Ric Edelman is one of the country’s most acclaimed financial advisors and industry personalities. Today, he’s focused on digital assets, cryptocurrency and blockchain. He’s a big believer that these exponential technologies will transform the global economy over the next several decades. He joins the ETF Think Tank to discuss this and his viewpoints on the markets.
What was the moment that caused Edelman to pivot over to digital assets? He was attending a program back in 2012 and Bitcoin was one of the topics. Even though it was very early in crypto, he understood that if he dismissed Bitcoin out of hand, it probably meant that he did not understand it. As he studied it, he concluded that it could be a profound technology, maybe even as big as the internet. He says we have to recognize that our world is changing due to exponential technologies. Now, he tries to help bring attention to something that many may ignore.
Edelman says it is not the industries that will be impacted the most, it will be the people. Our current system works pretty well – we move money seamlessly, we get interest on deposits, we’ve got Venmo. The problem is that this only applies to first-worlders. There’s a billion people that don’t have access to this, including those in abject poverty and the unbanked. Blockchain and crypto allows people to participate in a financial system. The bottom billion can become the rising billion.
What are the hurdles to advisors adopting crypto for their clients? For many, it’s not worth the headache. There’s a big education aspect to it. There are compliance issues. Many advisors are doing just fine as it is and don’t have the motivation to change anything. On top of this, digital exchanges don’t want to work with advisors. If advisors cannot logistically do it even if they wanted to and the exchanges put up hurdles to get advisors involved, it is not surprising advisors don’t want to bother with it.
On the flip side, advisors won’t be able to inhibit the changes that are happening, and they run the risk of being left behind. Blockchain development is happening, and technological disruption often destroys companies, but Edelman says he doesn’t really care. Every major central bank is developing blockchain because there are too many advantages. They realize the more familiar they get with it, the more they can leverage it. We could have a massive disruption in the jobs market and that is the biggest risk right now.
Edelman says that the healthcare sector is the one area of the economy waiting to be disrupted by blockchain. Our personal health records, for example, are our best data. Why are they housed at the doctor’s office? Why do specialists have their own sets of records with no interconnectedness? Why don’t consumers have easy access? Blockchain can solve this because how we are currently handling our health records is insane.
Other key takeaways:
- For advisors, managing money is easy. Managing the client is hard. They will argue that they are passive investors but invest in active products. They will say they are long-term investors, but the average holding period is just 6 months. The job of financial advisors should be to get clients to stick with their approach. Edelman would be overweight to exponential technology because you need to invest for the century you are living in.
- Edelman is a big fan of crypto in his portfolio but acknowledges that he is far more overweight than most should be. For most individuals, the crypto allocation should be around 1-5%. This can measurably improve returns without an undue level of additional risk.
- The development and acceptance of blockchain will be a very long haul. Right now, the laws governing this do not exist. What happens if two parties enter into a smart contract transaction and one sues the other one, but they live in different countries? Who has jurisdiction and is it based on residency, wallet location or something else? There needs to be global coordination.
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