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Ric Edelman: Advisors Shouldn't Ignore Bitcoin, Blockchain

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Most financial advisors are “fairly oblivious to blockchain” and “hesitant to invest client money in Bitcoin,” but they shouldn’t be, says Ric Edelman, founder of Edelman Financial Engines and of the RIA Digital Assets Council.

The open-source decentralized database, or ledger, is “the most important innovation since the introduction of the magnetic strip” used in credit card technology, Edelman said. The data is accessible and once verified cannot be changed, explained Edelman, who spoke at the Inside ETFs conference in Hollywood, Florida.

“Imagine a spreadsheet that anyone has access to and then everyone else verifies the data and once verified the data is frozen,” Edelman said. 

With verification, blockchain data can be trusted, which eliminates the need for intermediaries like title insurance companies, speeds up transactions and lowers costs, said Edelman. He expects blockchain will eliminate the “trust industry,” ending the need for real estate agents, ticket resellers, etc., replacing it with its “authentication economy.”

Blockchain was invented to serve as the public transaction ledger of Bitcoin, which Edelman also expects to grow. 

He explained without naming names that some political campaigns are accepting Bitcoin donations — Andrew Yang reportedly does — along with some charitable funding sources, Fidelity Charitable among them.

Edelman also mentioned that some states are accepting Bitcoin for business tax payments, but Ohio, the first and only state to do so, ended its pilot program late last year after the new state treasurer found that the third-party contractor converting Bitcoin into cash was chosen without the required competitive bidding. The New Hampshire legislature recently killed a bill that would have allowed its state treasurer to develop a mechanism for Bitcoin tax payments.

Bitcoin is a favored asset among millennials, according to Edelman, who cited a Schwab report about self-directed retirement investors. The Grayscale Bitcoin Trust was the fifth largest holding for millennial investors in the Schwab Personal Choice Retirement program, accounting for almost 2% of assets.

“Bitcoin is worthy of consideration in your portfolios,” said Edelman, noting that a lot of financial advisors hesitate to invest client funds in Bitcoin for fear of volatility and zero gains. “What is the likelihood of sustained volatility in the future for Bitcoin? That’s what we have to ask ourselves and what many advisors haven’t asked.”

He suggests that advisors invest 1% to 2% of client funds in Bitcoin if they are sure their client:  

  • understands the technology
  • plans to hold the asset for several years in order to smooth out volatility
  • expects massive volatility and is prepared for a total loss.

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