Ric Edelman‘s views of how much of your portfolio you should allocate to the cryptocurrency sector have changed significantly.
The famed financial adviser only suggested a 1% allocation to the cryptocurrency sector in 2021. Now, he says this allocation should be between 10% and 40%, depending on your risk appetite—10% for conservative investors, 25% for moderate investors and 40% for aggressive investors.
“Today, I’m saying 40%, that’s astonishing, right?” he told CNBC last week. “Nobody ever, anywhere has said such a thing as what I’m saying now.”
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Why The Shift In Edelman’s Perspective?
There are two major reasons for the drastic change in Edelman’s perspective. The first one, which appears seemingly unrelated to cryptocurrencies, is that humans are living longer.
He said that the widely followed 60/40 portfolio with a 60% equities allocation and 40% allocation to bonds was made assuming that most people would retire at 65 and die at 85. But with people living longer as science advances with each passing decade, Edelman said investors needed more investment growth as they are likely to need money for longer after retirement.
Edelman believes that the cryptocurrency sector presents the best growth potential of any asset class. He said the sector has outperformed all others in the past 15 years and was likely to continue doing so in the next decade. One reason for this is that adoption is “still incredibly low,” he said.
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“It’s only about 5% of the global population that own crypto at this stage,” he told CNBC. “As more and more get involved, … we’re going to see massive asset inflows, and because certainly in the case of Bitcoin, it’s a fixed supply asset, the more people who buy it, the higher the price is going to rise.”
The second major reason Edelman is now comfortable with more significant cryptocurrency exposure is that he believes that a lot of uncertainty about the future of the asset class has now been resolved.
“Four years ago, we didn’t know if governments were going to ban Bitcoin,” he told CNBC. “We didn’t know if the technology would become obsolete. We didn’t know if consumers might not want to adopt it. We didn’t know if there would be any institutional engagement. Today, all those questions are resolved.”
He cited the Trump administration’s overwhelming support for the asset class and the institutional and banking engagement over the past year. To be sure, leading investment managers like BlackRock BLK and Fidelity have launched Bitcoin and Ethereum exchange-traded funds in the past year that have raked in billions of dollars in assets under management. Meanwhile, JPMorgan Chase JPM CEO Jamie Dimon said in May that the bank would allow customers to buy Bitcoin.
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Amid these catalysts, Edelman sees blockchain technology growing to a $3 trillion sector in 2030 from $176 billion today. At the same time, he sees Bitcoin’s market capitalization rising to $19 trillion from about $2.1 trillion today, which would see the asset hit $500,000.
Edelman On How To Get Cryptocurrency Exposure
“Thanks to the mainstreaming of crypto, there are now crypto allocation strategies that accommodate every risk tolerance and account type,” Edelman said in a white paper released in June.
He pointed out that investors can opt for direct exposure through exchange-traded funds or indirect exposure through equity proxies like MicroStrategy MSTR. He also said that investors can allocate through the help of institutions with separately managed accounts or employ risk management strategies like dollar cost averaging.
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