Financial advisors should encourage clients to allocate 10% to 40% of their portfolios to crypto, influential investment manager Ric Edelman told CNBC on Friday.
According to Edelman, founder of the Digital Assets Council of Financial Professionals, the percentage of allocation to Crypto should be determined based on the client’s risk appetite. Therefore, he recommended a minimum allocation of 10% to crypto in a conservative portfolio, and a maximum allocation of 40% for more aggressive scenarios.
In 2021, in his book titled “The Truth about Crypto,” Edelman argued that a 1% crypto allocation was reasonable. However, given the evolution of crypto markets and regulations over the past four years, Edelman has reconciled his recommendations. He said:
“Today, I say 40%. That’s amazing. No one has ever said anything like that anywhere.”
The reason for assigning 40% to Crypto makes sense
Cryptocurrency represents “the best investment opportunity of the decade,” according to Edelman, who has been involved in the crypto space for over a decade. Edelman urged everyone to invest in Bitcoin in 2018.
Therefore, it makes sense to allocate 40% of your portfolio to cryptocurrencies. He said that the radical changes in Edelman’s crypto allocation strategy have been brought about by “a massive change in the evolution of cryptographic materials” over the past four years.
Four years ago, the fate of the crypto industry seemed terribly uncertain. It was not clear whether the government would ban crypto, whether the technology would become outdated, or whether retail and institutional investors would adopt it.
However, the past four years have removed or reduced most of the uncertainty. Emphasizing the Trump administration’s support for codes, Edelman believes it’s no longer a question of whether the government “likes crypto.” He said:
“Today, all of these questions are answered…it (crypto) has changed fundamentally and is now a mainstream asset.”
Edelman added that life expectancy in the US is rapidly increasing due to innovation in the field of medicine. In the 1900s, the average life expectancy was 47 years, but it is now growing to 85 years. Over the next 30 years, it is expected to grow in 100 years if medical innovation continues.
Edelman thinks it’s time to abandon the traditional 60-40% split in his portfolio as he is expected to live longer. There, 60% is allocated to stocks and 40% is allocated to bonds. Instead, he believes it is essential to invest in crypto for long-term wealth.
Cryptocurrency has a high chance of growth
Edelman pointed out that despite the increased institutional involvement in crypto, the adoption rate of cryptocurrency remains very low, at around 5%. He said as adoptions increase and more people invest in crypto, the market will see “a massive influx of assets.”
This means that the more people buy fixed supply assets like Bitcoin (BTC), the higher the price will be.
Edelman also said cryptocurrencies offer great opportunities as they do not correlate significantly with stocks, bonds, oil, gold or commodities.
“The Crypto Asset class offers a higher return opportunity than you would get with all other asset classes.”
The financial planning community needs to recognize that “crypto is no longer an outlier asset class” and that much of its speculativeness and uncertainty is gone. Crypto has become mainstream with financial giants like JP Morgan walking into the market.
Edelman added that blockchain technology “will completely change the finances of this planet.”
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