As an industry veteran — I founded the nation’s largest financial planning firm, which manages $300 billion for 1.4 million families — and an advocate of crypto and blockchain technology, I am astounded by the number of financial advisors who persist in excluding bitcoin from client portfolios.
In 2015, I founded the Digital Assets Council of Financial Professionals to teach advisors and their firms about this new asset class, and we offer the certified in blockchain and digital assets (CBDA) online program, which is listed in the FINRA database of professional designations.
Too often, I find that advisors cite outdated or incorrect views about bitcoin that interfere with their ability to serve their clients’ best interests. Are you guilty of this?
Let’s see how many of these six mistaken beliefs are stopping you from recommending bitcoin to your clients.
I don’t want to admit I was wrong
You weren’t wrong not to buy bitcoin before. Rather, you were prudent. might the government ban it or the price fall to zero? Scams like Silk Road, Mt. Gox and FTX reinforced distrust of crypto.
But the market has evolved. President Donald Trump has pledged to make the United States “the crypto capital of the planet.” All his economic appointees support crypto: the secretaries of Treasury, Commerce and Labor; the chairs of the SEC, CFTC, FDIC and Council of Economic Advisors; and his AI and crypto czar. In Congress, there is now strong bipartisan support for crypto, as well as support from the chairs of the House Financial Services Committee, Senate Banking Committee and both digital assets subcommittees.
WATCH: The case for adding bitcoin to client portfolios
Thus, bitcoin has been significantly de-risked, and retail, institutional and government investors are engaging. ETFs from BlackRock, Fidelity, Invesco, FranklinTempleton and others hold $100 billion in bitcoin. So you were right not to recommend bitcoin earlier. But you can be right once again and recommend it today.
It’s too late to get into bitcoin
Bitcoin’s price looks high. But so do stocks, real estate and gold. Is it too late to invest in those?
There is plenty of room for growth: Less than 5% of the world owns bitcoin so far. No Fortune 500 company has bought any, nor have most endowments or pension funds. But many are engaging in due diligence, and allocations are expected to start by Q3.
A 1% allocation by the $70 trillion institutional market would flow $700 billion into bitcoin — and the fixed supply means the price would rise sharply. Then watch for the FOMO crowd to pile in.
That’s why I believe bitcoin will reach $500,000 by 2030. It’s simple arithmetic.
So don’t fret that you missed the first $100,000. There’s 5x upside left.
Bitcoin is just too volatile
What would you tell clients who complain that their investments fell last week? You’d say:
Stay focused on your goals. This is why we diversify. This is why we rebalance. This is why we emphasize a long-term perspective.
All these responses apply to bitcoin. You know volatile assets reduce a portfolio’s overall risk, and that rebalancing helps even more.
READ MORE: In SEC’s new era, advisors and clients should rethink crypto
History shows adding bitcoin to a rebalanced 60/40 portfolio can improve Sharpe and Sortino ratios, reduce max drawdowns and decrease standard deviations. So you either believe in modern portfolio theory or you don’t. And if you do, you should allocate to bitcoin.
Criminals will steal the money
Google recently announced a 105-qubit quantum chip that completed a computation in five minutes that would take today’s fastest supercomputers 144 trillion years. The Wall Street Journal called this news “a looming threat to bitcoin.”
Really? Google says breaking bitcoin’s code would take a chip with 4 million qubits — but its new chip only has 105. Nvidia CEO Jensen Huang says the threat is 15 to 30 years away. So, relax.
Plus — if someone has a 4 million-qubit chip that can hack the bitcoin blockchain, wouldn’t someone else use a 4 million-qubit chip to protect it? Sure. In fact, the National Institute of Standards and Technology has already released such quantum-safe algorithms.
The entire fear is just dumb. Say a criminal has a 4 million-qubit chip in his hands. Why would he target bitcoin? If he steals it all, they’d all be worthless, because he’d have no one to sell them to. Better for him to go after the trillions of dollars held in bank deposits.
Or he could use his quantum chip to take control of the air traffic control system, power grids, NYSE, Federal Reserve or our nation’s nuclear weapons. And you’re worried about bitcoin getting hacked?
It’s just a big pump-and-dump scheme
Do you really believe that everyone who endorses bitcoin is dishonest?
The dozens of billionaires, plus all the managers, analysts and consultants of pension plans, endowment funds, family offices, sovereign wealth funds and asset management firms that recommend bitcoin — are all of them dishonest?
Or, if not dishonest, then you’re saying they’re that stupid? And by extension, then, that you’re so much smarter than all of them?
Really?
I don’t speculate with my clients’ investments
The speculation is not investing in bitcoin. Here’s why.
Say that over 10 years, a 60/40 portfolio returns 7% per year. Most people in crypto agree that, in an extreme scenario, bitcoin could become worthless — or, potentially, rise to $1 million (that’d be a 10x gain from December’s $100,000 price).
Let’s examine four portfolios held for 10 years. One has no allocation to bitcoin; the others have a 1%, 3% and 5% bitcoin allocation, with respective decreases to stock allocations. The chart shows the results if bitcoin falls to zero or rises to $1 million.
In the worst scenario, the average annual return falls from 7% to 6.7%. But in the best-case scenario, the return jumps to 9%; a $1 million portfolio that invested 5% into bitcoin would be worth $400,000 more than the portfolio that didn’t buy bitcoin.
So, choose the outcome you prefer: 7% or 6.7% to 9.0%. Which is more appealing to you?
The big bet isn’t allocating to bitcoin, it’s failing to do so. Your clients won’t be harmed if a small allocation to bitcoin becomes worthless. But if bitcoin rises to its potential, their portfolios will be much higher, materially improving their financial security.
This is why adding a small, single-digit allocation to a client’s long-term, diversified portfolio is not an extreme bet. Quite the contrary: The extreme position is refusing to allocate to bitcoin at all.
And if you disagree with that, well then, who’s the extremist now?
How much bitcoin should you own? There’s only one wrong answer: investing zero.
