CNBC's Advisory Council Gets It Wrong

Inaccurate statements reflect lack of knowledge

Ric Edelman: It's Monday, June 10th. On today's show, a stupid article by CNBC about the bitcoin ETFs. Well, I guess I can't really call the article stupid. It's a well written article. CNBC's got a bunch of good journalists. But what they wrote was stupid, and I guess it's not their fault because they're just the messenger. It's who they quoted who’s stupid. Okay, now that we've clarified all of that, let me explain to you what's going on. CNBC wrote a headline, and here's what it said: Bitcoin ETFs aren't winning the hearts and minds of financial advisors. That headline is dead wrong, and it's astonishing to me that CNBC would produce such a story. 

But again, I can't blame CNBC. They reached the conclusion they reached that “ETFs aren't winning the hearts and minds of financial advisors” because of the financial advisors they interviewed. And who were those advisors? Members of the CNBC Advisory Council. Now, I don't really know who those folks are. I mean, CNBC quoted them, so I guess I do know who they are, but I mean, I don't know them personally, so I can't really tell you anything about their practices or their experience level or how much money they manage or how many clients they have or anything like that. I only know what was in the article. 

But I can tell you that based on the comments that these members of the advisory council gave are demonstrative of the fact that these advisors know little to nothing about bitcoin. And yet they've decided to pontificate their absent-minded views. Here's how CNBC began the article based on the comments they got from those advisors, CNBC wrote: “Almost six months after the launch of these ETFs, there are few signs that advisors are clamoring for the funds.” Few signs? Really? How many signs do you need? I'll give you one. $60 billion. That's how much money these bitcoin ETFs hold. They've amassed tens of billions of dollars in just about five months. 

This is an incredible record shattering performance in the ETF world. Never in the multi decade history of exchange traded funds have there been ever a brand new asset class created that have amassed $60 billion in such a short period of time. If that isn't indicative of a strong sign of advisors expressing interest in these funds, I really don't know then what we might turn to. 

So again, how did CNBC reach this conclusion? By interviewing members of its advisory council. A little bit of a footnote here. I was on CNBC's advisory council for, I don't know, 10 years or so. That was a long time ago. Anyway, here are some of the quotes that CNBC gave us in this article from members of its financial advisor, advisory council. 

Here's what one advisor said: “If we get more of a track record, well then. I'll consider it.” Well, I love that dismissive, “well, then,” I mean, it's just sort of a, don't bother me with this triviality. If we get more of a track record... how much more of a track record do you want? Bitcoin is already 15 years old. 

Here's what's interesting. When an ETF is three years old, Morningstar will assign a rating to it. That's after just three years. Bitcoin has a track record of 15 years. Think back to when the gold ETFs were launched. Are you going to say you're not going to invest in the gold ETF because it's a new ETF and there's no track record? 

Gold has been used as an asset for 5,000 years. But the ETF was new. Does that mean you're going to ignore the ETF because it itself is new? It's the same thing with these bitcoin ETFs. There's virtually no difference between bitcoin and a bitcoin ETF, because the bitcoin ETFs are ETFs that invest in bitcoin. 

It's simply a matter of vehicle. It's a matter of how you choose to attain your Bitcoin. You can buy bitcoin through a crypto exchange, such as Coinbase. You can buy bitcoin through a private fund. You can buy it through a crypto SMA, a separately managed account. Or now you can buy it through a bitcoin ETF. But bitcoin is bitcoin is bitcoin. Suggesting that you need more of a track record kind of suggests that you really don't know what you're talking about.  

Oh, and by the way, let me illustrate for you what the nature of that track record really is. For the past three years, bitcoin's gain is 85% per year on average. For the past five years, it's 700% per year. For the past ten years, it's 11,000% per year. That's not enough of a track record for you? I think that the advisor who made that comment really should keep their mouth shut and listen more than they talk.  

Or how about this comment from another member of the CNBC Advisory Council? Quote, “Bitcoin needs to get more regulated.” Well that doesn't make any sense either. Again, to the gold ETFs. Would you argue that you wouldn't invest in a gold ETF because you want gold to be more regulated? Gold's not regulated by anybody. Neither are comic books, or artwork, or rare stamps or coins, or sports memorabilia. None of that is regulated. Does that mean nobody invests in any of that? You don't regulate bitcoin when you have a bitcoin ETF. The ETF is what's regulated. This is why I and members of the crypto community have been clamoring for a bitcoin ETF for a decade because we need a regulated security in order to allow its availability for ordinary investors and financial advisors. We work in the advisory field in a regulated industry, and we only want to deal with regulated securities. Bitcoin's not a security, according to the SEC, just like gold is not a security. So you've never seen an advisor recommend gold, but you do have advisors recommending the gold ETF. The ETF is all the regulation you need. It is covered by all the securities laws and regulations. It's regulated by the SEC and FINRA and state regulators.  

To say that you need for bitcoin to get “more regulated,” for a financial advisor to say that bitcoin needs to get “more regulated,” is an advisor who doesn't understand the whole point of the creation of a bitcoin ETF. The whole point isn't buying bitcoin. The point is buying a bitcoin ETF. And that is a massive distinction.  

And then there was this advisor who said, quote, “I would consider adding it to client portfolios if it showed stable returns over at least 15 years.” Golly goodness gracious. Again, we go back to that 15 year thing, bitcoin is 15 years old. It has demonstrated returns over that period. And oh, by the way, over that 15 years, bitcoin has proven itself to be the most profitable asset class in history, with a gain of over 60 million percent. That's not good enough for you? 

Actually, what this advisor is really saying is that they want to see stable returns, meaning returns that aren't very volatile. Well, that's not a reason not to invest in an asset. This is why advisors routinely recommend the stock market and the real estate market and the energy market, and the foreign stock markets and the emerging markets... it's because routinely, we recognize that the introduction of risky assets into a diversified portfolio can actually reduce the overall risk of the portfolio.  

And in fact that relates to another comment that another advisor in the story was quoted as saying quote, “If it proved itself to be a true diversifier among equities, then maybe.” Well, bitcoin is a true diversifier among equities. That fact has been proven over the past 15 years. And this is really important point, which I was alluding to a moment ago. When it comes to portfolio management, and this might kind of surprise you if you're an investor, professional money managers, investment advisors are not really focused entirely on returns. We're not really interested in how much money we're going to earn for you. 

What we're really interested in is how much money we can earn for you, relative to the risk that we're asking you to take. You see, it's not returns that matter. It's risk adjusted returns that matters. Let me give you an example here. See if I can make the point better. Let's say you get in a taxi cab and you say to the cab driver, take me to X. How long will it take to get there? And the cab driver says, oh, it'll take a half hour. And you say, fine, let's go. And the cab driver takes off. And instead of getting you in 30 minutes, the cab driver gets you there in 10 minutes. Now, in order to accomplish this feat, the cab driver ran red lights, blew through stop signs, drove on the shoulder of the road, but got you there in only 10 minutes. Now, let me ask you, are you going to reward the cab driver for his performance, or are you going to criticize him for the risk that he forced you to take? This is why risk adjusted returns are so important.  

This is Nobel Prize winning stuff. Harry Markowitz, who created modern portfolio theory back in 1952, ended up winning the Nobel Prize for this research. Harry was the first to recognize that building a diversified portfolio allows you to add risky assets to the portfolio, which increases the returns, but by doing so, you also lower the overall risk of the portfolio. Now, I know that seems counterintuitive, right? How can you lower the risk if you're adding risky investments? 

It's because of diversification. If you have only one asset class, you're gonna have all the risks and the returns of that asset class. But if you add a second asset class, even one that's riskier, because you're diversifying away from the first one, you end up with an average that is better with return, but also better with risk. 

And this is counterintuitive. Again, that's why it was Nobel Prize winning stuff. That is why advisors say that the number one reason that they like bitcoin is because of its usefulness as a portfolio diversifier. But here you have a member of the CNBC advisory council, oblivious to that fact saying, oh, if it proved to be a true diversifier, then maybe... it has proven this, we have 15 years of performance data and we can do the back model testing to show how a portfolio would perform with or without a one or a two or a three percent allocation to bitcoin. And the academic data is clear. When a portfolio has a small allocation to bitcoin, the sharp ratio improves. The Sortino ratio improves. Standard deviation improves, max drawdown improves, all of the MPT statistics that advisors rely on to help them construct effective portfolios for clients, all of these numbers get better with the small addition of bitcoin to the portfolio. 

So it could only be an advisor who has never bothered to look at that data, to examine the research, to read the studies, that could make the statement, oh, if it proved itself, then maybe. It has proven itself and everybody who has bothered to take the time to study the data has reached the conclusion that a portfolio is better off with bitcoin than without it. 

In fact, there was only one advisor quoted by the CNBC story, who is worth mentioning by name here, Bradley Klontz. He's managing principal of YMW Advisors in Boulder, Colorado, and he told CNBC, quote, “I love it that it's a tool in our toolbox for clients who want it,” Bradley has it exactly correct. Bitcoin is not an asset that you force feed to anybody. We are not geese and we're not all going to get slammed in order to make, you know, faux gras. What it comes down to is, it's an option and we should simply make it available to clients who want it and make it available to clients who you believe ought to have it. That is the proper approach. Bradley gets it. 

And sadly he was the only one interviewed by the CNBC article that seemed to be so. What it comes down to is this, bitcoin is the first new asset class in 170 years. It's been since the discovery of oil in the 1850s that we've had a brand new asset class. This requires brand new knowledge and education because the experience we've had in the financial markets over the past 30, 40, 50 years, hasn't prepared us for the invention of this new asset class. 

So to apply what we think we know to this doesn't really do us any good. And unfortunately the bulk of the members of the CNBC advisory council don't seem to get that. It's important that you do as a financial advisor. Don't go with your gut. Don't go with experience that you've gained in the stock market or bond market or real estate market or gold market or oil market because those experiences aren't relevant or germane to bitcoin. 

And if you're an investor, ask your financial advisor some serious questions about bitcoin and test their knowledge. How much do they know? How much time have they spent studying this asset class? Do they hold their CBDA, the Certified in Blockchain and Digital Assets, professional designation? It's now listed on FINRA's database of professional designations. Thousands of financial professionals from 37 countries have attained their CBDA. 

The CBDA program, Certified in Blockchain and Digital Assets, is offered by the Digital Assets Council of Financial Professionals. I created that organization back in 2015 and we launched the Certificate in Blockchain and Digital Assets professional designation in order to help financial advisors as well as home office executives, students, investors, and consumers, learn about this new technology. The link to the CBDA designation is in the show notes. And I would certainly hope that the members of the CNBC Advisory Council take a look at that. Because it was pretty clear to me that none of the advisors quoted in that article have gone through the program. Ask your financial advisor if they're enrolled in the course, and if they're not, ask them where they got their crypto knowledge. Chances are, they might not have any. And if that's true, I think you're going to want to get your crypto advice from somebody else. 

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Ric Edelman: Thanks for being with me here on The Truth About Your Future. Ric Edelman here. If you like what you're hearing, be sure to follow and subscribe to the show, wherever you get your podcasts, Apple, Spotify, YouTube – and remember leave a review on Apple podcasts. I read them all! Never miss an episode of The Truth About Your Future. Follow and subscribe on your favorite podcast app. 

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