Ric Edelman Talks Bitcoin, Digital Assets and Wealth Management

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Hello and welcome to Barron's Advisor Unplugged, an interactive forum for elite independent advisors. I'm Jack Otter, head of the Wealth and Asset Management Group at Barron's, and today I am here with Hall of Fame advisor Rick Edelman, founder of the Digital Assets Council of Financial Professionals. That's the DACFP you see behind him. Uh, we are going to spend 45 minutes talking about nothing but crypto. I'm not even going to bother to spend time introducing Rick. I think most people here know him. One thing I do want to point out, however, However, this is an interactive session. We really welcome, we want your comments and questions. This should be a conversation. You'll see a Q&A button at the bottom of your screen. Type right in there. I like to think of these as sort of the virtual version of a breakout session at a Barron's conference. But at the end, when everybody comes up to the stage and crowds Rick and they're throwing questions at him and they're not worried about embarrassing themselves with a dumb question, on the internet nobody knows you're a dog. So just throw them out there and this should be good. Rick, thanks so much for joining us.

Great, it's great always to be with you, Jack. Thank you.

So I want to start with the skeptic. You and I have had this conversation before, Rick, but you hear it, I hear it— sophisticated, successful advisors who say, I cannot in good conscience recommend digital assets to clients. They have no earnings, no intrinsic value. Yeah, it could triple, but it could go to zero based on the whim of crowds. I'm not going there. What do you say to that?

Yeah, I get it. I totally get it. I mean, I'm one of you, you know. We're all here, advisors, and we all have experience. We all have designations. We've got college degrees, years, decades of experience in this field. And all of our training, all of our knowledge and experience shows us that Bitcoin looks like tulip bulbs or Beanie Babies. If it's not a fraud, it's a fad. And at first blush, the price volatility proves that this is something we don't want to have anything to do with. And it violates everything we've learned about valuation models. And you said the phrase exactly. No intrinsic value. That comes straight out of economics class. And the more you try to apply traditional Wall Street valuation methods, the more your head explodes when talking about Bitcoin and digital assets. And this is what I first had to learn when I got first exposed to this back in 2012. Bitcoin didn't make any sense to me. A digital currency not issued by a government? Huh? Instead of dismissing it out of hand though, I decided to explore it further. And I spent much of 2013 doing that. I began investing in 2014, largely as an academic exercise first and later really beginning to understand this. And what I've learned is the following. If we apply what we have traditionally learned and experienced as advisors, financial professionals in this field, we are going to do ourselves a big disservice because Bitcoin and digital assets are unlike any other asset class. It's the first new asset class in about 150 years. The most recent other new asset class is oil, which was discovered in Texas and Saudi Arabia in the 1800s. So this has nothing in common with stocks, bonds, real estate, oil, commodities, currencies. It's totally new and different, just as the internet itself was totally new and different with nothing ever like it ever before. So we need to take Make that assumption, Jack, that Bitcoin is too volatile, that Bitcoin has no intrinsic value, there's no product, there's no customer, there's no company. Set it all aside. Those are facts. Those are correct, but they're also irrelevant. Set it aside. Do independent research. Explore this as I did. Go through the journey like I did, and you'll discover that this is the most impactful technological innovation since the internet itself with massive economic and investment potential for clients. So we'll explore a lot of that today.

That is great. And one thing that we want to mention is there have been a lot of converts, a few previously skeptical people who were converted. Larry Fink, George Soros, the current SEC commissioner actually taught a course in crypto. You're hearing from pension funds that are allocating to crypto. Northwestern Mutual recently did so. Colleges, universities. So there certainly is a growing investor base. Now, maybe the same people went into tulips in Holland, I don't know, but that I think is a very important point to make. And for anyone who's not yet convinced, I think there is something else we've been telling advisors, I'm sure you have been too, which is that at the very least, you have to have a really good understanding of digital assets. You have to be fluent in this conversation to have with clients. And one very important reason to have that fluency is because, yeah, Dad, your client, may not care about it, but his children do. And if the old man's advisor doesn't know crypto from Ethereum to Bitcoin to whatever, um, guess whose assets are leaving, uh, the day that Dad moves on?

There's no question about it. As a succession plan in your practices, you want to capture the assets of the children, uh, then yes, you do need to be aware of this. And I don't even think you have to wait for Dad to die. Uh, studies in this industry over the past year have been very clear. NYDIG did a study, so did Financial Advisor Magazine this year, both of them reached the same conclusion. Over 80% of investors say they now expect their advisor to be able to help them with digital assets. And if they can't, 62% of clients said they'll find a new advisor. So you run risk of losing clients and assets if you aren't able to assist them in this. Now, I want to be really clear about this, Jack. I'm not saying that you need to start telling people to buy Bitcoin. That's not my message. DACFP that I created 3 years ago, we'll talk more about it in a a bit, is an educational organization. I'm not here to tell you to buy Bitcoin for your clients. I'm simply saying that you have a job as a financial advisor. You have a fiduciary obligation to be able to serve your client's best interest. We know all this, right? That means you need to give advice to your client, and you can't do that if you don't know what you're talking about. If you don't have any education, if you don't have any knowledge, if you have no fluency, You can't talk meaningfully. Let's put this in the conversation of annuities. All of us have very strong opinions about annuities.

That is for sure.

My views are pretty well known. I don't like annuities, and I can give you a gazillion reasons why I don't recommend annuities for our clients. But I'm knowledgeable about them. I can talk in great detail about how annuities work, the fees, the expenses, the risks, the features, the benefits. I can talk all about it. And explain why I don't like it. Someone else can do the very same thing concluding they do like it. That's my challenge for you with digital assets. Be able to explain what is blockchain, what is Bitcoin, how does it work. If you can explain it, you are now able to say whether or not you want your clients to own any of it. And if so, how they want to own it, in what way, what amount, how do you build it into a portfolio, et cetera. Get the knowledge, be fluent, so that you can do your fiduciary duty.

In order to do that, let's just get a couple of terms out of the way. You're the first person who corrected me and said, use the term digital asset, but that's different from a digital currency. Can you explain the difference there?

Yeah, when it first got started back in '09, the phrase was cryptocurrency. That phrase is out of date. There's been a lot of evolution over the last decade, and the word crypto kind of goes away because that's scary, cryptographic, crypts meaning death, throw crypto away, that scares people. Digital, we all live in a digital world, we're living our lives online, so it's digital first. Then the currency word is also weak, because digital breaks into two parts. There are digital assets and digital currencies. Bitcoin was originally designed to be a currency. That experiment is questioned. It's really not succeeded. El Salvador just made it currency. Other countries, Panama, Paraguay, and others are talking about doing so, Cuba. But for the most part, people don't really regard Bitcoin as a real contender as currency. What it is, however, is proven to be a digital asset. Assets have a price. Assets are a store of value. Gold, real estate, bonds, stocks, these are assets. They have prices that fluctuate pretty dramatically, routinely. We all know that. So we would consider Bitcoin in particular to be a digital asset. There are other digital coins known as stablecoins that are designed to be digital currencies. They track the US dollar or the euro or the yen. They don't fluctuate in value. They are meant to serve really as a currency. So you've got digital assets and digital currencies.

And very briefly, we could spend an hour on blockchain, of course, but, you know, give the quick 101, what people ought to know about blockchain.

Well, the attention was all on Bitcoin, but what people forget is that it's the blockchain, which is the technology that allows Bitcoin to exist. So blockchain technology is simply computer code. Picture it, um, you know, the blockchain is, is really very wonderful and, and is widely regarded as amazing innovative technological innovation. 90% of the world's banks are developing blockchain technology. What is it? Very simply, it's a distributed ledger. What does that mean? Well, picture your checkbook. We all have a bank account, we have a checkbook. Well, that checkbook is a private ledger. Only you have access to it. Only you write data on it. You can fake it too. You can make fake entries, and it's called a second set of books. Al Capone went to jail for that. So a digital ledger can be falsified, but a blockchain ledger is distributed. No one person controls it. Once data is placed on the blockchain, it's available for everybody in the world to see. Everybody in the world has access to it. But although everybody can see it, nobody can change it. Nobody can alter it. Nobody can delete it. Nobody can copy it. Nobody can erase it. This makes it immutable, permanent. And this is revolutionary. There are thousands of use cases in commerce on a worldwide basis that make this incredibly exciting. And it's the blockchain technology that allowed Bitcoin to be invented.

So questions are coming in, which is great. You've kind of answered them already. Somebody points out that the volatility of Bitcoin means it's not really a currency, but you addressed that. How do you recommend clients own crypto assets to protect them from scammers and hacks? I want to kind of ease the audience into that question. Let's, let's start with sort of the infrastructure of the blockchain world. You know, if you're not quite ready to go to the Bitcoin route, but you believe this technology is here to stay, how can you get exposure for your clients?

Well, that's really the fascinating and fun part about this, Jack. Back when I got started with this subject earlier this decade, last decade, you could buy Bitcoin. That was it. It's a one-horse town. That was a little scary, dealing with a digital assets exchange that you never heard of. You didn't know who was running it. You didn't know where they were. When you opened your account, you had to connect it to your bank account. You had to give them your Social Security number and date of birth and had to upload your driver's license. I mean, this was really scary stuff. Then you had the threat of it being hacked. This is why it was not ready for prime time and why a lot of folks didn't want to go anywhere near it, understandably so. There was a lot of criminal activity in the early days, Silk Road. Mt. Gox was a major hack that it went broke. I mean, there was a lot of scary stuff back in 2012, 2013. But you fast forward to 2021, and it's a totally different environment. We now have a very robust ecosystem that has been built. It's the difference between mutual funds in the 1980s and the ETF world of today. It's a totally different environment, much more consumer-friendly, much safer to operate. And one of the safe ways to do this is to recognize that you don't have a limitation of having to buy only Bitcoin. There are so many other options. For example, the way I like to phrase it is to compare Bitcoin to mining for gold. Remember the California Gold Rush? Well, we all know who got richest in the California Gold Rush. It wasn't the gold miners, it was Levi Strauss, who sold everybody blue jeans. In other words, invest in the picks and shovels. Invest in the companies that are building the infrastructure that's allowing Blockchain and Bitcoin do exist. There are dozens of publicly traded companies that are engaging in this space. Everybody from IBM, which is a major developer of blockchain technology, to Apple and Amazon, to Square, PayPal, to MicroStrategy, which is one of, one of the world's largest business information service providers owns $6 billion worth of Bitcoin. You could also have, for example, investments in Riot Blockchain, a Bitcoin mining company. They spend about $15,000 to mine Bitcoin, which is now worth almost $60,000. Buying Bitcoin for a third of the price, a quarter of the price, why not do it that way? So there are a lot of ways you can invest. There are even ETFs. Of picks and shovels. So there's about a dozen ETF products available in the marketplace. There's a wide variety of ways you can invest that range from very risky to far less risky, and you can explore them all.

Uh, so again, the questions are coming in. Somebody asks about whether— he says when you buy Bitcoin you own nothing. I think you've already addressed that. Um, I think you mentioned this, but let's put a finer point on it. My understanding that a very large percentage of transactions in crypto is still criminal I think we're moving away from that. And also, the FBI was able to use that blockchain to catch the criminals, correct?

It's one of the biggest myths that's out there, and it's supported by people like Janet Yellen. You would think, you know, she would know better as the Secretary of the Treasury and the former head of the Fed when she says that Bitcoin is being used for massive illicit activity. That is totally and utterly false. There is a lot of data on this. We have been able to track in the crypto community what's going on. The data is showing us that less than 1% of all Bitcoin transactions are used for illicit activity, ransomware and hacking and criminal activity, et cetera, less than 1%. By contrast, the US Treasury says that 2% of all cash is used for illegal activity. So let's understand what's really going on here. It's not nearly the big deal that you think it is. So do you want to be careful and protective? Of course. But to suggest that it's only something that criminals use is utterly and completely false. Let's point out one other really important point. You touched on this, Jack, but this is important. Law enforcement loves Bitcoin. The IRS loves Bitcoin. The Federal Reserve, FinCEN, the Treasury, the Secret Service, the FBI, they love Bitcoin. Why? Because digital money, leaves a digital footprint. You know, if a bank robber walks into a bank with a gun and steals cash, that cash is gone. When drug cartels are using cash, they don't use Visa and MasterCard. That money is gone. But with Bitcoin, it's digital and it leaves a footprint. In the Colonial Pipeline hack earlier in 2021, it took 2 weeks for the FBI to get all the money back because of the digital footprint. When the Poly Network had $600 million stolen, all it took was a tweet phone call from Poly's CEO saying, "We know who you are." They immediately gave all the money back because they knew the FBI was all over them. If you want to interfere with drug cartels, if you want to interfere with terrorist financing, if you want to stop tax evasion, you have to love digital assets. This is why the Federal Reserve is developing a central bank digital currency to supplement the US paper currency. We're going to have a digital dollar within the next 3 years. Most governments around the world, by the end of the decade, we're going to have central bank digital currencies. We already have in Bahamas. Sweden is coming in 2023. China and Russia are already developing it. Governments love digital assets. It helps them avoid drug cartels, terrorist financing, and tax evasion.

And Bitcoin and others can, can, or— that's an asset, but say stablecoins can coexist with these sovereign digital currencies.

Yeah, that's the assumption. We're going to have to wait and see. It becomes really a question of the marketplace. If the Federal Reserve creates its own digital currency, then why do I need a stablecoin issued by somebody else? So we're going to have to wait and see. It's an example of the evolution of the industry and see where it goes. But one thing we do know, the Federal Reserve is not threatened by Bitcoin, because Bitcoin isn't trying to be a replacement for the US dollar. So the Fed doesn't care about the Bitcoin any more than it cares about Apple stock. Bitcoin is volatile.

[Speaker:BRUCE NORRIS] A lot more stable than Bitcoin.

[Speaker:DAVID SHERMAN] Well, yeah, but Apple is a volatile stock. Bitcoin is a volatile asset. They're both a store of value. The marketplace, supply and demand will answer it. None of that is a threat to the Federal Reserve.

How to decide for investors who want to play in the space with individual digital assets. You know, if you think back to 1910, there were an awful lot of car companies. The automobile is the future, but it was pretty small odds that you were going to pick the one that would still be around. What's your approach to digital assets in that regard?

Yeah, you raise a really good analogy there. In 1910, there were 200 automobile manufacturers in the US. Today, there's 3. So, the airline industry is bigger than ever, but Pan Am and Eastern, they're both gone. So, how do you pick the winners? Well, I'm a big fan. I think we all are watching this. We're all big fans of diversification, right? I'd rather be directionally correct instead of precisely wrong. So, rather than trying to pick which digital asset is going to be the winner, why not buy a basket of them? I'm an investor in Bitwise, and Bitwise has the Bitwise Top 10 Crypto Index Fund. The top 10 crypto Index. They bill it as the S&P 500 of crypto, the 10 largest by market cap coins. So why bother trying to predict or guess which one is the right one to go? It's BITW. It's a publicly traded OTC security. You can add it to your brokerage account just like you do your ETFs and mutual funds. You can rebalance, and you can do tax efficiency management, and you can do your fee collection. You can run your practice pretty easily with these OTC securities from Bitwise, Grayscale, Osprey, and others. And it gives you a diversified play. What I will say is this, there are now probably 10,000, 12,000 different digital coins. That's nuts. We don't need so many. Most of them are gimmicks. They don't have any legitimate opportunity to succeed in the marketplace. There's no particular purpose for them. In fact, Gary Gensler said last month, He doesn't see any need for 5,000 or 6,000 digital coins. He's right, there isn't. In the long run, we'll probably end up with maybe a dozen. It's like soft drinks. There's Coke and there's Pepsi. You can buy some root beer and black cherry soda if you want, lemonade, but really, it's Coke and Pepsi. That's what we're going to end up with in the digital asset space as well. You're going to have a couple of major players and then a few others, and that'll be about it.

One point to make on Bitwise, it trades, it can trade at a premium or discount. I think it's a discount right now, kind of like a closed-end fund. It's not, but that's worth keeping an eye on.

It's really important you understand that feature because you could end up paying more than a dollar for a dollar's worth of Bitcoin. So you do need very much to understand how that works. I wrote an article on this subject that's on our website at Dak FP, helping you understand the premiums discount feature of OTC securities. I'm glad you mentioned that.

Then the ETFs, they don't actually own the coins, they own the futures, which comes with its own set. I don't know if Bitcoin can go into contango, but it's still going to offer some challenges.

The SEC hasn't yet said okay to a Bitcoin ETF. They are on the verge of saying okay, according to Gary Gensler. They're on the verge of saying okay to a Bitcoin futures. ETF. But we all know the drill, futures are not the same as the underlying security. Futures prices often move independently. So we would never pretend to tell a client, oh, go buy a stock future instead of a stock. So keep that in mind when you're considering a Bitcoin futures ETF as opposed to Bitcoin.

[Speaker:TREY_LOCKERBIE] One other point about these funds, they tend to carry very high expense ratios. You mentioned earlier the 1980s mutual fund versus today's ETF. Well, these things cost cost what a 1980s mutual fund did.

Yeah, they're expensive. You know, back in the '80s, mutual funds were 8.5% front-end loads with 3% annual expense ratios. A lot of the securities that are available today are 2.5% or 3%. Osprey is known for being cheaper at 50 basis points. I'm an investor in Osprey as well, disclosure. Grayscale and Bitwise are more expensive, and it's because they're new. There's a relative lack of competition. We're fully expecting prices to come down as competition expands, as consumer demand rises. But yeah, it's a little bit cheaper. Part of the reason they get away with the higher prices is because they've been making so much money. I mean, if you're going to double my money every year, charge me whatever the hell you want. So that's partly why they've been getting away with it so far.

Because we are an audience full of financial advisors here, let's talk asset allocation, Rick. What does digital assets look like in a well-diversified portfolio?

I'm going to show you a couple of slides in a moment, but as a prelude to that, let me set the stage a little bit because this is what's causing a lot of advisors to sit on the sidelines. We know that asset allocation is key. Harry Markowitz taught us this. We all understand modern portfolio theory, the efficient frontier. And we know that if we're going to have a material impact on the portfolio, We have to have a meaningful allocation for any given asset class. I mean, would it make any sense if you told your client to buy one share of Amazon? I mean, it wouldn't make any difference if it doubled in value, if it's only one share. So we put 60% of assets into the stock market because we know we need to have a big impact. That means a big allocation. Well, we don't want to put 50% of our client's money into Bitcoin. I mean, we're scared enough that it's going to blow up, that regulators will throw it away, that competition will undo it. Technology You'll make it obsolete or who knows what. We're not going to— I would never do that. I can't imagine anybody telling a client to put massive amount of their portfolio into digital assets. And if you're not going to put a lot of money into digital assets, therefore you might as well do none. That's a mistake. So I'm going to share my screen if you'll allow me, and I'm going to share with you a couple of questions, 3 of them in fact, that I ask often in seminars when I teach this subject. If you can see that, Jack, okay? 3 questions. See, I'm the guy who invented the 1% asset allocation strategy. I invented this back in 2015. And Here's the premise of it. Question number 1, if you have a diversified portfolio, what average annual return would you expect it to produce over a number of years? I think most of us would agree, what, Jack? 6%, 7%, 8%, something like that. Number 2, in 2017, Bitcoin rose 1,500% A year later, it fell 84%. Could that happen again? I think we'd all agree, yeah, that could certainly happen again. And question number 3, could Bitcoin become worthless? Could it fall to zero? And again, I think we have to agree, yes, this is an emerging new asset class. We're not sure what's going to happen, and we got to admit it could become worthless. With these 3 answers in mind, Watch this. I'm going to show you 3 different portfolios. The first one is a typical 60/40. The other 2 will both have digital assets, a 1% allocation. So instead of 60/40, 59/40/1. But the first digital asset portfolio will be a wave and crash. It'll enjoy that big gain followed by the big decline. The second one will be a total wipeout. Out of Bitcoin. Watch what happens. In year 1, the 60/40 portfolio is up 7%. The portfolio with a wave where it rises 1,500%, your total return for the overall portfolio is 22%, 3 times more than if you didn't own Bitcoin at all. Just a 1% allocation has a massive impact on the portfolio.

[Speaker:TREY_LOCKERBIE] And by the way, the premise there is what, 1,500% in year 1?

Correct. Okay. And if Bitcoin becomes totally worthless, your total return for the year is only 6%. Your client isn't going to be wiped out. Nobody's going to be unable to retire because they earned 6% instead of 7%. Your client's not going to fire you because they earned 6% instead of 7%. So if it goes well, you're having a massive benefit. If it goes poorly, it's annoying, but it's not devastating. But that's only year 1. We had the wave. Now let's look at the crash. After 2 years, your 60/40 portfolio has a 2-year total return of 14.5% thanks to compounding. Now the wave and crash portfolio experiences the crash, and your 2-year total return is still 15.5%. And the portfolio where Bitcoin is worthless, you're up 13.4%. As you can see, it's not a big deal. If things go great, you'll do better. If things go poorly, you'll still be fine. And that's my point is that all you need to do is a 1% allocation. You don't need to put 10%, 20%, 30% of your client's money into Bitcoin. I wouldn't recommend that. 1%, 2%, 3% is fine. In fact, in 2018, Yale did a study asking the same question and their conclusion was this. If you think Bitcoin is going to outperform by 100%, you should have a 1% allocation. If you think it's going to outperform by 200%, they said you can go all the way up to 3% allocation. There's no reason to do 5%, 10%, 20%, 30%. It's okay to do just 1%. And since we're only doing a 1% allocation, You should be spending about 1% of your time talking about it to clients. This isn't a big deal. It's not a massive conversation. You don't need to have a highly controversial discussion. Just add it to the portfolio the way you add everything else to the portfolio. You've already got 15 or 20 asset classes. There are some you don't like. You own oil, you own gold, you own real estate, you own bonds. I'll bet you don't like some of that stuff, but you do it anyway. Because you believe in diversification. Add Bitcoin, 1%, call it a day.

[Speaker:BRAD_STONE] To that point, I was speaking to an advisor who did exactly that. He didn't cite you on the 1%. I'm sorry, Rick, but the numbers were really interesting. He said to me, yeah, he only deals with the ultra-high-net-worth crowd. He said, yeah, I got a guy, he's got $100 billion. He wanted to invest in Bitcoin. I said, yeah, put 1% of your assets in there, That's fine. I checked him on that. I was like, "B, billion dollars? Because I could probably figure out who that guy is." And he said, "Yeah, you probably could. But anyway, $100 billion." So fine. But then the follow-up is, but if you're not worth $100 billion, if you're not worth a billion dollars, well, you don't want to touch this. Stick with the tried and true. And you have a really important answer to that.

[Speaker:BRAD_STONE] Yeah, that really bugs me. I get the attitude. Hey, if you're a gazillionaire, go ahead and put money into Bitcoin because who cares if it blows up? You're still a gazillionaire. You can afford the risk. In a more normal environment, an advisor with a million-dollar client would say, "Sure, put 1%, $10,000 into Bitcoin. You're a millionaire. If it blows up, you still have $990,000. You're still essentially a millionaire. Don't worry about it." But if you've only got $100,000, "Oh, don't put money into Bitcoin. That's risky. You can't afford it." I think that's ridiculous. That's a very parochial— it's a a paternalistic attitude. You're claiming that you need to protect your client from their weaknesses. That's ridiculous. The key is percentages. 1% of $100,000 is $1,000. If it blows up, they've still got $99,000. And besides, if Bitcoin has the potential to grow as huge as it has in the past, a bigger rate of return than any other asset class, which many people believe is true, why are you going to deny that to to the clients who need it most. The guy who doesn't have the million dollars, who's trying to get the million dollars, needs the higher return potential. That's the person you need to be putting into Bitcoin the most, not the gazillionaire. It doesn't matter what that person buys.

It's a lottery ticket, but with better odds, I would think. So a lot of questions are pouring in here. Maybe we can zip through them kind of quickly. One concern we're hearing a lot about, of course, is the environmental impact. Talk about that. And maybe— and I also want to ask you about— because people are asking about this— the mining process. This is all kind of tied together. Can you talk about that just for a minute?

Yeah, it is. Bitcoin coins are invented by a process called mining. This is just basically a bunch of computers that do complex calculations, and it uses a lot of energy to power those computers, and that energy produces a lot of CO2. —bad for the environment, and therefore Bitcoin is bad. I'll give you two answers to that. Number one, the bulk of Bitcoin mining is green. It is not bad for the environment. We're not using energy that otherwise would have been used to power houses. Bitcoin mining farms tend to be next to rivers. They are generating hydroelectric. They're using wind power. In El Salvador, or they're using volcanic geothermal energy. In other words, we're using energy that would have been wasted anyway. So we're not contributing to CO2. That's the first answer. The second answer is not all digital coins operate that way. Ethereum, which frankly I'm an even bigger fan of than Bitcoin in terms of its future potential, doesn't use a mining strategy. It uses something called staking, which doesn't use the energy doesn't use the computer calculations that Bitcoin uses. So Ethereum isn't a mining hog. It uses, instead of a proof-of-work protocol, it uses a proof-of-stake protocol. That's jargon. You don't have to worry about it. Bottom line is you don't need to be worried about the environmental concern. And if you are worried about it, don't buy Bitcoin, buy Ethereum.

If we're talking about Bitcoin mining, briefly explain the halvening.

This is a big deal, and this is a big part of the argument as to why many people believe the price of Bitcoin will continue to rise. There are only 21 Bitcoins that will ever be minted. 21 million. 21 million. That's it. That's the grand total. Of them, 18.5 million have been mined so far. They are being released on a set schedule. Of the 18.5 million, about 4 million are considered lost. The early mining days, computers that blew up and people lost passwords, you name it. A lot of— Landfill. Yeah, there's a lot of great stories of computer hard drives. There's a computer hard drive in a town in a landfill in London, outside of London, that holds $300 million worth of Bitcoin. And the guy who wants to go get it, who lost it, the town council won't let him. So go in the dead of night, go grab the hard drive, you'll be a gazillionaire. So you hear stories like this all the time. Bottom line is this, When Bitcoins get mined, you get a reward for doing it. That's your incentive for doing the mining. The reward is 6.25 Bitcoins. That wasn't the case in '09. When Bitcoin first got started, your reward was 50 Bitcoins. But every 4 years, there's something called a halvening. The number of Bitcoins you get rewarded gets cut in half. So in 2012, they were cut from 50 to 25. In 2016, it was cut to 12.5. 2020, it was cut to 6.25. In 2024, it'll be cut to 3.8, and so on. Every 4 years, the number of coins mined gets cut in half, the halvening. Well, if you're a miner and your pay gets cut in half, you'll demand that each coin you get be worth twice as much so that your income doesn't go down. In fact, every time there's been a halving, the price of Bitcoin has doubled. Will that prove true in the future? Who knows? Past performance is no guarantee of future results. But this is a big argument, the limited supply relative to the demand, why Bitcoin's price is likely to continue growing exponentially for decades.

Speaking of perceived threats to Bitcoin that result in Bitcoin going up in value, China cracking down.

Tell us about that. Yeah, China was big in the news, uh, lately because of this fact. I've got this really wonderful chart that I want to share with you, um, because everybody was all upset. Oh my goodness, China is banning Bitcoin! Bitcoin is therefore going to be worthless! Blah blah blah blah blah. Take a look this chart that I created. China has been banning Bitcoin ever since Bitcoin was invented. The first time they banned it was 6 months after Bitcoin was formed in '09. Bitcoin's price was a fraction of a penny. They banned it again in 2013. They banned ICOs in 2017. They threatened to ban mining in 2019. So far this year, they've banned it 3 times. Most recently, they banned mining in June, and in last month in September, they banned all Bitcoin activity. Look at the price of Bitcoin Bitcoin at the time of each one of their bans. Nobody cares. China can't stop it. No government can stop it. This is an independent, global, 24/7, 365 network. And oh, by the way, when China banned Bitcoin mining in June, did those miners, half of which in the whole world were in China, did they just close up shop? No. They went to Texas, and New York, and Norway, and Russia. They're mining elsewhere. In fact, Texas, Florida, and New York are welcoming them with open arms because of the economic opportunity that they're bringing, the jobs they're bringing to the local jurisdictions. So yeah, China banned Bitcoin, and it's only a problem for China.

Yeah, it's really amazing. Bitcoin's actually bigger than China. I think people should take notice if they haven't already. Another concern that a lot of people are raising is this idea of of regulation. What will it mean when we get regulation? When does that happen, Rick? And should people be worried about it?

Should not be worried. We should be encouraging it and thankful for it. I'm thrilled to have Gary Gensler as the chair of the SEC. We have adult supervision in the room. Not that we didn't really before, but Gary, as you pointed out, knows what he's talking about. He taught this stuff at MIT. Nobody's going to pull wool over his eyes. We're getting what we need in Washington right now. There is already massive regulation. The CFTC, The SEC, FINRA, the IRS, the Fed, Treasury Department, there are a lot of regulations. In fact, that's part of the problem. They don't always coordinate. So we've got sometimes conflicting regulations. Keep in mind that this is a new emerging asset class. Washington always works in arrears. When we had the very first automobile, you know what happened after that? The very first automobile accident. It was only after we had cars on the road that we realized we need to paint white lines. We need stop signs and traffic lights and traffic cops. We need speed limits. The laws come after the innovation. That's where we are now. The innovation is out there. It's exciting. It's being adopted heavily. And now the regulators are playing catch-up, as they always do. So they're getting their act together. We're going to see clarity in the rules, tax rules, operating procedures, compliance and regulation. It's all wonderful because we all want to work within the rules. The more rules we have, the more swim lanes are clear, the better we can do what we're doing without running afoul of regulators. So it's all good. Bottom line is, for now, there's plenty of regulation in place. We know how to operate effectively. You can easily include digital assets in a client portfolio right now, today, in a completely compliant manner that your compliance and legal department will say great. And if they aren't saying great, it's only because they don't have the knowledge, and I'll help them get it if you'll steer me in their direction.

The wirehouses seem to be coming around, but this just brings up a couple of points. Um, on a small one, somebody is asking if they can get copies of your slides, and can they directly, or should they go to DACFP?

Go to DACFP. My China slide is available there, and some of the others, um, We've got some stuff available. A lot of it is available for those who have obtained their certificate in blockchain and digital assets. We reserve a lot of our content exclusively for them. I've got this really nifty brochure that we're making available as well, a multi-page brochure on blockchain and Bitcoin, which we will provide available to you for free. Go to dacfp.com and you can get a lot of that information.

You've also got a conference coming up with a pretty good lineup. We do.

I'm really excited about this. We have an event coming up on October 19th. It's our semi-annual Vision event, and it's a virtual event and it's free. The Vision event is pretty much a half-day event. It's October 19th, 11 sessions plus an exhibit hall, CE credits. We've got Sanena Tuteja, who who is the Chief Innovation Officer of the Federal Reserve. A lot of you know Sunaina, she was with TD Ameritrade prior to taking this job. We have as our keynote speaker Senator Cynthia Lummis of Wyoming. Wyoming is one of the most advanced states in the nation for the development of this. David Cannor from Fidelity along with Anthony Scaramucci and Michael Saylor. I mentioned that Michael's company MicroStrategy owns over $6 billion worth of Bitcoin. We're going to be talking with the two of them. It's going to be a wonderful event. It's online. It's free. Register at DACFP.com. That's October 19th. And if you want to learn about, uh, the certificate, you can get that info at DACFP as well. It's an online self-study course, 11 modules, 13 CE credits. It's only $549. And a lot of organizations, uh, offer a discount so that you can even go through the course for a lower fee than that. You'll learn in the first half of the program all about The tech, what is all this stuff? And in the second half, practice management. What's the investment thesis? What are the investment opportunities? How do you construct a portfolio? Regulation, tax, compliance, risk, and most importantly, how do you talk to clients about it? So I encourage you to take a look at our certificate program. We've already got over 1,000 advisors who are going through that course, including from 7 nations around the world. So we're really excited about our certificate course. It's a world-class faculty. Scott Stornetta, for example, who is the co-inventor of blockchain technology, of psychology is on our faculty. So it's a really terrific course, and I encourage you to get fluent in the subject so you can talk with your clients the way that your clients need to hear from you. All righty.

Thank you for that, Rick. Or you should thank me for that, actually. But, you know, we work together. So there's more and more questions coming in. We've talked about it a bit, but how to invest. And I wonder if you have anywhere a list of the various investments. As people ask these questions, I realize Barron's really ought to publish this. Record it, but we ought to just have a comprehensive list of good ideas. I mean, certainly anybody can go to Barrons.com and find it, but Rick, do you have a list somewhere? We do.

We've published a Yellow Pages. So at our site, which, you know, Jack, you and I ought to figure out how to put that available at Barrons.com as well. The Yellow Pages is a free listing available at Dak FP that lets you search for investments, for exchanges, custodians. Did you know you can buy digital assets inside an IRA, and you can do this on a block basis for all your clients and get paid on it. There are qualified IRA custodians that allow you to do this. The companies that are providing reporting and record keeping, all the different vendors in the space, you'll find the Yellow Pages at DACFP accelerating your search to find out who can assist you with this new asset class. Awesome.

So we have spent 44 minutes offering actionable ideas. But, you know, at Barron's, we have the Actionable Idea TM. We always like to, to throw that out there. So if there's one point that you think people ought to take away from this, or one thing you haven't discussed and gosh, we really should have hit that, what would that be? An actionable idea to leave our audience with?

You know, historically, over the last decade, the question that was routinely asked asked within our community as advisors was, why are you recommending Bitcoin? That is now shifting. The question is now becoming, why aren't you? And I don't mean it strictly as an advisor to another advisor asking, why aren't you putting your clients into this? I also mean it as a compliance issue. The word I'm getting from compliance officers and legal consultants in the field is that the SEC examiners examiners are now beginning to ask that question during their exams, asking advisors and their firms, are you recommending digital assets? And if you're not, why aren't you? In other words, they don't care that you're not recommending Bitcoin. They want to know that you're not recommending it because of a legitimate reason, not simply because you think it's tulip bulbs and Beanie Babies. You need to demonstrate you're doing your job as a fiduciary, and that means due diligence. That means being fluent enough to be able explain legitimately to a regulator, not just a client, why Bitcoin isn't right for their portfolio. So the actionable step that I would recommend, Jack, is to get the knowledge that you need so that you can become comfortable in whatever your answer is, whether you want to have clients own it or not. You need to know why you're reaching the answer you're reaching, and that means getting the knowledge you need and that's what we're here to help you do at DACFP. Let us know how we can help you.

That is so important, that fluency. We started with that. It's a great place to end it. We're going to be doing more of it at Barron's Advisor, and I know you're one of the great sources for it, so we appreciate that. Thank you, Ric. I also need to give another thanks, and that is to our sponsor, Capital Group, without whom we would not have been able to have this conversation. Capital Group does understand there's a hunger among advisors for this information for practice management content and other stuff. And they recently launched something called Practice Lab. It's articles, podcasts, webinars on various practice management subjects. I've flipped through there. It's— there's a lot of good stuff. As long as we're being digital today, I would point advisors to one on social media, which busts a lot of myths there and can help you improve your social media presence if you're not fluent in all of those different venues. That is all for us. We are welcoming your feedback to this sort of thing. I want to hear from you. Send me emails, jack.otter@barons.com. Complaints are great. We can't get better if you don't tell us what we did wrong. But pass them back once in a while too. Keep an eye out for our email announcing our next one of these. It'll be on October 26th with Michael Kitces, who a few of you might have heard of. Thanks, Rick. We'll see everyone in a few weeks.

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