Founder of Edelman Financial Engines Ric Edelman says that many financial professionals do not understand Bitcoin and other cryptocurrencies. This is despite them being educated, in business for a long time, and having more experience in finance, he said. This is one of the things he has learned after being engaged in the digital assets communities since 2012.
Using Bitcoin as an example of the “thousands” of other cryptocurrencies, Edelman says cryptocurrencies are a different asset class that has nothing in common with stock, bonds, oil, and other traditional assets “we are familiar with.” Speaking to Yahoo Finance, Edelman praises crypto saying it provides a “tremendous investment opportunity.”
“Blockchain technology and its derivatives of digital assets and NFTs and CBDCs and tokens… are the most impactful commercial innovations since the development of the internet itself,” he said. “This is huge. It’s going to have a tremendous impact on global commerce.”
Unfortunately, according to Edelman, most financial experts do not realize this. Yet one of the focuses of a financial adviser is looking forward to the future, he says.
Not surprising that a recent survey by Opinium found that 90% of surveyed 200 independent financial advisers in the U.K. have negative sentiments about cryptocurrencies. Yet, one-third of them reported having received inquiries related to cryptocurrencies from their clients this year.
That means almost an equal percentage of financial advisers would not advise their clients to invest in crypto. It is understood that most financial advisers stick to less risky and regulated asset classes.
Opinium research chief Alexa Nightingale told IFA Magazine that, given their current approach towards cryptocurrencies, it would be interesting to see how the financial advisers will deal with the fact that cryptocurrency “investments are becoming more mainstream.”
According to him, Bitcoin and other cryptocurrencies are “ideal” inclusion in a diversified investment portfolio to reduce investment risk. This is due to the fact that they are completely different in nature from other asset classes commonly included in investment portfolios. He invented the 1% allocation idea for Bitcoin investment for those wanting to include cryptos in their diversified investment portfolios.
“A 1% or 2% allocation can materially improve the returns but if something goes bad, it’s only one percent, it won’t hurt you,” he said.”
He said this is confirmed by a study done by Stanford. Allocating a 1% exposes them to price-related benefits due to volatility while still reducing exposure to losses due to the same volatility. Hence investors can start looking at it with open eyes and curiosity and learn the game as they go although that does not apply to all cryptocurrencies. He advises them to start with Bitcoin and Ethereum.
Edelman said that he is helping his colleagues understand this completely new asset class and the need for them to consider its potential as a portfolio diversifier. He said since portfolio diversification and rebalancing are popular strategies among independent financial advisers, BTC should be an obvious choice for the portfolio.
“If you love rebalancing a portfolio over time, you love volatile investments because volatility creates opportunity for rebalancing. You buy low and sell high and that a wonderful combination for wealth creation. So advisers need to get rid of their bias they need to be willing to look at this with open eyes and genuine curiosity. And the more you learn about that this tact, the more you understand the commercial use cases.”