From 1% to 40%: Ric Edelman Explains the Portfolio Shift to Crypto

Even if it's true that there will be a pump and dump, we are so early in the pump that there's plenty of time for you to get invested and enjoy the ride.

That's Rick Edelman, one of the top registered financial advisors in the US just five years ago, he recommended a 1% crypto location to his clients. Today, he has raised that to as much as 40%.

I'm anticipating the next 12 to 24 months, you're going to start to see trillions of dollars flowing into crypto generally, and I think bitcoin mostly.

In this interview, we look at how crypto's role in traditional investment portfolios is changing, why many investors still hesitate to enter the market, and what these shifts could mean for the price of bitcoin. But first, a quick disclaimer. This video offers just one perspective and is for educational purposes only. It's not financial advice. I'm Giovanni, your host. Let's get started. So, Rick, in your latest white paper, you recommend a 10% crypto allocation for conservative investors and up to 40% allocations to aggressive investors. While back in 2021, you were just recommending a 1% allocation.

So.

So can you guide us through how this significant change in your strategy happened?

When I said 1%, I wrote that in my book back in 2021, as you noted, my book the Truth About Crypto, which debuted back then at number one on Amazon. My goal in writing that book is to help provide a basic level of education to people who are not at all familiar with bitcoin or blockchain or crypto in general. And back in 2021, trying to get people to recognize that this is a legitimate asset class that is worthy of inclusion in a long term diversified portfolio, was trying to overcome the resistance that people very often had, people not wanting to invest at all, arguing that bitcoin was speculative or risky or even just a fad or a fraud. And so I basically ran through the situation in my book and explained why bitcoin is worthy of inclusion and said in a way to be very simple, not threatening, just do 1% as an allocation. If you do 1% and Bitcoin performs the way we think it will over the next five or 10 years, that little 1% allocation could have a big impact on your overall portfolio. But on the other hand, if bitcoin blew up, if it became worthless, losing 1% wouldn't be that big a deal. It wouldn't cause you irreparable financial harm. You would still be able to retire in financial security. So I was basically saying you don't have to make a big bet, you don't have to make an outlandish decision, just a low 1% allocation. Remember, Donald Trump in 2017 said he was totally opposed to bitcoin. We didn't know if the government might ban it. Today we have a president who is strongly supportive of bitcoin and crypto generally. Donald Trump has made it clear that he wants the United States to be the crypto capital of the planet. Every member of his cabinet personally owns bitcoin. All of his economic cabinet appointees strongly favor bitcoin. The Secretaries of Treasury, Congress, Commerce, Department of Labor, the head of the sec, the cftc, the occ, the fdic. In Congress, we have majorities of both parties in both the House and Senate strongly supporting crypto. So it's no longer a question, is the government behind this? We know that they are. We know that they are vastly supportive. And as a result of all of that, for the first time ever, institutional investors are able to engage because there's now support by, by regulators. There is now access to the investment opportunities. So we're seeing endowment funds, pension funds, sovereign wealth funds, family offices and other institutional engagers participating for the first time ever. All of it adding up to massive flows into Bitcoin and other digital assets. And we know the drill. As the assets flow in, the prices go up. And for all of those reasons, I, I'm arguing that today Bitcoin is not the speculative, scary, unpredictable or uncertain asset it used to be just a few years ago. Today we now know it is a mainstream asset and belongs in a long term diversified portfolio. So a conservative investor should have a 10% allocation. A moderate portfolio should be 25% and, and an aggressive investor up to 40%.

You're talking just about Bitcoin or you're talking about crypto?

Well, I leave this to the individual investor with the help of their advisor. There's a lot of debate about this in the community. Many people are bitcoin maximalists. Michael Saylor is the best proponent of this. I'm a huge fan of Michael. Love him to death. Good friend of mine. And he makes a very compelling case as to why you should only invest in Bitcoin. On the other hand, financial advisors believe very strongly in diversification and they like the idea of investing in a variety of assets to access an asset class. So adding Ethereum, Solana, Polygrand, Algorand, Polygon and others, knock yourself out if you want to broaden the allocation. And then there are Crypto equities, you know, Coinbase and Gemini, and now of course, Circle, which recently went public. So you can invest in the stocks of companies that are heavily involved in the blockchain and crypto communities. So I'll leave that to you to decide and I'll simply say this. You can choose to go one way, say diversified portfolio. I could choose to be bitcoin only, for example. And both of us in five years will laugh at the person who did none of the above. It's not an issue of trying to be right and making sure you get it exactly perfect. The key is to get engaged and to get engaged today, being thematically correct is more important than being precisely accurate.

Can you just give us a very short profile of who you are talking to when you give you this advice and what amount of resistance you face back then from these types of people versus now?

Well, my wife and I created the largest financial planning and investment management firm in the nation. We started that company back in 1986. It's now managing $300 billion in assets for 1.4 million households across the country. I'm still on the board of that company, still the largest individual shareholder, but I'm not engaged in the activities on a daily basis in that business. The cl, so to speak, that we serve today are predominantly financial advisors who are trying to learn more about crypto, trying to understand what this asset class is, how to invest, how to allocate, and understanding how to communicate with their clients about it. Back in 2021, we were about to enter the crypto bubble. Sam Bankman Fried was about to happen and the whole FTX debacle and Terra Luna was about to blow up. Gary Gensler was about to come into power and do all the nefari negative things against the crypto community with massive enforcements, huge array of fines, everything that the government could to really cause problems for this industry. So advisors back then routinely said it's too volatile, it's a fad, or it's a fraud. The only people who are engaged in it are crooks. Today, most of those comments have gone away as advisors have begun to realize none of that was true. Or if it was true, it was true 10 or 15 years ago and it isn't true any longer. And today they're raising newer objections. Advisors say it's too late because bitcoin's at an all time high, or bitcoin is too volatile, or quantum computers are going to destroy Bitcoin, or it's nothing but a pump and dump scheme, or My favorite, they say bitcoin is nothing but a speculative bet. All of these are myths. None of them are true. And advisors need to learn the truth.

I just want to touch upon something that you said in one of your white papers, which is that right now, in this present moment in time, not owning bitcoin is more speculative than actual owning it. Or I think you referred more in general to crypto. So can you walk us through this logic, the logic behind this claim?

Yeah, you know, it's easy for people to have said in the past that the reason that they didn't want to buy bitcoin was because they don't believe in speculating. People say, I'm a conservative investor and bitcoin is a big speculative bet. And I don't like to speculate. Well, that was true. I would agree with you 10 years ago, it maybe was even true 5 years ago, but it is certainly not true today. Buying bitcoin today is not a speculation. This is now a major asset class. Just to give you an idea of how significant Bitcoin is, the total value of all the stocks in the United states is about 80 million. 80 trillion, sorry, $80 trillion. Bitcoin's market cap is almost 4 trillion. 4 out of 80, that's about 5%. How can you argue that something that has a 5% market share to the total value of assets in the country is a speculation? That makes absolutely no sense. In other words, if you're a passive investor, if you believe in indexing, and this is how a lot of people invest today, lots of people just buy the s and P500. They believe in buying the Barclays aggregate for the bond index, that they're not trying to pick the best stocks, they're not trying to beat the market. They're trying to simply be the market they want to do as well as the overall market, because that's good enough. And passive investing is the most popular way to invest today. And when you invest in a passive portfolio, you want to own the market. Well, if you're not going to own bitcoin, which represents $4 trillion of assets, roughly 4 to 5% of the total value of equities in this country, you're actually making a speculative bet by not owning it. You're actually, if you think about it, you're shorting the market by having a zero allocation. That is the speculation today, which is a total upside down scenario from 10 years ago. And it just demonstrates how bitcoin has grown and matured and become a far more commonly held asset. Than ever before. So the speculation is in not owning it.

A prediction that you made, you said that bitcoin could potentially reach half a million dollars if global asset managers allocate just 1% of their portfolios. So how far are we from. From that goal, essentially?

Well, yeah, that's real simple arithmetic. I believe, as you said, that by the end of the decade, bitcoin will be 500,000. And it's really easy to understand how I come up with that. The total value of all the assets in the world, Add it all up. Stocks, bonds, real estate, gold, oil, commodities, artwork, cash. Add up everything, it's worth about $800 trillion. If everybody in the world who owns all that stuff allocates just 1% to Bitcoin, each bitcoin will be worth half a million dollars. It's really that simple. Bitcoin today is only about 120,000. So we're talking about bitcoin rising dramatically in value. And by the way, my prediction at 500,000 is very conservative compared to others because I'm only anticipating a 1% allocation. On average, if the allocation is 2, Bitcoin will be a million in just five years. So it's easy to see why we're in the very early stages of this and why I believe it's going to happen. And here's the basis behind it for the bitcoin's history since inception. We're now 16 years into this. For the almost the entire time, the only people investing in bitcoin were individuals. That's pretty powerful because individuals, you and me, we own a lot of money. We have wealth, but it's limited the real wealth in this world. The bulk of the money on this planet is not owned by individuals. It's owned by governments, corporations, and other institutions such as endowments, pension funds, hedge funds, family offices, sovereign wealth funds. So none of them have been investing in bitcoin or any other digital assets to speak of for the last 15 years. But suddenly they're all paying attention. And they're paying attention for two reasons. Number one, the American government is letting them. The Trump administration and Congress have made it clear institutions are permitted to allocate to bitcoin, and they are very busy working on it. Right now. Virtually every insurance company, brokerage firm, bank, hedge fund, pension fund, endowment fund, sovereign wealth fund, family office, they are all engaged in due diligence right now, studying the crypto question, should they invest? If so, how? And how much? And they're on a various part of their journey. Some of them have already reached the conclusion and they are already investing. Others are engaged in the due diligence process. And it is a process. These institutions don't move quickly. These teams, for example, investment committees, they typically only meet four times a year. Board of directors, they only meet four times a year. If it takes them four or five meetings to figure this out, you're talking about 18 months to two years before they finally allocate. So the process will take time. The next, I'm anticipating the next 12 to 24 months, you're going to start to see trillions of dollars flowing into crypto generally, and I think bitcoin mostly specifically. And as those assets flow, the prices are going to rise.

I would like you to address some of those concerns that usually people have and that prevent them from investing in bitcoin and crypto. The first one, I think you partly addressed it, but it's about whether it's too late to buy bitcoin, because of course, a lot of our viewers might be more interested now in putting their money into altcoins because they think that with bitcoin, you cannot really go up very much anymore because it's already. It's already very expensive. But perhaps you can counter that argument.

Well, it's. Nobody knows, of course, which digital asset will gain the most in value over the next week, month, year or decade. Nobody knows. But having said that, it is a pretty fair bet that bitcoin will rise dramatically, if not as fast as some of the others. It'll certainly grow very quickly in its own right. And there's a simple reason for this. When people are brand new to crypto, bitcoin is the first place they turn. Bitcoin is the first digital asset. It is by far the largest digital asset. It has the best brand. It is the most well known. And if somebody is only going to allocate a small amount, they're going to choose the asset they know best, and that's bitcoin. When you're an institutional investor and you want to have exposure to the crypto asset class, it makes sense to go with the asset that has the largest market cap in that industry. And Bitcoin has 75% of the total assets of all of crypto, just in bitcoin by itself. So there's going to be a significant flow of assets into bitcoin. Will there be a flow into other assets as well, both coins and tokens and crypto stocks? Sure. But are they ever going to rival the dominance that bitcoin currently has? Not so sure. So I would argue that if you feel that bitcoin, that its best days are behind it and it's not going to grow in the future the way it's grown in the past, I won't argue with you. I'll simply say that it would probably make more sense for you to buy those other coins in addition to Bitcoin, rather than. Instead of.

Perhaps some people that are interested in getting into it or in adding more Bitcoin to their portfolios would just question whether this is all a big Ponzi scheme where the big whales, the big holders, will eventually dump their holdings and everybody who bought later will suffer because of it. You countered that argument in one of your points.

Yeah. There is some who are speculating that this is just a big pump and dump scheme. And you said it very well. No, I don't think there's any legitimacy to that at all, for two reasons. Number one, we're extraordinarily early. Even if you're right, that these whales are going to dump their holdings, you have to ask yourself, what will the price of bitcoin have to be for them to decide to dump? It isn't 120,000. I'm willing to say it's not even 500,000. Maybe it's a million. In other words, even if it's true that there will be a pump and dump, we are so early in the pump that there's plenty of time for you to get invested and enjoy the ride, because it's not going to be over for many, many years. So I think even if somehow it were true, it's so early, it doesn't make any difference. And by the way, I don't think it is true. And here's why. For there to be a pump and dump, there has to be one simple thing that happens. The early adopter has to get in and then hold, waiting for the price to rise so they can then sell. That's not how institutions work. If you think about pension funds and 401k plans, you begin to get a sense of why this is not going to end. You see endowments and pension funds and 401s, they don't think in terms of years, they think in terms of centuries. If you're a pension fund, you've made promises to the employees of that company or of that union, and those promises is that you're going to give them income for life. That means you're not thinking about the investment returns now. You're thinking about investment returns for the next 50 years. And the money that you have to invest today is not all the money that you have to invest because the people who are participating in the pension are contributing to the pension fund every single week. That's new money for you to invest. And you're buying bitcoin every week as a result. If you're in a 401k and you're adding money with every paycheck you're buying every single week, this isn't an investment you made before that you're sitting on waiting for it to rise. This is an investment you're actively buying on a constant recurring basis. This is how it works for pension funds and 401k plans, and it's how it works for endowment funds. These institutional investors are constantly accumulating new money that has to be deployed. So they are constantly buyers they don't have an opportunity to dump because they're constantly already getting new money to add. The pump will never end.

Yeah, Rick, it was a super interesting conversation. Thanks again for joining our show. It was a pleasure.

It's my happiness to be with you. Thanks again for the invitation, Sam.