One Right and Two Wrongs

The incredibly stupid crypto investment mistakes many are making today

Ric Edelman: It's Thursday, December 7th. Bitcoin has risen to a 20 month high. It's hit $44,000 already this week. People are doing one thing right and two things wrong, so it's real important that you listen to this entire podcast today, get it right, and you could dramatically improve your portfolio's returns. Get it wrong and you could lose massive amounts of money.

I'll start with a statistic that I just mentioned. Bitcoin hit $44,000 this week. There are lots of reasons for this new enthusiasm. There's a new spot Bitcoin ETF coming. The bitcoin halving is coming in six months. That only happens once every four years. And every time it's happened so far, it's been joined by massive price increases both before and after the event. And everybody expects the same thing to happen again this time.

Everyone, of course, has been focused on all of last year and most of this year too, on all the crypto scandals and the frauds and the business collapses. Celsius. Genesis, Prime Trust, BlockFi, Crypto, Lotus, Three Arrows Capital, Terra, Luna SPF and FTX, and most recently, Binance. But when no one has been paying attention to really is the fact that none of that had anything to do with bitcoin and bitcoin is doing just fine, thank you very much.

And what you haven't been paying attention to is the fact that quietly, behind the scenes, every major bank in the country has been launching blockchain programs and products and services, some for their institutional clients, others for their retail accounts. Bank of America, Morgan Stanley, JP Morgan, Goldman Sachs, Blackrock, Schwab, Fidelity, you name it.

And the Fortune 500 has been all over this too. Starbucks, Nike, Western Union, PayPal, Walmart, Disney, Breitling, Ferrari, Tiffany's; every major sports league, football, baseball, basketball, soccer, golf, hockey. And with all of this, bitcoin is up this year. And investors are starting to pay attention. And they're beginning to flood the market.

Without a doubt, the leading reason for all of this is widespread expectation that the SEC will finally, after ten years of attempts by the crypto community, the SEC will finally approve a spot Bitcoin ETF. Just like we have thousands of spot equity ETFs with trillions of dollars invested in them. There are now 13 companies asking for SEC approval, not just small ETF issuers like WisdomTree and VanEck, or crypto companies like Grayscale, Bitwise and Hashdex, but the very biggest ETF providers in the world Blackrock, Fidelity, Franklin Templeton, Global X and Invesco. These 13 companies are going to be going head to head with aggressive marketing campaigns to win market share. So you can watch for lots of ads on CNBC and during NFL games.

75% of advisors say they have not been investing in bitcoin yet for their clients because there hasn't been any Bitcoin ETF available to them. But as soon as those ETFs are available, those advisors say they're going to jump in with allocations ranging from 1 to 5% of client assets, independent RIAs manage $8 trillion. 

If three quarters of those RIAs start to use these ETFs and they allocate just 2% of client assets, you do the math. $8 trillion times 75% engagement times a 2% allocation. That equals $150 billion in new assets flowing into bitcoin. And the number of bitcoin that exists is locked, which means the supply doesn't grow while the demand does. Bitcoin's market cap right now is only about $900 billion. Guess what adding $150 billion more will do to the price? And that's just the independent RIAs.

I haven't even mentioned the trillions of dollars that's being managed by financial advisors who work at the big brokerage firms, or the trillions of dollars that's being managed by family offices, or the trillions of dollars that are held by institutional investors like insurance companies and pension funds and endowments. You think they're not going to get engaged as well? Some of them already are. MetLife, MassMutual, the Houston Police Pension Fund, the endowment funds at Harvard, Yale, Stanford, dozens more.

And now that the FASB has changed the accounting rules for public corporations, yeah, the Financial Accounting Standards Board, the Fortune 500, can now buy bitcoin in their treasury without harming their financial statements.

Michael Saylor of MicroStrategy has been championing this for years, but that accounting rule stopped most. In their tracks. Well, now that impediment is gone, opening the door for bitcoin to be accessible to trillions of dollars of even more assets into bitcoin and by extension, all the other leading digital assets to Ethereum, Solana, Filecoin, Litecoin, you name it. 

What kills me is the fact that so many financial advisors and so many financial advisory firms and RIAs and brokerage firms still refuse to look at the facts. Today's crypto environment is completely different from that of two years ago. The tech has been dramatically further developed. The bad boys of crypto are gone. Sam's going to prison, probably for life. CZ from Binance, he's out of the industry after paying a $4 billion fine. Good riddance to those crypto bros

Today's crypto companies are being run by former Wall Street executives, former regulators, responsible, mature professionals who are providing adult supervision to the crypto community. The old Wild West is ending, and if there are any remnants of it, they'll be gone next year after Congress finally passes the crypto laws that we've been long asking for. So while almost every financial advisor has been sitting on the sidelines, bitcoin's price has been skyrocketing. I've been telling you all year that the halving is coming, that the Bitcoin ETFs are coming, and that the time to invest is before those events occur, not after. But so many advisors keep telling me that they want to wait for the ETF before they invest, before they tell their clients to invest. 

Look, you could have gotten your clients in exposure to bitcoin when it was $15,000, $25,000, $35,000. But no, you insisted on waiting for the ETF. Well, guess what the price of bitcoin will be by the time we get those ETFs? It could be $50,000, $60,000 or even higher. Look at all the profits you've missed and all the profits all your clients have missed.

But no, you still think bitcoin is a fad or a fraud. You've confused fraudulent companies with the bitcoin blockchain, which is not a company, has no employees, sells no product. Bitcoin is simply a technology. It's software. And it's better, faster, cheaper and safer software than any other software being used in global commerce today. That's why everybody is so interested in it, and why banks and governments all over the world are scrambling to deploy it.

But no, you're still stuck with your head in the sand, ignoring all of this. You're still waiting on a Bitcoin ETF, even though there are dozens of other ways you could be delivering a crypto allocation to your clients. Completely compliant, safe crypto “picks and shovels” ETFs from Franklin Templeton, Global X and Invesco. Bitcoin Futures ETFs proxy stocks like MicroStrategy and Coinbase, crypto SMAs like Eaglebrook, crypto IRAs like choice from Kingdom Trust. Private funds for your accredited investors like Galaxy and Multicoin.

You can add these to your practice without having to build any new tech stack, without having to retrain any of your staff, without having to recapitalize any of your clients. Simple. Easy. Check the box.

So in the beginning of today's podcast, I told you that people are doing one thing right and two things wrong. The first wrong thing is that you're still sitting out. You're not buying bitcoin or creating any other exposure to any other digital asset. You've missed out on the massive profits of 2023 and the unprecedented gains since bitcoin's inception 14 years ago. But it's not too late. I personally believe that bitcoin's price will hit $150,000 in the next two years. That's about four times its current price. How much do you think stocks and bonds and real estate are going to grow in the next two years?

And I'm not the only one saying this. JP Morgan says the same thing. So does Tiburon Strategic Advisors. 

Standard Chartered says bitcoin's price will reach $175,000. Citibank says $300,000. Guggenheim says $400,000. And Ark Invest says bitcoin will reach $1 million. Right now, it's only $44,000.

And you insist on allocating zero merely because there's no convenient ETF. Your clients aren't hiring you to be convenient. They're hiring you to deliver results. Oh, and don't give me any of that nonsense about risk and volatility. You already know how to handle volatility. You just dollar cost average. You rebalance, you tax-loss harvest. If you exploit stock market volatility to your client's benefit, you know how to do the same thing with bitcoin.

Go run the numbers. Look at how well it is done. When you add 2% to your portfolio and engage in quarterly rebalancing, a rebalanced portfolio with bitcoin has done better than a rebalanced portfolio without bitcoin on both risk and return measurements in every time period one, three, five, ten year and since inception.

So stop your inaccurate misconceptions. Get the training and the knowledge that you and your clients need you to have. So that's the first error. You've been sitting out. But not every advisor has been. 15% of advisors have been engaging in crypto for their clients. They are doing it right. And like I said, with the predictions of further gains, it's not too late to start now. But the longer you wait, the harder it gets. That's the one right thing buying crypto today. Lots of ways to do it, like I said. 

And by the way, all those ideas I gave you earlier, you can find all those and all the other investment opportunities at the Yellow Pages I created. The link to it is in the show notes. It's free, easy to use.

The only question is how much should you allocate 1% to bitcoin; 2%? 5%? You'll decide. I'm not going to tell you which percentage is right, but I'll tell you this zero is the wrong answer.

So again, I told you there's one thing people are doing right. Two things people are doing wrong. The right thing is to own bitcoin right now. The first wrong thing is to be sitting out waiting for those ETFs. Now let me tell you the second wrong thing. And this is a whopper. It pains me to share this with you because this error is so sad. It's so unfortunate. You haven't been buying bitcoin and you've come to realize you've made a mistake. So you've gone about trying to buy. But you're new to this. You really don't know what you're doing. So you're using and relying on your experience. And your experience tells you to diversify. Don't just buy bitcoin like everybody else. Buy other coins instead, or in addition to bitcoin. But how? Where? You don't want to go to some newfangled crypto exchange on the internet. That's how people got ripped off by Binance and FTXs. You don't want to create a new account or start a new relationship. You just want to buy some crypto.

So you figure, hey, I've already got a brokerage account. Isn't there something available that I can buy with that? Something legit? Well, sure, there is something that fits the bill perfectly. Funds from Grayscale. Grayscale was one of the oldest fund providers in crypto. Their Grayscale Bitcoin Trust, symbol GBTC holds 3% of all the Bitcoin in the entire world. $27 billion worth of Bitcoin. They've got a lot more than just GBTC, by the way. They also have the Grayscale Bitcoin Cash Trust. The Grayscale Chainlink Trust, the Decentraland Trust, the Ethereum Trust, the Ethereum Classic Trust, the Filecoin Trust, the Horizon Trust, the Litecoin Trust, the Livepeer Trust, the Solana Trust, the Stellar Lumens Trust, and the Zcash Trust. All told, Grayscale has $35 billion in assets under management in all of these funds.

But there's something about these funds you don't know. Yes, you can buy them in your brokerage account, but they are not stocks. They are not ETFs. They are not mutual funds. They are grantor trusts. And that means they trade like closed end mutual funds with prices that trade at premiums and discounts to their actual value. So many people are so excited about what's going on right now in crypto, that they've been buying these funds with no idea of what they're doing. Are you making that mistake? Are any of your clients making that mistake?

The price of these grantor trusts is not set by Grayscale. The prices are set by the buyers and the sellers. I have an entire article explaining this. The link to it is in the show notes. But the bottom line is this: The price that you pay for one of these trusts might be vastly different from the value of the digital assets that the trust actually owns.

Here's one example the Grayscale Filecoin Trust. If you look at all the Filecoin that this trust owns and all the shares that this trust has issued, you realize that the net asset value per share is about $4, but the trust shares are not trading for $4. They're trading for around $34. That's 700% above the fund's actual worth. In other words, investors are paying $7 to buy $1 worth of Filecoin. If they went to Coinbase, they would get $7 of Filecoin for their $7 investment. Why are investors willing to pay $7 to get just $1 of Filecoin from the Grayscale Filecoin Trust?

I'll tell you why they're willing to do that. Because they're stupid. Only an idiot would pay $34 for something that's only worth four bucks. But they're doing this because they don't know what they're doing. They don't understand grantor trusts. They don't get the premium discount feature. That feature doesn't exist for mutual funds or ETFs or stocks, which is where everybody has experience. 

And nobody warned them about this. So these folks are paying massive markups. Filecoin would have to rise seven x for these people to even get their money back. And this isn't just happening with the Grayscale Filecoin trust. The Solana Trust is trading at a 300% premium. Chainlink Trust, the Livepeer Trust, the Lumens Trust, the Decentraland Trust. They're all trading at 2 to 4 times their values.

This is just plain stupid, but there is a flip side to this. The Grayscale Bitcoin Trust, symbol GBTC. It's trading at a 10% discount, not a premium. That means you can buy a dollar's worth of Bitcoin for just $0.90. Grayscale says that when the SEC approves their request to convert GBTC into an ETF, that discount will vanish because ETFs don't have premiums or discounts. That means the fund will automatically start trading at the net asset value. So even if bitcoin's price does not move, your GBTC will rise from $0.90 to $1. That's an 11% increase in price. And since everybody thinks that these approvals from the SEC are going to come in about a month, that's an 11% gain in just four weeks, an annualized rate of 132%. So why is everybody buying all those Grayscale trusts at a premium instead of the Grayscale Bitcoin Trust at a discount? Because they're stupid, that's why.

Oh, and hey, guess what? A couple of days ago I bought more GBTC. I haven't bought any of those other trusts that are trading at premiums. If I owned them, I'd be selling them. By the way, I also own the Grayscale Ethereum Trust. It's trading at a 14% discount. That's even bigger than the discount on GBTC. So yeah, there's one thing people are doing right. Two things people are doing wrong. The right thing is to own crypto as part of your diversified portfolio right now. The wrong thing is to wait for the Bitcoin ETF. And the really wrong thing is to buy without understanding how all this stuff works.

That's why I created the CBDA. You need to become certified in blockchain and digital assets. We have five tracks, one specifically for financial advisors, another specifically for compliance personnel and Home Office staff, another one for crypto investors and consumers who are merely crypto curious. We have a track for people who are living outside the United States, because our certification program has been taken by people in 37 countries, and we have a course for crypto professionals too, both basic and advanced. It's online, self-study, self-paced. Take it at your own pace. Take it at your convenience. You'll get the knowledge you need to help your clients get the access to crypto that they need that is right for their situation. The link to our CBDA Designation, which is listed in the Finra database of Professional Designations. That link is in your show notes. These are exciting times for crypto and particularly bitcoin. Make sure you don't miss out. 

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