Financial Advisors Control $5 Trillion in Investor Wealth. Are They Buying Bitcoin? - Ep.222

Transcript

[Music] hi everyone welcome to unchained your no-hive resource for all things crypto i'm your host laura shin a journalist with over two decades of experience i started covering crypto five years ago and as a senior editor at forbes was the first mainstream media reporter to cover cryptocurrency full-time subscribe to unchained on youtube where you can watch the videos of me and my guests go to youtube.com c unchained podcast and subscribe today [Music] crypto.com app lets you buy earn and spend crypto all in one place earn up to 8.5 interest on your bitcoin and 14 interest on your stable coins paid weekly download the crypto.com app and get 25

with the code laura the link is in the description indexed finance allows you to buy passively managed indices for crypto and d5's hottest markets passive portfolios at your fingertips i-n-d-e-x-e-d dot finance today's topic is personal finance and crypto here to discuss are rick edelman founder of edelman financial engines and founder of the raa digital assets council and matt koleski president of arbor capital welcome rick and matt great to be with you laura thank you laura rick let's start with you why don't you tell us about yourself and how you got into crypto

well i've been a financial advisor for 36 years now and i've always been looking forward like we all do as financial planners what's coming where do our clients need to be planning for the future as opposed to focusing on the past and so uh in 2012 uh with the help of ray kurzweil uh who's the co-founder of singularity university uh he encouraged me to go to singularity's executive program which i did and uh that was where i first heard about bitcoin uh along with all the other exponential technologies of ai and robotics 3d printing big data nanotech biotech bioinformatics fintech edtech all that kind of great stuff that is just revolutionary in their

designs and innovations and when i heard about bitcoin and the blockchain i didn't get it but it really intrigued me i didn't dismiss it out of hand i decided to learn more about it and so i spent 2013 doing that and then began investing in bitcoin in 2014 largely as an experiment just to understand the environment what is it what's involved in opening an account and buying it and wallets and keys and all that kind of good stuff and the more i spent time with technologists and experts in the field i began to realize that there's a there there that this technology is revolutionary and has the potential to transform commerce on a global scale not only did

i realize that i realized something else the vast majority of financial advisors don't understand this because when you first look at bitcoin it violates all the stuff we've been taught as financial planners all the education we have all the professional designations all of our years of experience of investment management bitcoin violate violates all those rules so it's easy to dismiss bitcoin out of hand as a fad or a fraud tulip babies are tulip uh tulip bulbs or beanie babies or tulip babies into ortula babies or beanie bulbs uh and and it's just easy to throw it away is as silly and that's a big mistake and so what i realized is that financial advisors need to understand this because the crypto community even though they're

doing really cool stuff they're building really nifty whiz-bang products and services that are of value to advisors and their clients the crypto community laura is not very good at explaining this to financial advisors they don't understand the advisory community many of them didn't even realize that there was an advisory community they're trying to sell their investment products and other services direct to investors not even realizing that advisors serve as a gatekeeper we control five trillion dollars in investor dollars so i created readac the rea digital assets council to serve as an educational forum for financial advisors to teach them about blockchain and digital assets to help them understand the space and learn how to talk about it with their clients whether they want to say yay or

nay understand what you're talking about as opposed to just a wave of the hand dismissal oh it's a fraud it's a it's a fad uh and so we're launching uh our uh certificate in blockchain and digital assets a 10-module online self-study course for financial advisors so they can learn what they need to know about this new space and understand how to incorporate it into portfolio management for their clients yeah this is an area i'm very interested in i don't know um if all the listeners are aware but i covered personal finance for oh shoot i think maybe four or five years before i got into crypto um so yeah uh quite a while and

i agree with you about how the crypto community and the personal finance community are sort of like oil and water they don't really talk well to each other um and so it's interesting to me to see that you are trying to bring the two together all right so matt tell us about you as well and how you got into crypto i first got into bitcoin back in 2010 i was reading about it online and just became very fascinated by it i'll say it right i fell down the rabbit hole early and to rick's point and even your point there is but there is no way to bridge the the worlds i started as a financial advisor in 2000 at charles schwab

somebody back up there and then left schwab in 2004 and joined arbor so fast forward to 2010 and was just super excited about this but like rick i wanted to learn about it i wanted to see what this was about i was like well this is really cool we can send money and value instantly right we've been communicating instantly for you know years and years and so i just was spent time learning about it i you know downloaded some mining software actually was mining bitcoin on my home computer back when you could do that and then took a break from it i did you know have mount gox account so i experienced that

uh that was certainly a personal experience that i carry with me to this day as the compliance officer um and then followed ethereum's launch and of course litecoin was in there and just was really excited about the the asset class as it continues to grow and mature but as i said before there's there was no bridge right as a financial advisor i felt really strongly that hey i really want to get clients exposure to this but there's no way to do it in hindsight i you know i said i probably could have custodied it myself on a thumb drive but if the auditors came and said what are you doing where's your bitcoin so what's on this little thumb drive here here's the private keys like what is that so that really wasn't a good solution for

my firm and then in 2018 we started to really craft our investment thesis around this and you know there's there's a launch you know grayscale came out with their products obviously in that time frame and we started to say well let's really look and see what this would look like if we got our clients exposure to this asset class and we did it through our alternative sleeve which is where we feel that this fits we did about two years ago purchased the the grayscale product on the open market not through the private placement we wanted it we wanted all of our clients to have exposure to this i feel that's kind of a reflection of the culture of bitcoin or blockchain itself you know yeah there's lots of hedge

funds doing this but and we have qualified and accredited investors but we wanted to bring this to all of our clients and so that was about two years ago and then in last in 2020 i started i talked to coinbase and fidelity and everybody looking for a solution where we could own digital assets in a client account in a sub-account for them that we could professionally manage and i ran across an article about a tech platform called blockchain that was interfacing with gemini and was immediately taken by that so that's exactly what i'm looking for and so we started onboarding our own clients several months after that there was a definitely a lot of compliance a lot of

compliance work that needed to get done and then we successfully began onboarding our clients in q4 and then pivoted to launch an sma or another advisory product to other advisors we quickly realized that like rick said a lot of advisors are excited about this they want to have exposure to it but they may not know how to access it so now we've created some portfolios i know you're going to talk about that in a bit but that's kind of been my journey with digital assets so i was really excited when my professional world and one of my personal passions finally came together okay yeah and for listeners who don't know an sma stands for a separately managed account which we'll dive into those issues later but um i actually just want to fuller dive into kind of what the problem is

we've kind of talked about it in various ways you've touched on a number of different things uh just in the brief um time that we've been talking but let's maybe even just take a step back and just talk about perception so what would you say is generally the opinion that most registered investment advisors or you know any kind of personal finance advisor like a cfp certified financial planner or whoever what attitude do they typically have of digital assets and then on the flip side of that how easy is it for everyday investors to invest in crypto and have that managed by their financial advisor well i can tackle the first part matt can do the second part probably better than me

um advisors uh first and foremost laura are concerned about reputation uh i don't want to do anything that's going to damage my reputation i certainly don't want to do anything that will get me in trouble with regulators and i don't want to do anything that might harm a client so we've got the fact that most advisors have been doing this for more than 30 years the average cfp in this country is 62 years or older and been doing this for more than 20 years most more than 30 years so we go back a long way and we've been through it all you know everybody remembers the crash of 87 we remember uh the dot com bubble we remember 9 11 we remember 08 we remember the the recessions of the 70s we remember

the recession in the 90s we've been there done that and of course this past year with the pandemic and in the midst of all that we've seen fads come and go a lot of us remember portfolio insurance uh of the 80s we remember all the promises of hedge funds and many of them not having delivered on those promises we've we've seen uh annuity products come and go we've seen non-traded reits we've seen it all and throughout it all if you just focused on a diversified portfolio of stocks and bonds and held it for the long term rebalancing it along the way your clients would have done just fine use low-cost long-term investment strategy it'll all work out why do the exotic why do the nuke thing on

the block why play a game all that might do is get you in trouble with either your client or the regulators why take the risk you've got a good practice you've got a lot of happy clients you've got assets that are constantly rising life's good you're playing golf a day or two a week why mess it up so what's the incentive for the advisor to turn to this newfangled thing called bitcoin when it is rife with stories like mount gox and silk road where you've got four crashes of very trip you know huge in the news where it rises to twenty thousand dollars in 2017 and then crashes to about three or four grand within a year of that why would you want to subject yourself and your clients to that kind of

nonsense advisors just dismiss it out of hand and leave it at that and what advisors don't realize is that this is an emerging new technology that is going through the growth panes that are very similar to every other new technology if you look at the history of apple of amazon of microsoft you see that they had the very same experiences with their stock prices in their early years and look where they are today because it's a fundamental technology that itself is revolutionary it's not just a beanie baby pretty to play with and pretty to look at and it's not just tulip bulbs which is the most unsophisticated thing in the world from the middle of the 1600s please do we have to compare ourselves with something

from the middle ages so we need to recognize that advisors have a fiduciary obligation to go beyond the headlines to go beyond the superficial examination to examine the question is there a there there until you conclude that there is no there there you don't have the right to say to a client don't deal with it it's something for your teenagers to play with it'll get you in trouble that's ridiculous you've got to do your job even if your conclusion is you don't want it fine but give me a better reason than tulip bulbs and beanie babies and that leads us to the second half of the issue which matt will get into which is once the advisor says okay i do want to do this now you've got challenges and how because at the end of the day bitcoin is

not a security you can't buy it like you guys shares of ibm or your favorite etf it becomes cumbersome and difficult and complicated to deal with how do you overcome it and many advisors would say heck with it it's not worth the trouble because i'm not going to put all that much money into it in the first place i'm not going to do 25 of my clients assets i'm not even going to do 10. many aren't even going to do three so why bother if it's such a small allocation to go through the hassle of figuring out how to do it manage it within my practice explain all this to clients oh why bother i'm just going to buy an etf and call it a day and this is why we need simpler easier solutions to incorporate this into practice management for advisors because

if they can't do it logistically then their clients are going to be left out in the cold and that's why solutions that matt is familiar with and has developed himself are really answers that advisors are looking for matt yeah so a lot of yeah a lot of good points the the the solution that we've created for other advisors is something that they're already familiar with or a lot of them are already familiar with and that's the sma or even a tamp or a turnkey asset management platform so for advisors that have outsourced various portions of their asset class management you know this large cap or bonds this fits right in with that so it's something that advisors are used to experiencing and so for those

folks it's been a really good conversation that we've had and saying hey this is just another sma or a tamp that you can access to provide an allocation to digital assets for your clients there's a lot that we can you know discuss around compliance because that is rick talked a lot about you know what the reputational risks the compliance risks around it and those are real and that was something where we felt we well hey let's let's step out into the space and really do the homework on the compliance side and you know as advisors we have to custody with our client assets with qualified custodians um and so there's a lot of work that had

to get done and is still getting done on what that means for a company like coinbase or for gemini right the sec is not necessarily weighed in on that what they have said is that advisors it's up to you to do your due diligence and your homework and do deep dives into these companies if they are going to be custodying your client assets and so that's ongoing we have and we have we are currently working with gemini as as a custodial solution um right now and the good news is laura it is getting easier and easier as these products and services are coming online you've got gbtc and ethg and bitw uh you've got these uh trusts that exist in the marketplace the trade as

securities in the open market like in etf trades uh daily liquidity um there are premiums or discounts there are fees you've got to understand how these products work like any other product but they are available for anyone to buy um you can also now access etfs that have been launched in canada they're available to us amer us investors fidelity makes them available and other uh custodians will as well on demand we have jp morgan and goldman both saying they're going to offer products available to their clients because of demand so they're getting better and better and and we've got continuing applications at the sec for more etfs in the us and we're waiting for the sec to finally say okay because this is what advisors are

clamoring for this is what ultimately everybody wants because everybody's familiar with etfs we can incorporate it into the portfolio seamlessly clients are familiar with their structure it's simple clean easy cheap liquid and in the meantime high net worth advisors have a lot of products available through private placements unlimited partnerships hedge funds venture capital private equity so that's great if you're a high net worth accredited investor but it doesn't really serve the masses which is really what we need to include because the whole point of investing these days is democratization that's what's making robin hood famous and acorns uh we need to make this available to everybody everywhere paypal's doing it already but is that what the sec wants people to be

buying bitcoin in a paypal account is that they really think that the consumer is being better served by doing it there instead of merrill lynch so we need to figure out how to get us to the next level in the meantime advisors need to know there are solutions available today you don't need to dismiss this waiting for an etf because by the time the etf comes about what will the price of bitcoin be it's already you know north of 40. uh is it north of 50 is it north of 60 but by the time an etf comes on on the market will bitcoin be a hundred thousand to what degree is your inconvenience factor gonna prevent you from doing you need to do to serve your client yeah well so you know that's actually what i wanted to ask about you know i

know you guys were talking about that there are these solutions available but i was wondering what percentage of rias do you estimate are actually investing in crypto for their clients or um you know even if that quite because i imagine that's quite a small percentage my guess my cfp is younger than me he's a millennial and he kind of uh just very sternly gave me this little like you know uh we don't do risky thing i i don't remember what the wording was but i was a little bit like i don't think you have been paying attention to the space that was my uh you know take on on his response but um and he's like half the age of the average raa so what percentage do you think are actually investing and then what percentage do you think

are at least like interested or attempting to understand it i'd say it's very limited right now i think there's people that are starting to pay attention and starting to wake up you know they're getting asked about it for sure i've seen several studies on this and fidelity does fidelity digital assets does a good one they looked at i think european as well as u.s advisors and family offices and hedge funds and i wanted to say it was it seemed high it was like 40 and in my experience with dealing with other advisors it's nowhere near that it's you know we're trying to like get off zero right let's do something here um you know it just back back up too it was it was more you know there was rick talked about this you know paypal

right there's this hole of you've got hedge funds that can do this individuals are doing it right advisors are getting asked by their own clients i even a couple years ago told one of my clients go open an account somewhere and do this yourself i feel that strongly about it but that's not a good solution because you know they may just open it and you know kind of move on and forget about it so in in even those that are doing it to rick's point it was like you know one two three four percent tops but um yeah this the calls that i've had it's there's almost zero exposure from what i can tell and uh according to the bitwise survey that was just done recently laura uh about five percent uh i'm sorry about nine percent

of financial advisors say that they are currently allocating digital assets to their client portfolios today another 20 say that they're planning to do so in 2021. so it is uh increasing in its adoption and matt is i agree with matt completely that uh it's largely because advisors are finding that their clients are asking for this and if they don't say yes then they run the risk of losing assets as clients shift assets to gemini and coinbase and and kraken and and other platforms where they're going to buy it on their own and even worse clients who might end up in an environment where they are doing something dangerous that they shouldn't do you know not that there's a mount cox out there anymore

who knows maybe there is it is still to some degree a wild west because there is a not as stringent the level of regulation the fact that you can you can be an exchange not regulated is itself a little scary uh that there are foreign companies that are engaging in this space so at least if the financial advisor is involved we can help ensure that our client is dealing with a qualified custodian that we're dealing with grown-ups in the room and help our clients avoid getting scammed or ripped off in the course of their activity to help them implement and manage their enthusiasm we can also help the client avoid investing too much more than it is prudent for their own sake so the advisors need to be involved there has to be a platform that allows

the advisor to be involved and that way everybody can win and rick you briefly mentioned earlier riyadak the registered investment advisor digital assets council can you give us an overview of what it is that riodak does and how it attempts to address these issues rio deck is strictly an educational forum uh that's what's really lacking the only place for advisors to learn about this is the same place everybody else learns about this which is going on to the internet surfing the web word of mouth and hearing from the companies themselves that are manufacturing those products and services and that means you're listening to a salesman because they're trying to sell you whatever it is the widget they're making so there's no unbiased purely educational resource

designed by financial advisors for financial advisors and that's what redact does so we uh with the knowledge that i've got and my colleagues in the organization and the extensive contacts we have in the crypto community we're able to put together uh the very best minds in the digital asset and blockchain space and bring them to financial advisors and so we do a lot of webinars we have a lot of content at the rheadac website raadac.com and we have uh semi-annual day-long events we just uh completed one in march um where uh hester purse commissioner of the sec was our keynote headliner and and a lot of top experts

and we've created the certificate program with some of the top faculty from mit and from the fed and from leading universities and major attorneys and accountants in the space to give financial advisors the knowledge and education they need and advisors know they can come to this space at riodak they're not getting sold anything they know that it's coming from me and i have a pretty strong reputation in the advisory community so advisors can feel comfortable that the information and content we're giving is legitimate that it's unbiased that it's objective uh that we're not trying to get them to to buy anything and uh the support is coming from the digital assets community they're paying for all this so that the content we're providing is is for free

the certification program advisors enroll for it's 549 for the 10 module course it's online self-study at your own pace and it's a very deep dive into this area and allows advisors to say i'm setting myself apart i've taken the time to get this knowledge this education i've got the certificate to demonstrate that so when i talk to you about digital assets and blockchain i know what i'm talking about i kind of have like the good good housekeeping seal of approval on that and we're providing the certificate holders with a wealth of information and access that's not available elsewhere such as the yellow pages directory that we're creating of all of the vendors in the digital asset and

blockchain space the companies that are building exchanges and custodians and software companies being able to serve you in building client portfolios tracking those portfolios tax reporting and record keeping everything that you need as a financial advisor to integrate this into your practice management so that it's easy and seamless because what advisors want is easy so they can spend their time with their clients and not spend their time fussing with all this back office stuff so redac is really fundamentally focused on all that we've got hundreds of advisors already enrolled in the certification program and it's brand new and it's proving to be really really popular and earlier you mentioned how difficult it was to explain

digital assets to this community you know we were talking about the tulip bulbs and the beanie babies and i just wondered so in your attempt to explain the potential and the opportunity in crypto to riaas are there any particular explanations that you found speak to them or tend to give them a light bulb moment like what are your favorite ways of describing this to that community matt alluded to one and i'll steal his thunder a little bit the internet was originally designed to connect people you know think of facebook the second layer of the internet was the internet of things and that connected things to each other think of bluetooth you know your phone connected to your car or your coffee pot connected

to your email so the first level of internet connected people together so they could communicate the second level connected things so they could communicate together the third level of internet is the blockchain and that is allowing the connection of money so that we can move money as easily as we are moving emails as easily as we are moving with bluetooth we can do that with money until the blockchain came along until bitcoin came along for you to transfer money from one country to another say you have family and you know in the old country my grandmother used to call it uh and she would send money back she would go to western union it takes five days and costs eight percent

to send money from one country to another with bitcoin you can do it in 10 minutes virtually free this is the instantaneous movement of money and the potential for improvements in global commerce the amount of money we save the increased efficiency the improved security the greater transparency this is the greatest invention in commerce since the internet itself and matt what about you are there any favorite explanations you have yet but talking to it i agree with everything that rick said you know in the but with advisors one of the things that i bring up and this is a word that's come up already is fiduciary right we have a

fiduciary obligation to talk to our clients and put their interests above our own that's what it means and when i think about the technology and how it has or lack or it hasn't infiltrated the uh the current financial infrastructure right there's so much potential there for all the reasons we've already talked about to make it more efficient to make it more accessible and the another reason i think advisors are struggling is you know they've spent their entire careers thinking about a current financial infrastructure in one way and here comes this thing out of nowhere that is literally at the intersection of technology and money and finance and it's like oh my gosh what do i do with

that uh it's just it's such a powerful thing but as a as a fiduciary i have been saying to folks to other advisors like look there's another thing that's coming right that's going to be very disruptive to your you know your the the the businesses that you may have built the infrastructure that currently exists and it's in the and what we're managing is our clients money right it's their their labor their life savings right then we take that to heart it's like well maybe we should put something outside of this traditional infrastructure that i think we'd all agree starting to show major cracks as as technology starts to bump up against this infrastructure that's 40 50 60 years old and so that's resonated with folks and i'm just saying

look let's have an allocation here let's get some small footprint outside of this traditional world and i'm not here to make the past wrong right the traditional financial system has done an amazing job of creating wealth and distributing things but there's something that looks like it could do it even better so let's have some exposure there and as a fiduciary those are things that we're starting to talk with with our clients and with other advisors and one last question oh uh-huh go ahead let me build on that fiduciary theme because that's really important what matt is saying advisors have traditionally taken the attitude that because i'm a fiduciary i'm not going to recommend bitcoin even though they don't know anything about it i'm pretty well known in the advisory

community for the fact that i don't like annuities uh i'm pretty well known for a bunch of other things too but that's that's a big one i talk often on my radio show about why i'm not a fan of annuity products etc but guess what i'm an expert in annuities i can go into great detail for you as to why i don't think it's in your best interest to buy an annuity and that's my challenge to financial advisors if you're telling me that you're not recommending bitcoin to your clients you need to tell me how you reach that conclusion using your fiduciary obligation what is the basis for saying no don't invest most advisors can't offer that they because they haven't studied it and so that's my challenge to

advisors learn about this space become knowledgeable about it just like you are about other investments that you don't like to explain why you don't like them and i'm convinced that once you go through that process you'll change your mind because you'll discover that this isn't what you thought it was use your fiduciary obligation to challenge yourself to do the job that your clients are expecting you to do yeah i agree i saw dave portnoy of bar stool sports was on twitter with a little video saying that because he'd sold bitcoin at a lower price he realized he was wrong now that it was at this higher price and i tweeted basically saying hey if you think that

you were wrong simply because other people bought bitcoin then that means like you still don't get it like like it has to be that you understand the value and no matter how many other people sell or buy or whatever like you still have that conviction in it and so anyway um and i don't have anything against him or anything but i just thought okay like now you think that you know that you were wrong and the patent like no you still you're not still not understanding but anyway um so in a moment we're going to talk a little bit more about um explanations um but also move into some of the different types of investment vehicles that are available um but first a quick word from the sponsors who make this show possible want to get exposure to the top defy and crypto projects but don't know where to

start indexed finance allows for users to buy indices that represent automated and passive tokenized portfolios such as the d55 an index of the top t5 projects which re-weighs and re-indexes autonomously indices such as d55 enable you to get exposure to the growing d5 and general crypto markets by holding one simple token and you'll always be holding the top assets for that market d5 has been the best performing defy index available with over 400 growth since its inception in december get d5 and others such as the new nft index today at indexed.finance that's i-n-d-e-x-e-d dot finance with over 10 million users

crypto.com is the easiest place to buy and sell over 90 cryptocurrencies download the crypto.com app now and get 25 with the code laura if you're a hodler crypto.com earn pays industry leading interest rates on over 30 coins including bitcoin at up to 8.5 interest and up to 14 interest on your stable coins when it's time to spend your crypto nothing beats the crypto.com visa card which pays you up to eight percent back instantly and gives you 100 rebate for your netflix spotify and amazon prime subscriptions there is no annual or monthly fees to worry about download the crypto.com app and get 25

when using the code laura laura the link is in the description back to my conversation with rick and matt so one last thing i wanted to ask about the explanations question was are you able to go beyond bitcoin to explain things like ethereum or d5 and if so what explanations have you found that are effective for these kinds of more exotic um crypto assets than just bitcoin yeah we've had um a fair amount of success talking to other advisors about that um we start with bitcoin right that's the first first place to for advisors to start or even for anybody to start when they're

kind of beginning their digital asset journey although i think a lot of people are getting exposure through nfts now but that's a different discussion um d5 is i think a really decentralized finance i think is another way if people can you know wrap their head around bitcoin they can see the benefits of d5 right in more more real-time settlement real-time access to things decentralization and accessibility for folks and they can they can start to see the value that that the defy ecosystem can bring not just uh as an investment but also just being like i mentioned being accessible for other people so that's a really good one the other one are you some use cases around

utility tokens um there's browsers there's virtual private networks that people can use and participate with and they all have a token mechanism in there and so those are things that i think people can they've already they're already using these services anyway and so if you can introduce it to to them and it happens to exist on a blockchain and has a token feature with it i think that's something that um people can can get on board with i host an investment club for um some college kids and i'm like use you know use lolly use brave just to experiment with and see what it's like to feel you know hey i'm earning bitcoin by buying things or i'm i'm earning tokens just by surfing the web things you're doing already

and it gives them just another way to interact with with digital assets yeah that's that's a great suggestion um so now let's talk about investment vehicles um because i think that this is a landscape that is literally changing as we speak in the last few weeks um so you know up until recently i would say it probably was that most rias were giving their clients exposure to bitcoin in particular through a traditional investment vehicle such as gbtc and um but i did wonder also you know were they just buying spot bitcoin or or crypto or how were you seeing most ras choosing to give their clients exposure the in

in our experience at riodek when we talk to advisors about how they're engaging we get three answers and they're all birds of a feather uh the first is um even though there are 5 000 coins out there how do you sort through them how do you pick among them we have to remember that bitcoin is what 80 90 of the total market cap of the entire space so many are simply buying bitcoin and the most convenient easiest painless way is gbtc um and i didn't say cheapest but it's easiest and most painless uh and easiest so many are simply doing that as a way to give their clients exposure bitcoin is the best known clients have certainly heard of that

more than anything else the second is to recognize that this space is more than just about bitcoin and bitcoin has its limitations which is why ethereum was invented and at their end smart contracts the next protocol in in the evolution of this space makes a lot of sense and ethereum today is five or ten percent of the marketplace so between those two coins you've got like 95 percent of the entire digital asset space so some advisors are buying gop gbtc for bitcoin e-t-h-e for ethereum both of them offered by grayscale calling it a day others are however saying

wait a minute i'm a fan of diversification that's what i tell my clients to do all the time you know we own thousands of stocks and thousands of bonds and we have lots of asset classes why are we buying only bitcoin ethereum even though those two are the biggest and the oldest that doesn't mean that they're going to be the fastest growing so maybe we should go beyond the top two and that's where bitw comes in the bitwise 10 crypto index fund which is a cap weighted fund rebalanced monthly of the top 10 digital assets by market size and as you would expect bitcoin and ether are about 70 of that fund the other eight coins represent the other 30 or so so you get

more diversification professionally managed just like any mutual fund or etf is where they buy the securities for the the coins for you they do the rebalancing they do the reporting it's no must no fuss so you have those three choices bitcoin alone bitcoin plus ether or the top 10 crypto fund uh from bitwise um and most advisors are doing some combination of those three in our experience when you're dealing with higher net worth clients you have a much broader array of investment opportunities because of most of these products are available for accredited investors only huge array of really nifty products from skybridge capital and galaxy in pantera and 10t and a wide variety of other

vendors as well that are worthy of advisors to look at but most advisors are dealing with small allocations small amounts of investments and gbtc ethe bitw are very very popular noted disclosure i'm an investor in bitwise i'm a big fan of what hunter uh and uh matt are both doing there and um um so those three are very popular yeah that's hunter horsley the ceo and matt hogan who i think is the chief investment officer and also disclosure bitwise has invested in my shows in the past um and just out of curiosity so why are raas investing in these particular investment vehicles rather than buying spot crypto because as we know the price of gptc and

ethg can uh vary from the price of the underlying so why are they yeah there's no question that the premium discount scenario uh is an issue with these products no doubt about it but there's a trade-off they're convenient they're simple they're easy they're familiar to investors because they can buy them in the same brokerage account that they're buying all their other mutual funds and etsn uh and it allows them to rebalance along with the other securities it allows them to debit their fee on a quarterly basis along with the rest of the assets from a practice management perspective it's very simple very easy it is seamless from a client perspective it's equally easy and innocuous so the issue of the discount or premium is a thing

no question about it and advisors need to understand this they need to consider it in their evaluation and that's why to matt's point an sma or a tamp product may be a superior move and smarter investors as you gain more experience they're beginning to realize oh i can do that as an alternative and that's why the smas and tamps are increasing their popularity at a rapid pace thanks to companies like block change which provides that foundation uh they're doing a really great job and making this more accessible to advisors on a more broad scale and before we get into the smas and tamps i also wanted to ask about this trend where public companies or also private

companies are allocating to bitcoin um in their corporate treasuries have you seen that rias now are turning to investing in those public company stocks with exposure to bitcoin as another way of giving their clients exposure to bitcoin i have not seen it oh i can i can answer that in fact i should probably explain arbor capital manages traditional assets for uh investors and then we launched arbor digital and in arbor capital we have an investment committee and we actually own individual securities for our clients and we have been actively looking and investing in companies and a disclaimer here right these are things that were long

including bitcoin and ethereum and everything else we're talking about but things like paypal things like the cme group that are you know trading bitcoin and now ethereum futures so our whole thesis is as these walls come down it's going to come down from both sides right the bridges are getting built from the traditional world and they're getting built from the digital world and so we want to kind of position folks at that intersection we think there's a lot of potential value to be captured there i would argue that that's a broader investment play in other words if you're going to invest in companies that are buying bitcoin or making bitcoin available to their own customers which is essentially paypal's play that is really the defy space i think that's really

the broader ecospace of how mainstream uh publicly traded companies are engaging in this that's that's not the same as saying i want to own bitcoin buying microstrategy or tesla because you want to buy bitcoin well you might as well just buy bitcoin and and those are very yeah you know i know michael so has been a guest on your show and it's it's been a very interesting journey watching his approach to digital assets uh especially specifically bitcoin as a treasury asset and one of the things that i thought was really powerful that he said was if i have cash sitting on a balance sheet and i need to you know be using that cash in a cup a year or two or three for projects to hire developers you know what's the inflation rate

of their wages or these projects it's not one or two percent now what he's done is you know taken a a pretty substantial position and issued debt to do that tesla's a little bit different so there's been very invariant reactions from different corporations and of course square i think was interesting because they published the paper and kind of open source their thinking and how to do it for other corporations which i thought was was a really interesting way to approach it and again to the to the culture of what blockchain is and the accessibility not centralized permission blockchains but open source and permissionless blockchains that's at the heart of what this is about right so i did want to say that since you're talking about the investment side i did want to say this because i feel

really you know really passionate about is like this is not a zero-sum game right the old wall street traditional firms right i win you lose you know we've got to go talk about a hedge fund that's going to be long something somebody else is going to be short the culture of this asset class just feels and looks so much different right there's hedge funds that have open source their investment community meetings and we get to participate with them and they're literally saying we're not experts here and nobody is because this is evolving so quickly and so we just want in and directs my advisors should just be paying attention and learning as much as they can about this very very quickly evolving asset class you know have an opinion about it for

sure yeah speaking of quickly evolving i wanted to ask about how gptc in recent weeks has actually begun to underperform the underlying and i wondered how that affected ra interest in investing in gbtc well investor advisors hate premiums so if it's trading at a discount hey what a buying opportunity if i can buy a dollar for only 85 cents hey let's do it um so uh it is it's an opportunistic uh play and advisors uh who are able to be that agile on behalf of their clients are probably excited about it i think yeah the premium discount especially with gbtc has been quite compelling over the last few weeks is it's gone from traditionally a premium

to now a discount whether that was a case because of as rick mentioned the canadian etf getting launched you know with with lower fees maybe that has something to do with it um that's i think maybe it's anticipation of the ever coming you know bitcoin etf in the united states i don't know but it just seems that as more on-ramps get built you know you it was expected to see some premium compression to go to discount i think is is interesting and have you seen uptake of the canadian bitcoin etf i personally have not uh we're hearing for anecdotally of advisors expressing interest in it because it is available from some u.s custodians

uh and i think it's all a prelude to ultimately the sec saying okay everyone's kind of hopeful that the sec will overcome its concerns and say yes in coming months who knows when who knows if but when i'll use that word when that happens these other products are probably going to become obsolete because the etf will be so much cheaper and uh always trading in nav no premiums and discounts so uh i think everybody realizes that i think that's why grayscale is planning to get into the etf game as well uh because that is uh the future long term uh just think what happened when there was the first gold etf gld raised two billion dollars within a couple of weeks

um imagine what's going to happen when an american etf comes on to the marketplace yeah yeah just to go back to gptc i do wonder about people who bought it when it was at a premium uh and then now saw it go below um and then especially you're right i do think that once an etf comes i'm not sure how much interest there will be um so but let's talk about that so when the sec does finally approve a bitcoin etf which i think we all know probably will happen especially with gary gensler uh likely to become the sec head what would you expect to happen at that point and how would you you know affect or believe that that would affect ra's perceptions about bitcoin i think it'll take away the last level

of uh excuses and i think the conversation will shift from why did you buy bitcoin for your client to why didn't you if it is available so easily and innocuously as an etf why don't you have it in the portfolio if you truly believe in diversification that doesn't mean you only buy asset classes you like you buy every asset class i'm sure if you are a true believer of diversification you have small cap mid cap and large cap in your portfolio you have growth and value you have uh u.s and foreign you have emerging markets i'll bet you don't like all of them but you've got them i'll bet you've got short-term and long-term and intermediate-term bonds u.s and corporate foreign and domestic i bet

you've got high yield and high quality and i bet you don't like all of them but you believe in diversification so what's your excuse for not adding one or two percent into the portfolio of digital assets i'm not saying you gotta like it you just acknowledge it's aiding the diversification so the fact that it's hard and cumbersome and awkward and unfamiliar is a good excuse why i'm not going to do it today but when the etf is available what excuse do you have left yeah and so speaking of the hard and cumbersome we've touched on some of these issues before but i just want to ask more specific questions about these so earlier when we talked about the separately managed accounts um can you just kind of break down what it is that

those enable advisors to do that they can't do with traditional investment accounts and also um maybe fill out a little bit more what these tamps the um turnkey asset management programs what those also what problems they solve for advisors the the first problem that um it solves in terms of uh the first question is we couldn't buy bitcoin at a charles schwab or a fidelity even today for for uh for rias fidelity does have a digital assets but that's more for institutions right now maybe it's going to be coming to their their retail side so we wanted to own not just bitcoin but ethereum and

have access to other assets and what's important is it want it needs to be titled in the client's name right it needs to be in their own segregated sub-account we can't pull assets together as well we can but we get you can get in trouble and even make your make sure your regulatory filings are correct so and why is it that you can't just have a coinbase account for that you manage for that client or something because coinbase won't allow us to come on there and advise and manage it for them i literally had i had that conversation with them last i think may and june and was saying this is what advisors need and they said not yet and it was later a couple months later when i ran across

i think what rick had mentioned blockchain is this technology partner that is building this they are custodially agnostic but they are building it right now with gemiini and eventually when the apis you know they'll be able to intersect with other custodians and so that to me is really important we want to be able to have um you know individual client accounts and then they can own the bitcoin you know i know it's on a it's on a cus it's on an exchange or a custodian so we don't need to get in the whole not your keys not your crypto but it does it is titled in their name so they're literally opening an account at gemini and gemini is allowing us to come on and manage assets just like schwab does just like fidelity does only the schwab and fidelity that for

traditional assets right stocks and bonds in terms of the tamp your question was could you repeat the second question there oh just what problems do those solve for ras well it solves the problem of accessibility um if if you're in elf beyond if you just want bitcoin for your client you know just bitcoin we're probably not the solution we're we're looking to add other other assets to the portfolio to we want to be diversified not just by adding bitcoin but looking at all of the digital assets that are available for folks um the other problem it solves as i think i may have touched on before is it it's it's a solution that advisors

are comfortable with and familiar with this this tamp idea or an sma you know other firms can hire another firm to manage let's say large cap stocks or you know or you know uh low-duration bonds or whatever it is and that's traditionally been outsourced by a lot of folks and this is just the same thing so we're taking a product that advisors are used to and now just applying it to the digital asset class so another thing i wanted to ask about was a few years ago um i came upon this bitcoin ira and it enables you to hold actual bitcoin in an ira however i remember the fee and this was three years ago and i haven't looked into what bitcoin iras look like right

now but the fee for um you know being able to put actual bitcoin into your ira was 15 of all the bitcoin you were moving into the account which you know to me was like highway robbery basically so i just wondered um is that still the kind of fee that we're seeing or is that changing that yeah that's definitely changed i don't wow that's that's that's really high that harkens back to the days of you know upfront load funds type of a thing and those have they're still around but they're they're going away no the the the fees have come down dramatically um just before arbor's fee to manage is

one percent there's an additional block change charges a fee and gemini has a um a you know a transaction fee those are not at zero like the traditional world where all the commissions have gone to zero um but to your point with iras we actually do have an ira custodial solution and their fee is 300 per year just to do the paperwork and file all the necessary uh ira disclosures to the irs and to to the to the different agencies and i'll mention kingdom trust another company i'm invested in uh they're 20 billion dollars in size and they clear everything through fidelity institutional digital and uh they allow you to open accounts

and manage them as iras and the fees are radically less than what you described right the fees are still higher than what you're going to find you know at vanguard or fidelity you know it's you know the etf world because it is still relatively new there isn't yet all that much competition but the fact that fees are coming down we're starting to see a price war in this space and that will continue uh as more and more competition and more and more products come online it'll eventually get as low as it is in the etf world and let's keep in mind you know paying a one or two or three percent fee if you're expecting a three or four or five x return who cares so um i also now want to talk about something that's

again come up a little bit here and there throughout the show with the caveat that nothing said on any of my podcasts or videos is investment advice of any sort and with the understanding that everybody's individual financial situation is different um i did want to ask what do you generally recommend in terms of portfolio allocations for people of different risk tolerances or time horizons like or what are you seeing that a lot of investment advisors are recommending yeah we're um it's important in yeah disclaimer as well yes i'm a financial advisor but nothing here is financial advice but it's very individualized we sit down with each client and have a conversation about what this

is and what this asset class is and even in our disclosures this is speculative right that's the that's what we want to the approach we want to have with with folks and the conversations we're having and so from there we explain the risks we explain how to access it and what's appropriate and you know one to three percent is about where we're comfortable and uh talking to folks about it if you know i've i've been on calls where people like well can we get access to the icos i'm like no this is not what we're doing this is an asset class that we want to have exposure to that as fiduciaries we feel strongly it should be a part of your portfolio but let's be prudent with how we allocate it yeah there are uh two kinds of people

who are interested in this space the get-rich-quickers and those who are asset allocators uh the get-rich-quick you know it's like gold people we got a lot of phone calls in our office when gold is rising that's when people want to buy it when you know whenever anything is going up that's what they want to buy because they just want to get rich quick and they gamestop what a wonderful example uh and so these people have no idea what they're doing and it's always going to end badly so we just dismissed them out of hand by saying you really shouldn't do this until you learn a lot more what you're talking about because you're setting yourself up for failure but those who are recognizing that this is a new asset class it's a new opportunity for diversification that there's a potential for reducing the risk of the overall

portfolio and improving its returns maybe there makes sense for a small sleeve and uh i'm the guy who created the the one percent allocation strategy several years ago and i've got the the data go to raydak.com and you'll see the one page chart i've got on this that shows a one percent allocation has the potential for materially improving the return of the portfolio but if it goes bad as matt said it's speculative we don't know what's going to happen tomorrow if it goes bad a 1 loss if it's totally worthless isn't going to interfere with your future financial security so the good news is it could help the bad news is it isn't going to hurt

and a one percent allocation for most folks is plenty if you want you really are into the space you really understand it greatly and you know the ins and outs yeah knock yourself out go two percent in other words matt says three most folks aren't going to bother and it's not necessary for most folks to do this as mark usko says get off zero and then how often would you recommend rebalancing given that in not too long of um a time period somebody's one percent allocation well okay so this would be across probably a few years but could go to you know like 50 or something of their portfolio um you know along the way would you rebalance like what every

three months six months a year or you know because are you gonna like keep keep it at the one percent consistently throughout or you know well what we do is uh rebalance uh my preference is that you rebalance frequently meaning you look at it on a regular basis to protect itself yourself from having an overweighted portfolio if you wanted a one percent allocation and it doubles you should probably rebalance back to the one percent i wouldn't let it go to 10 or 20 or 30 as much fun as that would be um because bad things can happen we we did it just that when we added gbtc into our alternative asset class two years ago you know it was significantly lower than where it is

now and as it continued to rise we wanted to maintain that 15 weighting in alternatives and so our average client had you know between 10 to 15 alternatives and so as gbtc and bitcoin would just rise we would be selling it back and then last year when it falls it gives us last year in march when it collapsed that gave us an opportunity to go in and buy it back so our idea is to rebalance periodically you know at least quarterly but this is such a volatile asset it requires constant monitoring and and not constant rebalancing but you need to really be paying attention and it trades 24 7 obviously so it provides uh more opportunity for uh for management

and so here's the fun part of it is that whereas a typical advisor would off the cuff say oh it's too volatile i'm afraid of it they forget that someone who engages in rebalancing that volatility works to your advantage and so for someone to say i don't want to buy it because it's volatile really doesn't understand what they're saying and but what about taxes because i would imagine if you're rebalancing something that's fairly volatile then that complicates the tax situation so how do you you know try to minimize the tax impact yeah that's a good question and it has to do with just honestly knowing the client's individual circumstances what comes down to being a financial planner is about and a financial advisor knowing if

they've got you know other things that they can use to offset gains we're not just managing bitcoin we're managing other equities and other things that can create capital losses or capital gains and so when we're managing the whole relationship it makes it a little easier to have that conversation and of course at the end of the day if you're saying yeah well you made money on this sometimes it's okay to pay taxes um if you've done really well like we're saying if it goes up 5 or 10x which we've had that experiences so not always a bad thing and one of the newest trends in crypto has been earning yield on these assets are riaa's in a position to take advantage of those products uh not yet that's where there's not a lot of regulatory regulatory clarity we are

are actively working in that space right now you know coinbase and gem and i have you know urine urn and different um products around that but it creates a very different structure the what i was saying before about having an account in somebody's name with bitcoin in a theory a minute if a lot of those products you're t you're a lot of those earning products you're taking those out and lending them outside not necessarily locking in them into a defy protocol but they're lending it out to other things similar to margin you know not but we're still exploring and working on it but the answer right now is no but this gets to the broader point is it's coming right and we want to be at the front of this

and learning and working with regulators and working with the custodians to build and make sure we're doing things in the proper way yeah well said there are some pretty terrific companies like celsius which does this and you can earn five six seven ten percent uh in yield but it is risky because you've got counterparty risk involved uh and it is a largely unregulated space imagine imagine engaging in this with your baseball cards or or comic books um so it's largely unregulated it's not like margining your stock account at goldman sachs and you have to ask yourself why is it i'm buying bitcoin in the first place i'm trying to earn a five percent yield most folks are going to say i'm trying

to get a 5x return on this does the five percent yield really matter all that much in the scheme of things so you've got to ask yourself why are you doing this what's the strategy you're trying to engage in and then do due diligence very very carefully on the companies you're going to engage with okay so if you were to take out your crystal ball how would you project the personal finance industry's attitude toward crypto or adoption of crypto will have changed by year's end i don't know about year's end i think the real key is going to be the launch and availability of an etf but which i do think is going to be coming within the next couple of years and i'll tell you what i've been saying for the last five years that we'll have we'll have an etf within

18 months i've been saying that for five years um i do believe that once we have that available uh i think that virtually every financial advisor will be using this in client portfolios it'll be as routine as a large cap growth uh stock fund i agree yeah if if there is an etf that's launched and there's more regulatory clarity around the custody issue uh around the trading you know best bid you know best execution all this stuff if we can get some more regulatory clarity around that i i don't see why it wouldn't you know be more uh almost 100 adoption but yeah the etf is definitely a big one because as rick said earlier that's easy

people are already our advisors already managing client accounts and they can just go buy an etf just like they can go buy a stock yes yes i agree i guess the big question is just when will this happen all right well it has been so fun talking with both of you thank you both so much for coming on unchained where can people learn more about each of you and your work um i'm on twitter at m kaleski which is k-o-l-e-s-k-y if you want to reach me personally it's info at arbor dot capital and also digital dot arbor dot cap is the website where you can learn more about what we're doing in the digital asset space and you can learn about the work we're doing

at riodak including our webinars and our certification program at riodec.com r-i-a-d-a-c dot com perfect well thank you both so much for coming on unchained thanks laura thank you laura thanks so much for joining us today to learn more about rick matt edelman financial engines arbor capital and the riaa digital assets council check out the show notes for this episode don't forget you can now watch video recordings of the shows on the unchanged youtube channel go to youtube.com c unchained podcast and subscribe today unchained is produced by me laura shin with help from anthony yoon daniel ness and mark murdock thanks for listening [Music]

you