's best for the business. How can we retain our market share? How can we keep the assets on the books? How do we retain clients? How do we grow? That's not what they're thinking. You know what they're thinking? How do I keep my job?
- [35:15]
B
Yeah.
- [35:16]
A
And if you're a chief compliance officer and somebody comes to you and says, I'd like to recommend bitcoin to my client, you're saying to yourself, why should I say yes to this? If it blows up, I'll get fired. If it does, well, nobody will thank me, so why should I say yes to this? And there's an adage on Wall street that, you know, well, Scott, nobody likes to be first. Everybody's happy to be second. And that's why there's just a bunch of flat footed people in this industry. Because they see no personal career motivation to go out on a limb and say yes to this stuff. And without the CEO mandating it, without the board pounding management on it, it just has been sitting there.
- [36:02]
B
You know, I ascribe to that. I see it every day. It blows my mind though, that with people like you out there advocating for it, obviously you have the ear of hundreds of thousands of advisors and equally Larry Fink. I mean, is there another bigger name outside of maybe Jamie Dimon, who's begrudgingly allowing it? I guess we'll say. But is there a bigger name than Larry Fink to be out there pounding the pavement on behalf of this asset class? And not just pounding the payment. The guy, every interview sounds a little more like Satoshi Nakamoto than he did the day before. Right. It used to be a good investment. Now it's going to be the global reserve currency and replacing the dollar and the entire world is going to be tokenized.
- [36:44]
A
It's powerful stuff. And we need Larry to keep doing what he's doing, keep saying what he's saying. And we need the echo chamber to start up. We're getting there. Everybody is now engaged in due diligence. There isn't a single firm I know of that isn't seriously studying this stuff. The problem is that Wall street moves really, really slowly. I say it's a problem, but in fact it's not. I shouldn't call it that. It's good that they move slowly. The first thing they want to do is protect their clients. They want to make sure that when they do give advice, it's reliable. So they're moving carefully, diligently. But that also means slowly. These investment committees meet quarterly, and after they finally say yes, it goes to the board, and the board only meets quarterly. So it can take easily two years for this question. Should we allow Bitcoin on our platform? It could easily take two years to work it through their bureaucracy. In the meantime, Bitcoin ain't waiting. It's skyrocketing. It's. And that's the problem for the investor.
- [37:50]
B
That's my favorite joke that we've been saying for years in the crypto community that I think maybe none of us thought would actually come true is that you had your first opportunity in history with any asset class to front run Wall Street.
- [38:00]
A
Yes. It's really amazing. And I put it in the context of the Internet. We all blew it. None of us invested in the Internet back in the 90s. This is Internet 3.0. It's a chance to fix the mistake we made last time. And I'm determined not to miss this one. And the key is to move really quickly because it's moving at the speed of the Internet.
- [38:22]
B
I mean, we know that they won't move quickly, but it seems that most are moving. But there are holdouts and there are holdouts who seem like they may be indefinite holdouts like Vanguard.
- [38:32]
A
Vanguard, Right.
- [38:34]
B
So Vanguard seems diametrically opposed to the idea of even allowing the ETFs. Right. Much less. Let's not even try to talk about what a Schwab is doing now. Allowing Bitcoin and Ethereum trading. They've made that announcement, you know, spot trading in a number of these platforms. They won't even let you buy these ETFs.
- [38:53]
A
Vanguard is taking a parochial, outdated attitude that will bite them. They will eventually change their mind. It's not only an inappropriate posture, it's hypocritical. On the one hand, Vanguard's job is to serve as a custodian to make available to its investors the array of investment opportunities. It is not Vanguard's job to dictate to its investors what they are allowed to buy and in what combination. And for Vanguard to put a blanket rule out saying we will not let you buy Bitcoin ETFs on our platform is simply wrong. And it's going to cost them incredibility. As those investors want to buy it, they'll simply go elsewhere to do it. They will leave Vanguard and go to Fidelity and Schwab and Robinhood and lots of other sites. The second aspect is that it's entirely hypocritical because Vanguard owns and allows GLD on their platform. How can they argue the it's okay to buy gold, but not okay to buy Bitcoin. And my favorite irony is this. Vanguard is the largest institutional holder of.
- [40:01]
B
Coinbase, of course, because they index.
- [40:04]
A
Exactly. And so for them to say we don't like crypto and yet we're going to own more Coinbase than anyone inside of our S&P 500 ETF, it's like, wake up, folks. Get with the news. It's ridiculous.
- [40:18]
B
I don't know what the number is, but I have to imagine that they're one of the largest holders of MicroStrategy.
- [40:23]
A
Yes, I would expect on the planet.
- [40:25]
B
Certain miners, I mean, anything that's indexed into the QS or the S and P and such is going to be heavily owned by BlackRock and Vanguard and Friends. Yeah, I think I'm looking now. I actually looked it up. 8.55% of MicroStrategy is owned by Vanguard, obviously on behalf of their customers.
- [40:43]
A
But so what I believe is that Vanguard is engaging in a PR campaign, not an economic best interests campaign. They're not. They don't really care about Bitcoin, in my opinion. I think what they're really saying is, are you an investor who doesn't know anything about investing? Come to us, we'll protect you. And they're hoping that that message will win to the kind of customer that they're trying to appeal to. Let's keep in mind, Vanguard is one of the largest providers of 401k plans in the country and they work with tens of millions of workers in these companies who are often unsophisticated. The only investing they do is in the 401k. And Vanguard is conveying a message to those employers. We're not going to do anything crazy or Radical or controversial. You can rely and trust us. We're calm, we're stayed, we're solid, we're boring. I think it's a PR campaign they're engaging in. But once those employers start to get clamoring from their workers demanding Bitcoin in the 401k, those employers will go to Vanguard and they're going to say, you either give it to us or we're going to go to Fidelity.
- [41:48]
B
Yeah. And at that time that they made the forever statement, I think bitcoin was probably sub 50,000, right. Because it kind of popped from 40 up to 49 and back down to 40 after the ETFs and the ETFs hadn't really proven their strength, which now we know that these are the most successful ETFs literally in history. BlackRock makes more money on their IBIT Bitcoin spot ETF than they do on their SPY or S and P fund. I mean, it's crazy how successful these have been. You've got to imagine that Vanguard kind of played their hand way too early and now are stuck.
- [42:24]
A
They had an opportunity when they replaced the CEO to have the new sheriff in town with a new point of view. But so far he's been silent and changing that point of view. But it's inevitable. They will eventually have to do it. And when they do, it'll be really late in the game, it won't be market impactful, and everybody will. The crypto community will laugh at Vanguard for being so late, and everybody else will just shrug.
- [42:46]
B
You probably get more questions from RIAs than anyone on the planet about this asset class because you've been aggressive in recommending it. So beyond how much should I allocate or what should I buy, what are the biggest questions that you get? Do they ask about custody? Do they ask about timeframe, how long they should be holding it? Obviously, I'm sure they asked about the diversification part that I asked you about before and you're agnostic. But what are still kind of the biggest impediments to them saying yes or just the biggest questions they still have on how to do it?
- [43:18]
A
Yeah. You know what's really funny, Scott, is that it's not that I have a reputation for endorsing crypto, it's really that I created DAC FP as an education tool similar to your newsletter. The most popular course I teach is called how to Build. You'd practice by hating Bitcoin. It's not really about trying to persuade you to buy it. It's about helping you become fluent in it. Advisors today, to answer your question, are asking the same very basic questions that you get from ordinary consumers. What is it? What is Bitcoin? Exactly? What's blockchain? How does Bitcoin differ from Ethereum? What's a crypto custodian? What's a wallet? What's defi? They're asking, you know, class 101 kind of stuff. They are behind the curve. There's no institutional knowledge of crypto in tradfi. Nobody in firms is providing internal trading to advisors. And the advisors are as ignorant or uneducated about this subject as their clients are. And that's what they're coming to us for, is the basic fundamental education which is the main thing we teach. We offer a course called the CBDA and we allow advisors to become certified in blockchain and digital assets. It's an online self study course. They get 18 continuing education credits with a world class faculty and there's no product sponsors involved. We're not making recommendations, we're just explaining what is bitcoin, what is blockchain, how does all this work? What's the tech? And then the second half of the course is all about practice management, the portfolio thesis, portfolio construction, crypto taxation. How to explain this to your clients so that advisors can become knowledgeable. Because the bottom line is this. An advisor can't talk to a client about something they don't know anything about. And if they don't understand bitcoin, they'd rather not talk about it. So they need the basic understanding. I think it would scare you, shock you and kind of annoy you at how astonishingly basic the vast majority of the questions are and many of them come in with myths. Bitcoin's bad for the planet. Yeah, it's only criminals use bitcoin or quantum computers are going to destroy the blockchain. I mean it's, it's these ridiculous myths that people have heard and they just accept them as fact, not knowing that it either was never true or hasn't been true in a decade. And so the good news is they are asking, they're genuinely interested in knowing and they are absorbing the content and information. So we do a lot of consulting work with brokerage firms, with independent financial advisory firms on training and coaching and counseling, everything from the board level to the C suite to individual advisor teams. We talk to a lot of compliance folks and investment committees raising their level of knowledge. Because like we said earlier, if all you have is career risk, you can't say yes, until you know what you're saying yes to. And so it's all about education.
- [46:33]
B
Why do you care so passionately about educating them on this specifically? I mean, you're going very, very far out of your way to take this on as a mission.
- [46:44]
A
Yeah, I've been regarded as a futurist in this industry. I've written 13 books. My 14th comes out the end of the year and my two books ago was called the Truth about your Future, which is all about exponential technologies, AI and robotics, big data, 3D printing, nanotech, biotech, bioinformatics, and of course, blockchain. And I am convinced that exponential technologies represent the best investment opportunities for the coming decades. And that's why I launched, back in 2015, the first ever Exponential Technologies ETF. I partnered with BlackRock and Morningstar and it was the second most successful ETF launch in history, only eclipsed by the new Bitcoin ETFs, and has had outstanding performance for its first five years, doing exactly what we expected it to do. And I realized that within all these different sectors of exponential technology, blockchain and digital assets clearly represents the best wealth building opportunity that we have for the next ten years and more. And the reason I care about that and why I want it in your portfolio, portfolio to a meaningful degree, is because we have a massive economic crisis in our country. And I'm not talking about the debt and the deficit. Not that that isn't a crisis.
- [48:10]
B
It's a pretty big one too.
- [48:11]
A
Yeah, we all know that one really well. The crisis I'm talking about is the wealth gap and the income gap in America. The average 401k balance in this country is about $50,000. The average 401k balance for 55 year olds is about 150,000. Tens of millions of Americans are facing entering retirement with too little money saved. Social Security is in deep trouble. Benefits are going to be cut by about 25% in about seven years if Congress takes no action. Pensions are at serious risk because they aren't generating enough returns to pay off the benefits they have promised. Annuity contracts are going to be blown up in 20, 30, 40 years as annuitants live longer than those actuarial assumptions were based on. In other words, if you're going to live to age 100 and you want your money to last as long as you do, your money had better earn the returns necessary to make that happen. And the best way to make that occur is crypto. So I'm pushing this because I'm deeply concerned about the financial stability and future financial security of tens of millions of American families.
- [49:25]
B
You know, I deeply believe the same thing. Obviously, or we wouldn't be here. What I find difficult to overcome is you can share that sentiment, but there will be a drawdown and those people will sell their assets at the bottom because they're humans. So how do you program in them the emotional control required to wait this out long enough for it to matter?
- [49:47]
A
Two answers. Number one, rely on a professional financial advisor. The world of money management has grown too complex for you to be able to manage on your own. It is simply too time consuming and a significant chore. And you're likely to do the wrong thing at the wrong time for the wrong reason. Because of behavioral finance, you will buy high and sell low and you will do it repeatedly. Your advisor is a check against that emotionalism because your advisor is not emotionally involved. It's not their money, it's yours. So they can help you avoid the mistake mistake at the very moment you're likely to make it. Second is that the world of investing is going to get even more complex thanks to tokenization. Today we have 10 or 20 asset classes. In 10 years there's going to be 10 or 20,000 asset classes because we're going to be tokenizing everything on the planet. Creating the opportunity for pure, true portfolio personification in a manner never before seen. You're in over your head. You need your advisor to facilitate diversification, rebalancing, dollar cost averaging and tax loss harvesting. You're not going to do it on your own. Your advisor can do it for you and help prevent you from doing what you just said people are going to do otherwise, which is buy high and sell low.
- [51:03]
B
So we got to get the RIAs to also not want to spaz and puke your position on your behalf. At the bottom. Next time, bitcoin draws down 50%.
- [51:15]
A
Exactly right. We've got to get the advisors knowledgeable and trained so that they're able to understand the role this asset class plays in a diversified portfolio. Recognizing that the extreme volatility does not serve as a reason to scare them out of it, but a way for them to understand how to incorporate it into their practice in a manner that is consistent with the way they operate their firm. That rather than being disruptive or distracting. And that's what our training is all about for them.
- [51:41]
B
So I know we only have a couple more minutes, so I just want to take the antithetical view. Is there anything in your mind that blows this up? Right. Obviously we've seen the FTXs and the Celsius and Voyagers, the self inflicted wounds of the crypto industry in the past. Now we have obviously quite a bit of FOMO and excitement around Bitcoin treasury companies. And end of the day we know that eventually everybody takes on a lot of leverage and that unwinds. Right. So how do you make sure that you have positive access to this asset class without choosing a loser? Right. A, I guess. And is there something that can derail this trait?
- [52:18]
A
There's always something that can derail it. You know, the black swans are the things we have to fear most. And of course we don't know what they are. That's why they're black swans. And so we don't know what we don't know. And that's why I put a cap of 40% for the aggressive investor as opposed to 100%. Because you don't want to put yourself in a position where your life is destroyed because you made a big bet that didn't work. You shouldn't invest more than you're willing to lose. And that's a truism everywhere, not just in crypto. We have to be on our guard at all times. This is a rapidly evolving and changing technological environment and because of that, we don't know what is going to become obsolete tomorrow. And that could more than anything else, erode the value of a given asset or tool or platform that is in place today. And that's why you've got to stay focused on this. Or better yet, hire an advisor who is focused on this for you so that they're going to be doing that heavy lifting and grunt work on your behalf. It's a dicey environment. That is why there is the potential for outsized returns. But with it comes outsized risk. There's just no denying that they go hand in hand.
- [53:30]
B
Yeah, there've been so many cases in the past of people who are directionally right about crypto but decided they wanted to be all in on some altcoin instead of bitcoin and they're down 99%. Right?
- [53:42]
A
Yeah. And the other thing that I fear a lot are the scams and frauds.
- [53:46]
B
It's terrible.
- [53:47]
A
The FBI says that we have people losing billions of dollars a year to scams and frauds. There's not a week that goes by that I don't get a text or email or phone call from an advisor or a consumer saying I got ripped off. Can you help? And by the way, the answer is almost always no. There is no Help. It's horrifying to see. We've seen just tragic instances and it's all because of greed. People want to get rich quick. They're also gullible. They keep hearing these stories. They believe them. And again, it's because people are not working with their advisor or they're ignoring the advice and cautions that their advisor has given them. People are their own worst enemy. We know that in the world of investing. So I am hopeful that as we get more legislation, as the regulations get implemented, that it will create the rules of the road, it will allow Wall street to engage. Because if you are engaging with a legitimate financial advisor at a legitimate financial organization, your risk of fraud drops to near zero. And the only risk you have to worry about is market risk. The way with it you do with any investment. Right now we have fraud risk as high as market risk, maybe even higher. We can get rid of the fraud risk. We can dramatically improve the outcomes for tens of millions of people.
- [55:05]
B
Absolutely. I have about a thousand more questions I would like to ask you, but unfortunately we're out of time. Can we do this again in the not so distant future?
- [55:13]
A
I would love to. Scott, I'm a big fan of yours and really admire the work you're doing. So anything I can do to help you, I'm happy to do.
- [55:20]
B
I appreciate it. So where can people follow you? And obviously we have a lot of RIAs that listen to these conversations. I know for a fact. Where can they go get some training?
- [55:31]
A
Go to dacfp.com dacfp.com the Digital Assets Council of Financial Professionals. Both my white papers. Are there lots of other content? We do two, three, four webinars a month. Everything's free. We hold an annual crypto conference exclusively for advisors, the longest running in the industry. And so. So lots of ability for us to be able to help you and reach out@daqfp.com thank you so much, Rick. It's been a pleasure. Scott, you're the best.
- [55:58]
B
That's dope.