Fraught with fraud, crypto assets 'are not going away'

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Investing in blockchain currencies may be fraught with peril for the average investor. But Ric Edelman still decided it was the right time to invest in a cryptocurrency index fund player called Bitwise Asset Management — and to call on advisors to up their crypto game.

"Crypto assets are not going to go away," says Edelman, founder of Edelman Financial Services, an RIA that manages $22 billion in client assets. "This is an emerging asset class and as legitimate as any emerging asset class."

Edelman, who did not disclose the size of his Bitwise investment, will serve as an advisor to the fund firm. He joins other financial industry leaders who have either invested in the firm or are advising it, including Alison Davis, former CFO of Barclays Global Investors' CFO; Adam Nash, Wealthfront's former CEO; and Anup Agarwal, who is still CIO of Western Asset Mortgage Capital.

His investment follows a $3 billion deal this spring, in which Edelman merged with Financial Engines, which serves the 401(k) market and has $176 billion in assets under management. With nearly $200 billion in AUM, the new firm is now, by a wide margin, the largest independent RIA in the nation.

In November, Bitwise introduced a cryptocurrency index fund, the Bitwise HOLD 10 Private Index Fund. It contains the 10 largest cryptocurrencies selected and weighted by inflation-adjusted market cap, Bitwise says.

Edelman, who has personally invested in two currencies, Bitcoin and Ethereum, for years, says he timed his newest play to a recent and marked change in his clients' interest in the area.

"Until last fall there have been very few questions from clients or the general public about the blockchain or crypto assets," Edelman says. "Most people have not heard of either one of them, although they are 10 years old and worth about $200 billion."

But recent headline-grabbing run-ups — and drops — in the values of several cryptocurrencies caught investor interest, he says, adding that Ripple rose 70% last month, while Ethereum fell 40% the month before.

Price volatility isn't the only danger for investors here, according to Edelman. The lack of regulation from the SEC and other authorities has left the space wide open to fraud.

"Our view is that until there is an [SEC-sanctioned] product made available to the investing public, we are not actively recommending crypto assets to our clients" at Edelman Financial, Edelman says. "If they do invest, they should limit it to 1% of their portfolio, they need to be prepared to hold for years and they need to be prepared to lose everything."

But, Edelman adds, the revolutionary potential of cryptocurrencies can't be ignored. To illustrate why, he points out that, while it currently takes about eight days to move money overseas, at high transactions costs, doing so with cryptocurrencies takes seconds.

He adds that blockchain technology itself is beginning to usher in important advances everywhere. Walmart, for example, recently began tracking shipments of lettuce via blockchain, Edelman says — a potentially critical tool in the event of a salmonella outbreak.

"Currently it takes Walmart five days to trace the origin of the head of the lettuce to the farm," he says. "Using the blockchain technology, they announced they have reduced the amount of time to trace the farm from five days to seconds. That has the potential to save thousands of lives."

With gains like this to be made from blockchain technology, Edelman says advisors can't afford to remain ignorant of its potential impact on the global technology.

Nor can or will the SEC, he says.

"Eventually I believe the SEC's concerns will be resolved and we will see a Bitcoin ETF going to the marketplace," he says. "If and when that happens, it will create a new environment for investors. We want to be prepared for that day."

To that end, he says, Edelman Financial continues to train its advisors in the subject.

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