Bitcoin will be ‘massively more valuable’ over the next decade: expert

Ric Edelman, founder of the Digital Assets Council of Financial Professionals.

Heidi Gutman | CNBC

Bitcoin’s recent rout — including its recent dip below $20,000 — gave some cryptocurrency naysayers an “I told you so” moment.

“How do you make a million? Invest a billion in bitcoin,” joked a panelist at a conference for financial advisers earlier this month, which drew laughter from the crowd.

Ric Edelman, former independent financial advisor and founder of Edelman Financial Services, presented in a separate session at the same Wealth Management EDGE conference with a different message.

“A lot of people are convinced it’s a fad or a cheat, it’s a tulip bulb or a Beanie Baby,” Edelman said. “I’m not here to tell you that you should fall in love with bitcoin.”

“My point is that you need to be knowledgeable about this because you get questions from customers” about crypto, he said.

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Edelman founded a new company, the Finance Professionals Digital Asset Councilto help the financial sector learn about what it calls the first major new asset class in 150 years.”

With this, he walked away from the day-to-day business of Edelman Financial Engines, although he was still its largest individual shareholder. He also gave up all of his securities licenses.

CNBC.com caught up with Edelman to learn more about his new book, “The Truth About Crypto,” and what he has in store for bitcoin and cryptocurrencies.

“Bitcoin will most likely be much more valuable than it is today, along with many other parts of the digital asset community,” he told CNBC. “This represents an opportunity for wealth creation that we haven’t seen in 35 years.”

(Editor’s note: This interview has been condensed and edited for clarity.)

“Major declines” are not unusual for emerging technologies

Lorie Konish: What is crypto winter and what does it mean for investments in digital assets?

Ric Edelman: A crypto winter refers to a significant drop in the prices of bitcoin, Ethereum, and other digital assets. Seven times in the history of bitcoin, its price has fallen by 70% or more, and it has become known as the crypto winter.

It is not uncommon for new emerging technologies to experience significant declines of this degree or frequency. If you look at the first 12 years of Amazon, Apple, Google, you’ll see very similar price performance of their stocks in their early years of development. It is common that you are in the process of innovating new technology, gaining market share and reaching maturity that you see massive price volatility along the way to produce unprecedented levels of profits.

Even though bitcoin has seen these massive declines several times, it has generated a total return of 40 million percent since its inception. Even since 2018, even though bitcoin is now down 70% since November, since 2018 it’s up 7x – not 7% ​​- 7x. That’s what innovation is all about, and you have to maintain a long-term perspective and be prepared to tolerate this kind of incredible volatility along the way.

LK: There were many naysayers in the financial advisory community before this who might see this as proof of what they already believe. What would you say to them?

RE: That they would not tolerate this sentiment if customers were to express this view regarding actions. In the early days of the pandemic, the stock market fell 35% in six weeks. If you look at a short-term period like that and use it as an argument that stocks are risky, too risky to invest in, advisors would say it’s an artificial period. You need to consider a longer period of time to come to a more legit conclusion.

The same is true for crypto. You can easily look at the last nine months and say bitcoin’s 70% decline proves it’s too risky to invest. But if you look at the last four years, with a 7x return, you would have a very different perspective. What I find is that people using this latest decline as an argument against bitcoin is just confirmation bias and recency bias, preconceived advisors grabbing a single data point to prove a argument which is specious in the first place.

“I recommend a very low single-digit allocation”

LK: What are the risks of not investing in crypto?

RE: In my new book, “The Truth About Crypto,” I recommend a 1% asset allocation to digital assets. This is a whole new asset class. It develops and matures, and it faces many risks. You have the potential for regulatory risk. You run the risk of fraud and abuse. There is a technological risk. There is always the potential for a drop in market demand. For this reason, I recommend a very low single digit allocation to this asset class as part of a diversified portfolio.

Dave Pope (center) works in the Digifox booth setup at Bitcoin Convention 2021, a cryptocurrency conference held in Miami on June 4, 2021.

Joe Raedle | Getty Images

That said, if instead of doing 1%, you do zero, you run the risk of being 100% wrong. Bitcoin’s price history has proven that a very low asset allocation, 1% or 2% or 3%, is enough to significantly improve overall portfolio performance. Whereas if bitcoin goes bankrupt and becomes worthless, a 1% loss will not cause you significant financial harm. The risk of not investing means you could be 100% wrong.

LK: As you point out in the book, investing in digital assets does not necessarily mean directly in cryptocurrencies. So you can still expose yourself to this somewhere else?

RE: Absolutely correct. Just because you’re a fan of the auto industry doesn’t mean you should buy General Motors stock. Instead, you could buy shares in companies that make asphalt, because those cars will need roads to drive on. Or you could invest in companies that make white paint, because those roads need to be painted. Or you invest in companies that build traffic lights and stop signs. There are many, many ways to invest in an industrial sector without direct investment. It’s called the pick and shovel approach made famous by Levi Strauss, who never mined for gold during the California Gold Rush, but instead sold jeans to gold diggers. ‘gold.

This same approach can be used in crypto. Instead of buying bitcoin, invest in the companies that facilitate and develop the technology. You can invest in exchange-listed bitcoin miners or crypto exchanges that allow investors to buy and sell crypto. You can invest in Nvidia, which is a computer chip manufacturer that provides the chips bitcoin miners use to mine bitcoin. You can invest in blockchain development companies, such as IBM or Silvergate Bank, which is a government-licensed digital bank. There are many ways to thematically invest in this asset class without directly owning bitcoin itself.

Bitcoin is a “network”, not a product

LK: What are the most common misconceptions about crypto that you hear?

RE: The most common is that there is no way to value bitcoin, that bitcoin has no intrinsic value. This is an extraordinarily common mistake, often made by well-respected people in the financial world, such as Jamie Dimon and Warren Buffett. Jamie Dimon is infamous for saying that bitcoin has no intrinsic value.

The problem with economists and market analysts making this statement is that they apply traditional equity economic modeling to crypto. What they don’t understand is that digital assets are a whole new asset class that has nothing in common with the stock market. And trying to apply traditional inventory valuation methodologies to digital assets leads you to the wrong conclusion.

As a market analyst, you would look at a company’s product, you would look at its competitors, its management, its products. You would examine its income and profits. But if you try to do that with bitcoin, you find there’s no business, there’s no employees, there’s no product, no revenue, and no profits. All of these numbers are zeros, which would lead you to conclude that bitcoin has zero intrinsic value, which would lead you to draw the wrong conclusion.

A flag at a 7-Eleven gas station in Lawrenceville, New Jersey advertises a Cash2Bitcoin ATM in March 2021.

Suzanne Barlyn | Reuters

Instead of trying to compare bitcoin like you would comparing IBM stock, you need to recognize that bitcoin, rather than being a commodity, is more of a network. And networks are rated based on the number of users on the network and the growth rate of user adoption. When you look at it from that angle, you can compare it to AT&T, which is a network, or to Netflix or Facebook, which are networks. You begin to realize that the bitcoin network is growing so rapidly that there is an exponential effect of the increase in value of the network itself, which grows exponentially faster than the number of adopted users on the network . This is a fundamental basis for how you recognize that while bitcoin may not have a value, it most certainly does have a price, which is set by the market.

LK: Where do you see crypto in 10 years?

RE: It will be a common part of commerce globally. McKinsey says 70% of global GDP by 2030 will be digital. Every central bank in the world will offer a digital currency, and the functionality of our personal finances through digital assets will be routine.

It’s hard for us to remember that the iPhone is only 14 years old. And yet, today, we couldn’t imagine leaving home without her. Most of us are within a meter of our phones 24/7. Blockchain technology will also be ubiquitous and routine in our lives. The sooner people start realizing this, the sooner they can seize the economic and investment opportunities it represents.

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