According to Edelman, founder of the Digital Assets Council of Financial Professionals, the percentage of allocation to crypto should be decided based on the client’s risk appetite. Therefore, he recommended a minimum of 10% allocation to crypto in conservative portfolios and up to 40% for more aggressive scenarios.
In 2021, in his book titled ‘The Truth about Crypto,’ Edelman claimed that a crypto allocation of even 1% was reasonable. But given the evolution of the crypto market and regulations over the past four years, Edelman has recalibrated his recommendation. He said:
“Today I am saying 40%, that’s astonishing. Nobody ever, anywhere, has ever said such a thing.”
Therefore, allocating 40% of a portfolio to cryptocurrencies makes sense. Edelman’s radical shift in crypto allocation strategy was brought about by “the massive change in the evolution of crypto” over the past four years, he said.
Four years ago, the fate of the crypto industry looked gravely uncertain. There was no clarity on whether governments would ban crypto, if the technology would become obsolete, or if retail and institutional investors would adopt it.
However, the past four years have removed or reduced most of the uncertainties. Highlighting the Trump administration’s support of crypto, Edelman believes it is no longer a question of whether the government “likes crypto.” He said:
“Today, all those questions are resolved…It [crypto] has radically changed and is now a mainstream asset.”
Edelman added that with innovations in the field of medicine, life expectancy in the U.S. is increasing at a rapid rate. In the 1900s, average life expectancy stood at 47 years, while it has now grown to 85 years. Over the next 30 years, it is projected to grow to 100 years if medical innovations continue.
With people expected to live longer, Edelman believes it is time to abandon the traditional 60-40% split in portfolio, where 60% is allotted to stocks and 40% to bonds. Instead, he believes that it is essential to invest in crypto for long-term wealth.
Edelman pointed out that despite increasing institutional engagement in crypto, the adoption rate of cryptocurrencies remains very low, around 5%. As adoption increases and more people invest in crypto, the market will see “massive asset inflows,” he said.
Edelman also said that since cryptocurrencies are not heavily correlated to stocks, bonds, oil, gold, or commodities, they offer a bigger opportunity.
“The crypto asset class offers the opportunity for higher returns than you’re likely to get in virtually any other asset class.”
The financial planning community needs to realize that “crypto is no longer an outlier asset class” and that much of its speculativeness and uncertainty is now gone. Crypto has become mainstream with financial giants like JP Morgan wading into the market.
Edelman added that blockchain technology is going to “totally change finance on this planet.”
