(Unchained) - On the latest episode of Unchained, Ric Edelman, the founder of the Digital Assets Council of Financial Professionals (DACFP) and a guru to financial advisors, said that advisors are paralyzed by the current lack of effective crypto products for clients seeking exposure.
But all that will change when spot Bitcoin exchange-traded funds are finally approved by the SEC, as is widely expected to happen soon.
“Financial advisors have been slow to the party,” Edelman said. “They have been largely unengaged [and] disengaged from the crypto conversation of the past decade.”
The Growing Pressure on Financial Advisors for Crypto Solutions
With the maturation of the space in recent years, however, and clients hearing more about crypto from the news and from their children, advisors have been under increasing pressure to provide answers and potential investment options.
According to the most recent survey presented by the DACFP, Edelman noted that 77% of advisors are waiting for spot Bitcoin ETFs to become available in order to provide crypto asset exposure for clients.
“Financial advisors have been like horses in the starting gate of a race,” said Edelman. “They want to get engaged, they want to participate, but there isn’t an easy and effective methodology to do so; now suddenly over the past few months come along the prospect that these Bitcoin ETFs are going to come onto the market.”
The Credibility Challenge for Advisors With Personal Bitcoin Investments
What’s more, another recent survey revealed that 47% of financial advisors personally own Bitcoin, creating a credibility conundrum, Edelman explained.
“How are they going to explain to their client when the client finally says, ‘Should I buy Bitcoin? What do you think? By the way, do you own it?’” Edelman said.
“For the advisor to say, ‘Oh, yeah, I’ve owned it for years. I just never told you to buy it,’ investment advisor credibility goes out the window,” Edelman added. “You might have an angry client. You might even lose a client over that.”
ETFs offer the easiest entry point for most investors.
“Everybody’s familiar with ETFs,” Edelman said. “It’s the most popular investment vehicle in the country. They are low-cost, they’re highly liquid, they’re completely transparent.”
Edelman also noted that once the many spot bitcoin ETFs currently seeking approval finally come to market, fund companies are all going to initiate extensive advertising and marketing campaigns for them.
“Those investors are going to see [these campaigns] and those investors are going to contact their advisors, saying, ‘I keep seeing ads from all these companies promoting this new ETF. Which one should I buy?’” Edelman noted.
Advisors will not have much of a choice, Edelman said. “They’re going to have to assist their clients. Otherwise, they run the risk of losing clients and assets.”
All these factors should propel the amount of money invested in spot Bitcoin ETFs as high as $150 billion in the next two to five years, according to Edelman.
Edelman based his estimate on the fact that investment advisors manage about $8 trillion in assets in the U.S., and if 75% of those advisors wind up allocating 2% of their customers’ money to Bitcoin, that would equal about $150 billion.
While Edelman personally recommends clients allocate 1% of their portfolios to Bitcoin, he said the final percentage would probably be a bit higher as prices continue to rise and clients become more comfortable with investing in crypto. And that inflow itself should help to drive the price of Bitcoin even higher.
“I think it’s going to shake out around 2% to 3% of assets among those who are doing it,” Edelman said. “Bitcoin’s only got $500 billion right now. This is a huge inflow into the asset class, which is going to have a profound effect on its price.”
By Darren Kleine
November 21, 2023
