Crypto Market Crash: Is This a Buying Opportunity?

Plus, what I’m doing with my Grayscale Ethereum ETF investments 

Ric Edelman: It's Monday, August 5th. I just got back from my 26-day, 5,800-mile road trip. Thank you very much. It was a wonderful time. What a blast. And what do you do upon my return? You crash the markets! I mean, come on, what's going on? I mean, as I record this for you here this Monday morning, the markets haven't quite yet opened, but we see what the Dow futures are doing. They're crashing. The Japanese stock index has hit its lowest one-day level in decades. They are hours ahead of us, in case you didn't know. I mean, what's going on? I go away at the end of June. Everything is fine. I come back at the beginning in August, and Joe Biden's no longer running for President, Harris is in, Donald Trump has named J.D. Vance. I, I, I mean, what, what, what I mean, everything was fine when I left. I don't know if, what's going on? I really don't know.  

So, and that's the problem, isn't it? You don't know either. This is what we have to find ourselves dealing with. We had a terrible jobs report. The first really bad one in quite a long time, causing the federal reserve to suggest that they're going to cut rates sooner and more often than they had originally planned or had been consistently saying they were going to do. We've got the Democratic Convention coming up. Kamala Harris has not yet named as of this recording who her VP is going to be. The markets are very concerned about housing and commercial real estate. I've been warning you about both of those for quite some time here on this podcast, so it shouldn't be coming as a surprise to you. The federal debt is at a highest level ever. Congress is as dysfunctional as ever, and there's much animosity and angst and concern over the presidential election as ever. Is it any surprise that the stock market is teetering? Is it any surprise that the bond market is questionable? Is it any surprise that there's uncertainty in the real estate market? Is there any concern or surprise at all about what's happening in crypto?  

And that, in fact, is the most interesting element of all of this. Crypto has been enjoying quite a ride this year. It began the year in early January with the approval of the spot bitcoin ETFs. And that caused bitcoin to run up to a 60% gain in a remarkably short period of time. Now in the past couple of weeks, Ethereum spot ETFs are now available in the marketplace. What do we see as a result of all this? Well, it looks like over the weekend that both bitcoin and Ethereum have fallen 20%. That reinforces the fact that crypto remains very volatile. You shouldn't be investing in this asset class unless A, you can sustain the volatility in terms of your stomach. And number two, you have a long-term time horizon. Short term volatility in crypto is nothing new. This is the way it is in any new emerging asset class and developing technology. And although crypto is now 15 years old, it remains new and developing. Go back and look at the first 15 years of Amazon, the first 15 years of Microsoft, the first 15 years of Google, you'll find similar volatility in those stock prices as well. Nothing new there. What you need to recognize is that this reinforces the fact it is emerging. It is developing. It is still a new and remaining, therefore, volatile asset class. So what do you do about it? 

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Ric Edelman: Welcome back. The Truth About Your Future continues. So what do you do about this new asset class? Is this something you should continue to ignore? This is something you should continue to naysay, something you should continue to tell people to stay away from? Or do you take the attitude of, hey, I was excited about the bitcoin ETFs and I began to engage with them. And now that the Ethereum ETFs are available, I have the opportunity to broaden diversification within the crypto asset class. I mean, just last week, Morgan Stanley announced that they are making available both of these ETFs, bitcoin ETFs and the Ethereum ETFs available to their financial advisors for recommendation to their clients. All the other wire houses are going to follow suit really quickly.  

So what should you be thinking now, while you've got a lot of good news going on about crypto in the midst of a 20% decline in price over the weekend? Well, again, if you're a long-term investor, you never allow short term market activity to dictate your long-term investment strategy. In fact, we can turn that into a, upside down and say it this way. If you were thinking about investing in bitcoin and Ethereum last week, you should be extraordinarily excited about investing this week, because the prices are 20% lower. What a deal! I mean, do you really want to buy at all-time highs, or do you want to buy while the price is lower? Ergo, investing this week instead of last week. And if you are concerned that volatility may persist and the prices may go even lower, and I'm not going to dispute the fact that they may in fact do that, that is the argument for dollar cost averaging, you don't invest all at once right now, you invest a little bit today and a little bit tomorrow, a little bit the day after that you invest some this month and some next month and some of the month after that. If you're going to invest, say $1,000, you don't invest $1,000 at a time, you divide that $1,000 by 10, you invest $100 this month and $100 next month and a $100 month after that, et cetera, et cetera, et cetera, until all $1,000 is invested. This smooths out the volatility, so that you are getting the average low price throughout the period of averaging, and this helps to reduce the risk that you're taking. Entirely up to you.  

One big question that exists. And I know it's a big question because I've gotten, I can't tell you how many emails from listeners to this podcast, Joseph Keith of New York, Mark of Michigan, and many others asked me about the new Ethereum ETFs and most specifically the Grayscale Ethereum ETFs. And they've pointed their questions all in the same context. They're all asking the variations of the same thing. Number one, I've been telling you to buy the Grayscale Ethereum trust for many, many years. I was telling you to do that because it was the only, easy way for people to access Ethereum via a security. Now the Grayscale Ethereum trust was not an ETF, not a mutual fund, kind of acted like a closed end fund, although technically it wasn't one of them either, but it did allow you to buy it in an ordinary brokerage account, say at Schwab. And it was simple, easy, a little bit expensive, 2.5% per year management fee. That is quite high compared to mutual funds and ETFs, but they got away with it because, hey, they were the only game in town. And we have seen the incredible increase in price since the launch of that trust, the launch of Ethereum back in 2015.  

What now though? Now we have a whole bunch of ETFs. In addition to Grayscale, we have seven other spot Ethereum ETFs available on the market as of the last week or two. So, do you keep Grayscale, or do you sell Grayscale and move it to one of the others? Well, I can only tell you what I'm doing. I'm selling my Grayscale. I've already donated a whole bunch of it to charity, and I moved it over to Schwab's donor advised fund, and I'm going to be moving the bulk of the rest, if not all of the rest, to other Ethereum ETFs for one simple reason: The fee. Grayscale charges 2.5% per year to maintain that position. The new alternative ETFs, such as from Bitwise and Fidelity and BlackRock and Invesco, they charge an incredibly smaller fee than 2.5% like Grayscale. They're charging like 0.25% per year, many of them waiving their fee, in fact, for the first six months. So, why on earth keep a fund that's 2.5% a year when you can move that money to an alternative fund that invests identically that costs, what 90% less? Now, yeah, I'm going to incur taxes by making this move because you can't move the Ethereum from one fund to another. You have to sell one and buy the other that causes on the sale, a tax liability. My attitude is I'm going to pay that tax eventually anyway, I mean the only way to avoid the tax is to die while owning it I'm not going to be doing that. So since I'm going to pay the tax anyway, and since I'm of the view that with the incredible size of the federal debt and the continuing growth of the federal deficit, Congress is going to have no choice but to increase the capital gains tax. This will be especially true if Harris wins the election and November, and if the Democrats control Congress in November, both of which are very real possibilities. The capital gains tax is going to skyrocket. I'd rather pay a capital gains tax at 20% than one that's at 30% or 40%. So I've made the decision, Jean and I, I should say, have made the decision that we're going to move. I haven't done it yet, but we're working on it. We're going to move from the Grayscale Ethereum ETF over to its competitors, which are radically cheaper and much more welcoming.  

Now there is a piece of fine print here. Grayscale is acutely aware of the fact that it is not competitive on a fee basis. It could have made the decision of lowering its fee to be competitive to prevent outflows, such as the one I have suggested that we're going to do. But Grayscale has chosen not to do that. They are going to maintain their 2.5% fee. It's a smart business decision on their sake. I believe it's not a moral issue. It's not an ethical issue. It's strictly a business decision. They've chosen to remain expensive. Why? I believe they believe that they are going to win on inertia that a lot of the people who own shares of this trust are simply going to sit tight. They're not going to move, you know, lots of reasons. One, they're just too lazy. They're not thinking about it. Number two, they don't want to pay the tax that I am willing to pay that they incur if they sold. Number three, they do think they're gonna die owning it and therefore be able to pass it on to their heirs tax free or any one of a number of other reasons. Grayscale thinks they're going to retain a lot of the assets. Even if they lose half the assets, they're still going to be better off with half of the assets at 2.5%, than all of the assets at 0.2%. So it's a smart business decision on their sake. It just isn't in the investor's best interest to go along with them.  

What did Grayscale do? They did something really interesting. They've created a second ETF. This one’s symbol is called ETH. Their other one is ETHE. ETH doesn't have 2.5% a year. It's only 15 basis points 0.15%, making it among the cheapest of all of the new Ethereum ETFs. And here's what's really interesting, Grayscale took your money that was in the ETHE trust, the Grayscale Ethereum trust, they took 10% of your money and moved it over to this new ETH ETF. In other words, they took 10% of your money where they were charging you 2.5% and they moved it over to the new ETF where they're only charging you 0.15%. In fact, they're charging nothing for six months of the first $2 billion in assets. They're doing this on a tax-free basis. So they did that with me too. Well, Jean and I are going to leave that portion of our money there. There's no tax incentive to do it. There's no fee reason to do it. I'm just going to leave that 10% with Grayscale but the other 90% that they weren't gracious enough to move over to this new, very low-cost ETF? We're pulling that money out of Grayscale.  

Bottom line is, even though bitcoin and Ethereum are now 20% lower in value, that's not altering the plan of getting rid of Grayscale. All that's doing is lowering my tax liability because the value of the asset is lower. My profit is lower. My capital gain is lower and my capital gain tax will be lower. I'm shifting from apples to apples. I'm not changing the asset allocation. I'm not altering the investment decision. It's a wash. So there's no reason not to move forward with the strategy. I'll get around to it in the next week or so, I've got other things to do. And since it is an apples to apples switch, other than the fee, there's no particular urgency to getting this done. I'll get it done this week or next week, depending on my schedule. 

Bottom line is this: It looks like we are about to be experiencing a bit of a change in what's going on in the marketplace, people are paying more and more attention to the election. They're paying more and more attention to the economy, to interest rates, to inflation rates, to the housing market, the bond market, and the stock market, and the crypto market. And it looks like, maybe, some people are beginning to wonder if the party ain't maybe over. All I can tell you is, A, wait and see. B, maintain your long-term investment strategy. And C, most important of all, stay in close contact with your financial advisor. 

And remember, we offer you a brand new Ethereum ETFs Toolkit that gives you comprehensive information about all the new Ethereum ETFs and a really cool one page grid that lets you easily compare them all, including a comparison of their fees to help you figure out which one of these ETFs or a combination of these ETFs is right for you. Link to the toolkit, it's free, is in the show notes for you today. And I also have for you a link to the webinar that we recently did with Matt Hogan of Bitwise. We did that in the last few weeks about the new launch of the Ethereum ETFs. This webinar is also free for you, and it'll give you a lot of great information to help you understand not only the new Ethereum ETFs, but the difference between the Ethereum ETFs and the bitcoin ETFs. The link to that webinar is in the show notes for you as well. 

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Ric Edelman: I’m glad you’re with me here on The Truth About Your Future. 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. I'll see you tomorrow. 

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Links from today’s show: 

Spot Ethereum ETFs Toolkit: https://dacfp.com/ethtoolkit/  

The New Ethereum ETFs: Answers to the Big Questions (7/24 Webinar = free replay): https://dacfp.com/webinar-the-new-ethereum-etfs-answers-to-the-big-questions/  

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