The Evolution of Investment: Why Private Equity and Crypto Matter in Today’s 401ks

Mm.

We are looking at Bitcoin hovering right around the 113,500 level, and it is just one week after making a new all-time high.

Now the crypto major wrote Trump's executive order allowing digital assets into 401ks to that new record.

Above 124,000, the Bitcoin quickly saw some downward pressure amid hotter than expected producer prices.

And as Treasury Secretary Scott Besson going back and forth of if the US would buy Bitcoin for its strategic reserve.

And Harvard's endowment also recently bought over $100 million worth of BlackRock's Bitcoin ETFs, showing how institutions are also buying into Bitcoin literally.

Joining me this morning is Rick Edelman, founder of the Digital Asset Council of Financial Professionals.

Now Rick, thank you so much for joining me as a financial planner.

I'd love to get your take on crypto as well as private equity being allowed to roll into 401ks.

So what do you make of this development?

It's very exciting and long overdue.

We know we've got a problem in America, and that is the fact that public companies are becoming fewer and fewer in numbers.

15 years ago there were twice as many publicly traded stocks as there are today.

The Wilshire 5000 only has about 3000 stocks in it.

And that's a problem because most ordinary investors, the only way they can engage in ownership of businesses is by buying stocks of publicly traded companies.

But if those publicly traded companies are all going private or private companies refusing to go public, then the pool of available Investment opportunities shrinks, and that reduces the opportunity for ordinary Americans to enjoy the profit potential offered by the equity marketplace.

So being able to offer private equity in 401k plans is essential, far more important today than it was 15 or 20 years ago.

Yeah, and Rick, we were recently listening to your podcast discussion with frequent market movers guest Matt Hogan, and I understand you said that the days of 40% crypto sell-offs are over.

So can you walk us through this and the thinking?

Sure, actually I believe that the days of 70% or 80% sell-offs are over.

We've had 7 of those.

We've watched Bitcoin fall 70 or 80%, 7 times.

In its history, those days are long gone for the simple reason that we now have for the very first time ever, massive institutional engagement, sovereign wealth funds, family offices, pension funds, endowment funds, even governments now heavily involved.

We have many corporations, publicly traded companies buying Bitcoin as their strategic reserves.

As a result of this, if there was a major decline in Bitcoin 10%, 20%, 30, 40% declines.

Those institutional investors would jump in.

They would see this as a buying opportunity and therefore I don't believe you're ever going to see a 70% or 80% down market again.

Or if you do, it's going to be such an Armageddon environment the whole world's going to hell.

So I really don't think we're going to see the kind of volatility in Bitcoin going forward the way we have over the past decade and a half.

Yeah, and right now that we've gotten your take on Bitcoin, I do want to shift our focus on over to the other crypto major E.

So we've seen e spike since we last spoke, so we know about your argument for moving away from that traditional 60/40 portfolio.

But what are you hearing about the right crypto portfolio diversification amid momentum and different tokens and also the rise of spot ETFs and crypto equities.

Yeah, there are some who argue for what we call bitcoin maximalization, buying Bitcoin, nothing but Bitcoin.

But financial advisers love the notion of diversification.

We're real adherents of modern portfolio theory established by Harry Markowitz.

We believe in having 12 eggs in 12 baskets, and on that basis, owning just Bitcoin scares a lot of advisers because it's a single asset investment, and that That's why there's a lot of interest in Ethereum, because there are Ethereum ETFs alongside the Bitcoin ETFs, and this allows you to broaden the diversification beyond just Bitcoin.

And by extension you have opportunity to invest in other coins as well that are fairly dominant Solana and Swee, Polygon, Algoran, and so on.

The Bitwise 10 crypto index fund BITW.

Gives you what they call the S&P 500 of crypto, the top 10 digital assets based on market cap.

So advisors are attracted to the notion of diversification because it allows you to be thematically accurate, even if you're not precisely right, you're going to be in the ballpark, and the notion of diversification is a pretty powerful argument that is attractive to both advisors and their investor clients.

Yeah, and Rick, building on what you just said, how does the increased life expectancy of today's investors change the way that they should be thinking about risk, especially with digital assets?

And this is really the premise for me of my entire white paper which you can get at Dafp.com, DAFP.com.

It is because we're living longer than ever.

Back in 1900, life expectancy was 47.

Today it's 87, and scientists in the field of aging are widely predicting that you're likely to live to age 100 or beyond, raising the very real question will your money last as long as you do?

Not with a 60 to 40 portfolio.

You it won't.

You can't have such a large amount of your money in bonds because we know bonds don't generate the returns over decades that you need to compete against taxes and inflation.

This means we've got to turn the 60/40 into 80/20.

And if you're going to have 80% of your money in equities, you should have a significantly higher allocation to crypto.

I'm arguing for a minimum of 10% for conservative investors all the way up to 40% for aggressive portfolios.

Yeah, and finally, Rick, before I let you go, you've said that blockchain may be the best investment opportunity of this era, but what makes it stand out among the other exponential technologies that are out there?

It's predominantly because most of the other exponential technologies AI, robotics, big data, 3D printing, they've been around a long time and there's essentially full investment there.

That's not true with crypto and blockchain technology.

Less than 5% of the global population has any exposure to crypto at all, which means there is massive opportunity as more and more people, more and more institutions invest in this asset class.

You're going to see a dramatic increase in the price of these securities.

And these assets and this is why we think that the profit potential is much greater.

Many are expecting a 5x to a 10x increase over the next 5 years.

Nobody is suggesting that in stocks or bonds or real estate or gold or oil or commodities, and that is why many argue that crypto offers the best investment opportunity through the rest of the decade.

Yeah, 60 seconds here, Rick.

So what do you say to advisors or even clients who still see crypto as too volatile or even speculative for long-term wall planning?

Well, you're absolutely right, it is very volatile, but remember, volatility is a feature, not a bug, meaning that it's thanks to volatility that we have the opportunity to rebalance the portfolio.

If assets didn't fluctuate in price, you'd never be able to rebalance.

You'd never.

Be able to benefit from dollar cost averaging or tax loss harvesting.

We use rebalancing as a routine tool in our stock portfolios.

There's no reason not to also use crypto for the same purpose.

Volatility is your friend through effective portfolio management.

Well, Rick, great having you on the show today.

Thank you so much for sharing your insights as well as your perspective.

Good to be with you, Remy.

Thanks.