My Chat with CNBC’s Downtown Josh Brown on Crypto Regulation, the SEC, & Coinbase

Plus, how Switzerland is taking the lead with its blockchain-powered government bond

Ric Edelman: It's Friday, July 21st. Coming up on the show today, CNBC's downtown Josh Brown. The city of Lugano, Switzerland, has issued a bond. Well, nothing new about that. Governments issue bonds all the time to raise money, and investors like to buy government bonds because of the interest that they earn. And these bonds are considered very safe governments, after all. Don't go out of business. But what makes this bond from Lugano, Switzerland, unusual, worthy of conversation?

This bond was issued on the blockchain. Selling blockchain bonds is, in fact, becoming more and more common. The first was issued by the World Bank five years ago. It allocated, transferred and managed the bond on a blockchain using distributed ledger technology. The European Investment Bank issued its first blockchain bond back in 2021, did another one this past November. In October of last year, Israel sold a bond using blockchain technology. More recently, in February, Hong Kong did it. In March, Brazil's central bank sold tokenized bonds for the Brazilian federal government. All of these so far have been countries selling bonds on blockchain.

Lugano is now the first city to do it. It was a $108 Million offering. They began sales at 9 a.m. and they sold out in 90 minutes. Big savings in time and cost. These improved efficiencies are leading people to refer to these as green bonds because of the improvement for the environment. That's what the Hong Kong Monetary Authority calls its blockchain bonds green bonds. This is a big deal. Switzerland, in fact, is long known for its financial sophistication and that famous Swiss efficiency. Their goal, they say, is to stay at the forefront of technology. And now Japan and the United Kingdom have been talking to the Swiss about how they did it so they can do it, too. And people are still skeptical at the technological benefits of blockchain and digital asset technology. If you haven't invested in any of this yet, what are you waiting for?

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Exclusive Interview: CNBC’s Downtown Josh Brown, CEO of Ritholtz Wealth Management, opines on crypto regulation, the SEC, Coinbase, and more

Ric Edelman: Last month, I hosted the fifth Annual VISION Conference in Austin presented by my company DACFP, the Digital Assets Council of Financial Professionals. VISION is the longest running Digital Assets Investment conference that's specifically for financial advisors and accredited investors. And at this year's conference, it was our biggest ever attended by more than 125 financial advisors and investment professionals from all over the country. One of the keynote speakers was CNBC's Downtown Josh Brown answering the question: Does crypto have a role in a financial advisory practice? I wanted to share our entire conversation with you today. Here it is, unabridged and uncensored. This is, I think, going to be the most fun keynote. I've known this guy for a number of years. He's a good friend of mine. He's extremely well-known and highly regarded. You see him every day on CNBC. Let's welcome our friend Downtown, Josh Brown. 

Josh Brown: I have to warn you, I'm wearing a wire. Be very careful these days. 

Ric Edelman: Are the jokes going to get better?

Josh Brown: Oh, you are, too. 

Ric Edelman: Obviously not. Okay. So have you ever heard of bitcoin?

Josh Brown: I have, Your Honor. 

Ric Edelman: So are you not nervous at all about regulatory...I don't want to say action, but just somebody saying, okay, now we think most of these things are securities... Who is highly engaged in this market? Let's do it off the record. Let's do it on the record. Let's chill them the way that we've chilled the providers, the exchanges. I'm not saying it's going to happen. I'm just curious if you are at all concerned about that possibility, about the fact that the coins and tokens will ultimately be deemed securities. 

Josh Brown: Well, it seems like they are now explicitly saying more and more of them are securities, which is probably what's changed from when we were here last June. Last June, It was very ambiguous. It's getting less ambiguous and there are fewer and fewer protocols that they're not including in those lists. 

Ric Edelman: And I tend to agree with the SEC on this. I think that the majority of these coins and tokens are securities and ought to be regulated and registered as securities, and doing so would melt away not only the crazy coins and tokens that don't serve any legitimate business use, some of which are outright scams, others are nothing but marketing gimmicks. It'll just simply make them go away. But it will also provide the clarity that investors and the investment advisory community needs. So I don't mind the SEC's insistence that so many are unregistered securities. The problem I have is that the SEC says it's got two issues. One is the fact that they are telling you that you're operating in the sale of unregistered securities, but when some of them do attempt to register. The SEC rejects the registration. You can't have it both ways. How many? I think we're up to 43 now. The number of applications for a Bitcoin ETF that the SEC has rejected. That's ridiculous. They'll allow the Bitcoin Futures ETF, but not a Bitcoin ETF. 

Josh Brown: Right. One of the ironies about rejecting ETFs for ten years is that in place of investors using ETFs, they're doing way worse things for themselves. So that to me that's like one of the great if this boils down to protecting investors, why would we have a situation where we're only leaving them with some of the most reckless options as opposed to an option that, okay, maybe the regulators aren't completely comfortable with the asset class itself, but we know this wrapper. We know how this wrapper functions. We know what goes wrong with it. We know it goes right with it. We know how investors tend to utilize it in brokerage accounts. Let's just do that. If we don't do that, look at all of the other alternatives that sprout up out there that are so much worse. 

Ric Edelman: So given the regulatory environment right now and this is going to persist for quite a while, should advisers go to the trouble of putting crypto in a portfolio or should they sit on the sidelines and wait for the dust to settle? 

Josh Brown: So I don't think that there's a one size fits all answer, but I think if you're an advisor who's dealing with clients who are in their 20s, 30s and 40s, which we are not predominantly, but we're pretty heavy in that demographic. The first thing is that you absolutely have to be able to speak on the on the topic. You don't even have to like the topic, but you can't. It's all a scam is not an answer or it's not an answer that is going to land well with that demographic. And personally, I don't understand why more of the people that I come across that are curious about the topic have lost money than made money on balance, although we do have in our orbit a few whales who are very early and did really well. But for the most part, most of the people that we talk to that are curious about crypto, they either got into it in late 2017 at the top or they got into it in late 2021 at the top. But regardless, they're still curious. It's an unkillable theme when you're talking to investors of that demographic, so it's not an acceptable answer. Dismissal is not an acceptable answer. So that's number one.

Number two, we decided that we were not going to recommend crypto, but that we were going to facilitate investments in crypto in a way that we were comfortable with, which means part of our intake.  With every new account, regardless of age or demographic or region of the country, part of our intake is do you own crypto, and if so, please describe the way in which you own it. And we'll get a lot of people that say... I just traded at Coinbase or we'll get a lot of people that say, I just put some away and I don't really pay attention to it at all. And then a lot of people that say, Nope, I have no involvement... But that is part of our process for the people that tell us they don't own crypto.

The follow up question from the financial planner is do you plan to? Is there a reason why you don't? It's not I don't think it's for us to say you have to. I think it's just important for us to understand where they're coming from, for the people who own crypto. It's tricky because in a lot of cases they feel as though they're more sophisticated than we are and they might be. And we do have clients who have made their money in the crypto industry and they're utilizing us to invest in things other than crypto.

So you would think like... Oh, it's a crypto person. They're talking to Josh's firm. They'll probably let Josh's firm do crypto for them. Sometimes it's the opposite. They say, I'm all set on crypto and I know more than you do, but I'm glad that you could talk with me about it. I'm glad that you can build my crypto ownership into the financial planning work that you're doing and the volatility of the asset class. Et cetera. So there are a million reasons why everyone in this room who is client facing has to be able to discuss this asset class. It won't apply to every client. The last thing I want to say so when I say facilitate, if somebody comes to us and says, I think that crypto should be part of what I'm doing or I'm interested if it should be or whatever. We didn't have a product that we felt comfortable recommending. We were not going to put people in the individual equities because we don't do single stock analysis of any companies. It's not part of what we're doing. So we weren't going to do a one-off so that I could give people earnings expectations on Marathon. Nothing wrong with Marathon. It's just not it's out of our wheelhouse. There is no ETF. There's a couple of SMEs and I like those people. I like the one, was it Eaglebrook? 

Ric Edelman: And Chris King is here. 

Josh Brown: I like Chris King. 

Ric Edelman: So Chris is right back there. 

Josh Brown: Yeah. So I like them. There's a few small solutions. But we basically said... look, all we want is an index. And here's why: It's probably not impossible. It's just very unlikely that bitcoin is going to do another 20,000% return. Right? Like it's really a once in a life. 

Ric Edelman: 41 million.

John Brown: Fine. But I'm saying like within the last few years, it's very, very unlikely that that that's going to repeat itself just because the size of it, it's not going to be $80 trillion. Okay. So you don't want to just put all your eggs in the bitcoin basket because one of the appealing things about crypto is when one of these protocols or tokens does take off, the gains are in the thousands or tens of thousands of percent. So having some exposure to that was important to us. So building the index, owning ten of them as opposed to just betting on the one that already worked. So that was a key part of what we did. And so that index approach squares with what we're doing for clients in every other asset class. So what we're doing in fixed income, it's what we're doing in direct indexing ETFs. So the crypto index that we created with WisdomTree was our way of saying if you're going to do crypto with us, this is the way that we feel comfortable doing it for you. And that is what we thought of when we created the strategy and that's how we run it today. 

Ric Edelman: And how has the client reaction been to that? 

Josh Brown: In 2021, people were pretty excited about it. In 2022, clients really were just like, All right, I get it. It's cyclical, just like stocks, just like And then this year, there have actually been some there has been more interest to the point where my research people are actually writing about it to clients again. So we're no different than anyone else. When line goes up, we're excited. When line goes down, we're not excited. You're not supposed to be that way in investing, but it's human nature. Clients, advisors, researchers, analysts, strategists. That part is not going to change. I think the thing that Ric was saying, though, if you don't mind, though, just about being more engaged during the cyclical downturns is the right thing. And I'll tell a very quick story. In 2019, Coindesk, which they host this thing called Consensus every year in New York City, asked me to come back and emcee their annual event at the Marriott Marquis. Raise your hands if you've been to the Marriott Marquis. Okay. It's like a zoo filled with zoo animals, right? Yes. Okay. This is a room, a ballroom that I think normally holds like 4 or 5000 people. Yeah, it's like almost half of Madison Square Garden. 

In 2019, bitcoin was $3,000. I emceed the event. I was there for seven hours. They paid me. A lot of my friends went on stage, so it was fun for me. But honestly, I think there were like 20 people in the audience and 20 people in this room would be like... All right, I get it. You know, 20 people in the Marriott Marquis is hilarious. Like, comical. Like almost like, is this a dress rehearsal is the real event tomorrow... And that's bitcoin 3000. It's always going to be that way. So when Ric talks about getting more interested in the downturn, I mean, that that was 2019. What happened a year later? 40,000 a year after that, 65,000 from 3000. And that's after people thought bitcoin was done when the 2017 rally fell apart. So that's why I try to keep an open mind. I'm skeptical about a lot of things that have to do with crypto. I'm nervous about the regulatory environment just like everyone else, but I force myself in times like these where nobody really wants to talk about it. I force myself to remember there have been other times like this before and ignore it at your own risk. 

Ric Edelman: Do you have a prediction? Do you have a price in mind that you are looking at in the next year or two?

Josh Brown: No. I think I'm becoming I'm starting to become a Bitcoin maximalist. Just in the sense that when there's really negative news on the industry, like Coinbase being sued and then I see Bitcoin USD up $700 a coin. I say to myself, Oh yeah, that was the original premise, that this was something that no one's in charge of, that all of the holders are collectively in charge of. But it lives in its own world. Those days where there's a huge lawsuit or regulatory action or a major exchange has an outage or something to that effect and you see BTC go up. Even when the shitcoins go down, you see bitcoin higher. It's that reminder of, Oh yes, this was the original premise. There probably should be something that's independent of all human judgment, oversight, cognitive foibles. That's that bitcoin is still that thing. So it's not that I don't think anything else can work out, but I'm starting to become more and more positive about bitcoin as I become negative on a lot of the other things in the industry. 

Ric Edelman:: So having said all that, what's the allocation? How much of the portfolio are you putting into bitcoin? 

Josh Brown: So it's an unmanaged index, meaning we launched it, amazing timing, I think Thanksgiving of 2021. Thank God it's not a hedge fund because that high watermark would be a tough one. We launched it with the premise that we have to adjust it. If it's just market cap weighted, it's going to be 95% or bitcoin or 90% bitcoin, 10% ETH and maybe a half a percent of everything else. So we adjusted it from the start and bitcoin and Ethereum were lower in the index than their market cap weighting of the whole asset class at that time. I think there were 11 holdings. One of them already went to zero, which was Terra. But the other holdings, so long as they don't end up on the regulators list of securities, will stay in there. And it's unmanaged. And unmanaged is in line, as I mentioned before, with our investment philosophy. The crowd, the users are going to decide which protocols are winners and successful and which aren't, and the ones that aren't will gradually have less and less impact on what the index does. And the winners will get bigger within the index, and that will be the driving force behind how the strategy does. Not me, not Barry Ritholtz, not an analyst at WisdomTree. So we basically set it up with, with the coins that are in it, and then we let the market decide, just as you would with the S&P 500. 

Ric Edelman: And what about within the overall client portfolio? What percentage of the total portfolio you're managing for the client, are you going to put this in? 

Josh Brown: It's very small and it's client dependent and it's more about the amount of risk they're willing to assume for a potential return. But we've got a lot of guidelines around that. The other thing to keep in mind is everyone at my firm, client-facing, is doing financial planning work before they're building portfolios. And we're working with rich people. So we don't have clients that need a 500 X return to meet their goals. They're already very wealthy, so there's nobody that's allocated to the strategy that actually needs a large amount of it to get to their financial goals. 

Ric Edelman: So single digits. 

Josh Brown: Generally, for the most part, yeah. 

Ric Edelman: And what do you do beyond advising whether or not they should own crypto? What are you doing in the area, for example, of estate planning when it comes to crypto. 

Josh Brown: I don't think it's come up with a lot of cases just because most estate planning work is not being done with people who are in the age group that would have a lot of exposure to crypto. I'm sure it's going to become an issue over the next ten years though. 

Ric Edelman: How about taxes? 

Josh Brown: Tax is something that as a firm we've gotten a lot a lot deeper on. We actually have enrolled agents and CPAs who are filing taxes for clients. And so obviously having the knowledge to say this might be a tax-loss harvesting opportunity all of last year, frankly, was a tax-loss harvesting opportunity. Understanding the difference in taxation rates between something like collectibles and crypto and equities. And this is all stuff that clients don't really necessarily know. So being able to speak to them at that level I think is helpful. 

Ric Edelman: So when you get client questions about it, what are you hearing the most? What are clients asking about? 

Josh Brown: Is it going to come back... is a big one. 

Ric Edelman: And the answer is. 

Josh Brown: I think it will. I don't know. I don't know in what form. Keep in mind, there was a time in 2021 where it looked as though there was going to be a flip and Ethereum was going to be a bigger protocol than Bitcoin. And that's something that still could happen. I think a lot of the enthusiasm came out of ETH because the NFT market dried up and the staking so much of which was done using Ethereum effectively became illegal. I don't know if it will stay that way, but that's how the regulators see it. So a lot of the volumes and a lot of the interest in ETH has gone away. But I still look at it as Bitcoin with more utility. The problem is going to be if and when the SEC decides ETH is a security. I'm sure you have an opinion on this. I'd love to hear from you. They might have some grounds to do it. Ethereum operates like a corporation. It just isn't taxed as a corporation and they don't call themselves a corporation. But the foundation is very much influential to the point where pretty much every 18 months, they make a decision to make a change to the way the protocol works, and then they get enough buy in from the miners and the users to get enough adoption that a change takes effect. I don't think anything like that can happen in bitcoin. The fact that there is that level of coordination and there is this foundation that's sort of quasi-overseeing the way the protocol functions leads me to believe that there is some risk that a regulator might want to try and say... you know what, actually, this looks and acts like a like a stock with a board of directors and a shareholder base that votes. It's a security. 

Ric Edelman: It was more clear, I believe, when it was a proof-of-work protocol that it was not a security. Which is why Gensler has said in the past clearly that bitcoin and Ethereum are not securities. But now that they have shifted to proof-of-stake, it weakens that position. 

Josh Brown: Doesn't stake sound like stockholder. I mean they're from the same Latin root. I would imagine. 

Ric Edelman: Steak stock. I think it's a coincidence.

Josh Brown: OK. I just made that up. I don't speak Latin. 

Ric Edelman: Yeah, I know you did. So I think it weakens the argument. And Gensler has said that he is reconsidering whether or not Ethereum is a security or not. What is really interesting to note is that in the SEC's suit against both Binance and Coinbase, when they listed the securities, they are alleging that they're trading as unregistered securities. They did not name Ethereum. And some observers are noting that the reason that they didn't name Ethereum is not because the SEC feels that they are not securities, but because the SEC is too afraid to go after the big dogs. 

Josh Brown: I want to highlight something that I thought was interesting and get your take on it between the two lawsuits. So they were dropped the day apart. The Binance lawsuit is I mean that's Binance is it comes off there's heavy boiler room vibes to what they were doing they I think they have this guy dead to rights they have a US subsidiary that they claim is operating independently. Then they have text messages, they have witnesses who work there. They have emails where the parent company is directing the US subsidiary on ways to sneak business with US hedge funds onto the platform and calling them VIPs and opening up back doors. That's one. Two, the co-mingling stuff is terrible. And then three, just the optics of people inside of the organization telling him we're running an unregistered exchange. I think like all of that combined makes that significantly worse. The co-mingling, by the way. It doesn't it doesn't matter. Crypto any asset class. It's like one of the number one no-no’s is co-mingling of anything. So I think that one's very different. The Coinbase one is the more interesting one for our purposes here because I think that's the one that's going to end up in a court. And the central question: are these securities or are they not? And if they are, how can you tell? When you hear about people in the industry pleading, begging for clarity, There is clarity. There's the Howey Test from the 1940s. The industry just doesn't believe it applies to them. That's what's going to be resolved in the matter of SEC versus Coinbase. The Binance thing just looks like a criminal enterprise to me. Do you agree with that, that difference between those two suits?

Ric Edelman: Yeah. And if you were here at this event last year, you saw from this stage several warning you that Binance was coming. We didn't warn you about FTX, sadly, but Binance is, I believe, a study in foregone conclusions. There's no question. And it is a shame. And it's evidence of the SEC's behavior that they filed their lawsuit against Coinbase the day after. The SEC is trying hard to link the two in the public's mind to paint the entire crypto industry as  bad. You see it everywhere. Binance and Coinbase, they're linked together because the lawsuits occurred a day apart. 

Josh Brown: They did. They named CZ personally in the Binance suit. But not Brian, not Brian Armstrong [CEO of Coinbase]. Why do you think that is? 

Ric Edelman: Because what CZ is doing, I believe, as you've said, is much worse. CZ is a lot closer to SBF So I think that there's a reason that they're doing what they're doing against Binance and this is more of the housecleaning that we need. So it's overdue, but that has nothing to do with what's happening at Coinbase. The concern I have big time though, Josh, is that while I think you're probably right that the courts will resolve this question as to whether or not digital assets need to conform to the Howey Test or some other regime, my concern is that this court process will take years... and in the meantime we're stuck trying to figure out what to do. 

Josh Brown: I'm curious what you think about this. There is an alternate universe where all of the companies that did their best, they may be selling unregistered securities in the eyes of the regulators. I don't think they think they are, number one. But number two, there is an alternative universe where the Coinbases and the Gemini's and the Grayscale's who made it a point to go above and beyond hiring, compliance, people, investing a lot of money in legal help and really trying to communicate with the public in an open and honest way. And then when the regulators said, come in and talk to us, they tried to do that. There is a universe where they were rewarded for having tried to do things the right way. They may not have liked the outcome. “Your ETF is still denied, but thanks for meeting with us. You're still not allowed to trade these eight tokens because we think they're securities. But thanks for meeting with us”... In that universe, I feel as though there would be much more widespread adoption of crypto amongst other intermediaries like family offices and wealth managers. But we don't live in that universe. We live in a universe where, come in and meet with us, come register with us. Hey, thanks for coming. Here's your lawsuit. That's the way that things played out in this world that we live in. And that's got to be concerning for people, for you, for others in the industry. Like is there even a right way to do this? 

Ric Edelman: This is the challenge as to how we engage and why. I'm not shocked at the survey results we had this morning that most of you own crypto, but most of you are not recommending it to clients. It's because firms are saying we don't see the business case. Forget about the investment case, forget about fiduciary, forget about client value from a business owner, a shareholder of the RIA or the broker dealer or the exchange or the custodian. If you're Merrill, if you're Schwab, if you're a major large AUM RIA, and you're saying to yourself, we have thousands, maybe even millions of clients, we're managing billions, maybe, even trillions of assets, we're a household name. Why would we want to say yes to crypto? Acknowledging that if we say yes, the allocation will be low single digit, 1 or 2% maybe of assets. Why would we want to risk our entire enterprise and our EBITDA and our margins and headlines in The Wall Street Journal and The Washington Post...For a lousy 1 or 2% allocation to an asset?

Josh Brown: So what will change that? 

Ric Edelman: The regulatory clarity. The elimination, or I should say, cessation of regulation by enforcement so that firms know that if they go do something, they are not going to get slammed in the future for doing it. The SEC is saying to Coinbase, yes, we allowed you to be a public company. And yes, we knew that you were going to be an exchange trading crypto assets. And now, several years after we told you, go ahead and do it;  we're telling you that you have been breaking the law for doing it. How does that make any sense? 

Josh Brown: So they would push back and say, we don't allow companies to do anything. We oversee the filings that they submit. We don't say you have permission to run a crypto exchange. 

Ric Edelman: And Coinbase response to that would be we have asked you over 30 times, are these secure? Are these coins and tokens securities? Give us the clarity because we only want to offer those that are not securities. And the SEC has refused to answer the question. 

Josh Brown: Coinbase went public in February of 2021. Okay. Jay Clayton's last day at the SEC was the day before Coinbase went public. Is that true? January 20th or something? He, like he was replaced when Biden came in January ‘21. So I think Coinbase got in just before the new SEC regime could get their pencil sharpened and their nameplates on the door. 

Ric Edelman: So you're saying that Gensler never would have permitted them to be, but...

Josh Brown: What has he permitted? You know what I mean? So it's an interesting theory that...

Ric Edelman: Yeah, but you know, this country has what we call the Monroe Doctrine, and no president has invalidated that, even though that's over 100 years old at this point. So just because Gensler comes in. 

Josh Brown: And the president has anything to do with it...

Ric Edelman: My point is that there's precedent in this nation. And if you have a regime in place, a protocol in place, a process in place that your predecessors have endorsed and validated and verified, for you to come in and do a 180 on it, that creates an inconsistency and turmoil. 

Josh Brown: I agree. I don't think it's great for business. But let's acknowledge we have an FTC that's blocking the Microsoft Activision deal. It's not going to happen. Significant slowdown in a lot of M&A, may be needed in the tech space. Maybe we don't need the FANGs to get twice the size through mergers and acquisitions. That is a difference from the FTC under Trump, where I forget who was running it, but I'm pretty sure the person who was, was not anti-merger or anti acquisition. So in this case, it's an interesting thought experiment. By the way, Jay Clayton Now, I don't know if you guys know what he does. He works for Coinbase. He ended up working. He ended up working with Eric Peters, a friend of mine, Eric Peters, who is One River Assets. 

Ric Edelman: He is far more supportive of crypto today than he ever was as SEC chair. 

Josh Brown: Right. So One River very quietly got acquired by Coinbase. It's like the internal asset management firm within Coinbase and Jay Clayton is on the board of advisors. So anyway, had Coinbase tried to go public in April or May of 2021, it might not have happened. So the argument of you let us go public, Jay Clayton let you go public. I was not my SEC. 

Ric Edelman: Yeah, but you're stuck with it. You know, we've got NATO and just because a given president doesn't like how NATO operates doesn't mean we abandon NATO. This is the whole.

Josh Brown: We almost did.

Ric Edelman That's my point. All right. One last question, then going to turn it to you. By the way, you did mention we don't live in that universe. Well, we don't live in the universe you've described either. Just now that we've got to deal with the universe we are living in. So two final questions for you first, and then we're going to turn it over to you [audience]. So have yours ready. What is it that we should be doing as a result of this conundrum? We're all sitting here commiserating over the ‘Woe is us’ scenario brought about by the SEC behavior. Translate that into behavior for us. What should advisors be doing in the world of crypto as a result of this situation? 

Josh Brown: It's a great question. I think you have got to stay up to date on all of these developments that Ric and I have been talking about and be able to converse on the topic because the next $100 million, $200, $300M worth of new client assets you onboard - there will be an increasing likelihood that those clients are interested in crypto or even fluent in crypto. And you don't want to be the financial advisor who doesn't understand a part of that client's financial situation. So the simplest... you don't have to dedicate your life to cryptocurrency, but just make sure that you're aware of what's going on; not dismissing of the entire asset class just because we're going through a tough regulatory patch. And again, I want to emphasize this. I don't know if we have to go to $10,000 on bitcoin first, but there will be dramatic rallies in the future. And every time that happens, people that are curious about the asset class are going to become more curious and new wealth is going to be created. So we're at about $26,000. I think we hit $32,000 is the high for this year.

If I had given you all of the headlines this year, the major headlines pertaining to crypto, if I had given you all of the stuff, SBF stuff and all of the fallout from the events of 2022 and then Coinbase lawsuit and Binance lawsuit and one thing after another, if I just served you up those headlines in January and I said to you halfway through 2023, here's the news. Where's the price of bitcoin? You're probably not guessing that it's gone from 15,000 to 30,000. You're probably not. You're probably saying, Oh, man, 5000. So it's really important that we remain humble and we remind ourselves that we don't know what's going to happen. We might have educated guesses, we might have hunches, we might have research confirming what we think. But in the end, the market's going to decide. Don't be the person who gets really excited about bitcoin at $100,000. Don't be that person because that is not doing any service for your investors of any kind. 

Ric Edelman: And final question related to all that, what aspects of crypto are the areas that we ought to be paying attention to? You've talked a lot about being a bitcoin maximalist, and you ought to be last man standing kind of thing if it does blow up. But what other categories? We've got all coins, NFTs, DAOs, DeFi, the metaverse; where should we be paying particular attention? 

Josh Brown: So I actually think DeFi is going to have its own prolonged crypto winter long after the overall industry's crypto winter ends because of the regulatory picture. They do not like staking. They see it as some unholy combination of junk bonds, shadow banking, and an unregulated security all rolled into one. And that's a lot of what goes on in DeFi. And I don't have a strong opinion about whether or not that staking should be legal or illegal. I've never done it. I've never utilized it. Frankly, I've never believed in it. 

Ric Edelman: But without it, the Ethereum can't exist. 

Josh Brown: Right. Which is why I'm becoming more of a bitcoin maximalist, day by day. I've never believed that you could sort of safely put money somewhere and earn returns of 20% just because some short seller somewhere was trying to borrow your crypto for some other purpose or some hedge fund had some other use for it. It was always a bridge too far because I know the stock loan business. I worked at a broker dealer for 11 years. So those numbers, those yields never looked reasonable to me. So thank God I stayed out of out of staking.

But my personal opinion, I would be most excited about the potential for authentication and what blockchain's role in authentication could be. I have a friend who has launched a startup this year with some pretty well-known names in the music business backing him. And what he's doing is a very offline business. He's basically taking music memorabilia and authenticating it on the spot. Like backstage at a concert, Eminem rips off a white shirt that he's sweated through, drops the white shirt on the floor. They will pick it up, take a picture of it, authenticate that is Eminem's shirt from the show he played at the Detroit Palace on this date. And that piece of memorabilia could sell for $5,000 on the Internet. And it's authenticated on the spot. 

Ric Edelman: And that's a big deal because the FBI says half of all memorabilia is fraudulent. 

Josh Brown: That's right. So I'm very excited about this concept of verification and authenticity. I think it's the next bull market. I think because of how much fraud and fake stuff goes on, not just in memorabilia, but really all over the place.

Ric Edelman: So what you’re describing is you're excited about tokenization and NFTs, because that's what that whole category. 

Josh Brown: I think so. And I think it's going to be a way for you to be able to verify that what you're investing in or what you're trading or what you're accumulating is what it's supposed to be. And all other versions of it are not. Authentication is going to become very important in the age of AI. We already have fake Drake songs. We already have all kinds of things that are going to take place with film, with television, with music. The amount of fake, artificial things that are going to be created and circulate is going to lead to a backlash where the bull market is going to be anyone who can authenticate things. The blockchain, in my opinion, is uniquely situated to be applied; a technology to be applied to that problem and I think can be very easily adopted now that we've got 15 years of people experimenting with blockchain projects. So if you ask me, where am I going to see crypto in the world other than in trading or doing things that involve other crypto, the realness market, the authenticity, the verification market; that's where I think you're going to see a real world use case that's going to solve a very big problem. 

Ric Edelman: Let's go to your questions. Raise your hand if you've got one. We've got microphones coming around the room, so raise your hand. 

Conference Attendee: Good morning. I'm hoping it doesn't come to this, but there's been commentary written that Gensler and the SEC is essentially going to drive the industry offshore or out of the US, which is unfortunate for innovation on our shores. Do you see that as a possibility, and if so, how do you see that playing out? 

Ric Edelman: Yes, that is clearly a potential outcome. Coinbase, Gemini, A16z and others are already filing applications to operate in other countries. That is a very possible outcome over here. Is there a question? 

Conference Attendee: Hey, Josh, welcome to Texas. You've got a room filled with advisors, your new branch in Austin. How's that going for you? 

Josh Brown: Oh, thank you for asking. So, so far, so good. We love the city. We have a lot of fans and a lot of followers here, so having a branch in Austin made a lot of sense. We just we never found the right advisor here until last year. And ironically, we met him in Houston. But we've got somebody on the ground in Austin and we're going to spend a couple of days meeting with our clients and potential clients here. And we're loving it. We're eating a lot of barbecue. It's all good. 

Conference Attendee: So just a quick follow up on that. If any of the advisors are interested reaching out, how do they do that?

Josh Brown: Hiring at Ritholtz Wealth.com. Thank you. 

Conference Attendee: Two questions. But if I can't get two and you can kick one out if I'm in a question hog, but assuming the SEC makes some of these things securities and register them, that's fine. That's good for the US. But what how does that affect the world? And number two, a little bit of a different view for the SEC. We're an RIA, and I'm not saying this is right, but you know, we don't go to the SEC and say, can we do this or that? Is this a security or is it not a security? I thought their role is to enforce. So shouldn't have Coinbase maybe have just registered these tokens as securities and they would have said yes or no.

Josh Brown: Well, they claim they tried to. Is that right? 

Ric Edelman: There are two issues. One is they claim they tried to and the SEC has rejected applications or refused to answer whether or not registration is necessary. Second, Coinbase isn't the creator of, say, Solana. Isn't it interesting that the SEC has accused Coinbase of selling Solana, which the SEC says is an unregistered security? What the SEC didn't do was go to Solana Foundation and tell them that they're in violation for creating and issuing. An unregistered security. It's kind of like the mutual fund share class debate, isn't it? You get nailed by the SEC or FINRA for selling a certain share class, but what they don't do is criticize the fund industry for creating the share class in the first place. So this is the issue. They're not accusing Coinbase of creating it. They're accusing them of selling it. And this is partly why it's so confusing and complicated for Coinbase. They're like, we didn't know that it had to be registered because you didn't demand that Solana do that. Solana didn't register it. There was no suggestion they needed to register it. It's existing in the marketplace. We're trading it. There are companies that trade comic books and they trade gold and they trade rare coins. They trade cars and artwork. Nobody's accusing them of selling unregistered securities. 

So why did we have to assume that we were doing the same? In fact, because we were curious. We asked the SEC, are we? And the SEC over 30 times has refused to answer. That's the situation we're in. So what happens overseas? Nobody cares outside the US. This is a US regulatory thing and this is why bitcoin's price has risen in the face of these lawsuits. Nobody in Europe or Asia or Africa or South America care about what's happening in the US because this is only affecting US investors and their access to these assets via exchanges and custodians that are operating in the US. So nobody around the world cares what's going on. Now, other regulators will. They'll follow the lead. We pay attention to Europe, which launched MiCA, the markets in crypto assets, which is the major piece of legislation that the European Union just passed a week or two ago. Other nations pay attention to what they're all doing because we try to follow the trend. But aside from that, the investors themselves don't really care. It's like, do I care that in Great Britain they drive on the other side of the road? Unless I'm there, I don't care. So it's got nothing to do with me buying a car. Another question. Yes. 

Conference Attendee: Yes. Good morning. So along the lines of SEC enforcement roles, what should the financial professional world be doing about it in this environment? Its enforcement SEC policy is supposed to be Congress. What should the financial professional world be doing about? It's going to come down to Congress has to take action here. This is where these lawsuits are going, in my opinion. What should we be doing about?

Josh Brown: So I don't think it's anything for the financial industry to do. You know, they can lobby. There doesn't seem to be a lot of energy for traditional securities firms to lobby on behalf of crypto. But I do think we'll get a court case. It might take years. The result of that will be finally there will have to be some legislation specific to digital assets written. I don't think that you're going to get the rules first until you get the outcome of the case. Do you do you agree with that? 

Ric Edelman: I might have six months ago, but in the rules. 

Josh Brown: Will come first...

Ric Edelman: Yeah, I think they're coming on simultaneously. We have a really new level of anger by Congress over Gensler's behavior at the SEC. Patrick McHenry and the House Financial Services Committee, his counterpart at the House Agriculture Committee. You know, one handles the SEC, the other handles the CFTC. And they have jointly, this is rare, they have jointly created legislation to provide the crypto clarity that it hasn't existed. They introduced the bill a week and a half ago. They're expecting it to get marked up in the next 2 to 3 weeks. It's going to be subject to a vote in the House within a couple of months. Kicked over to the Senate where you have [Senators] Lummis and Gillibrand and their legislation. They are very confident that they're going to have bipartisan crypto legislation before the end of this term. That, I wouldn't have said in January. So that's exciting. Simultaneously, it looks like the court is going to rule in the Coinbase lawsuit against the SEC where they're trying to force the SEC to declare whether or not Coinbase is behaving incorrectly. That is going to have, we think, a ruling pretty soon. So there's wide expectation that within the next two years we're going to have the clarity that everybody has been clamoring for. Now, that clarity may not be what we want to hear. I want a 65 mile an hour speed limit. We may get 25, but at least I'll have a number. And that's what's lacking at the moment. So I'm a little more optimistic than I was.

Conference Attendee: Hey, I'm sorry. This may be a very silly question for most of the people that are in this room, but for those of us that are catching up at the back, why is it a problem if they're deemed as being securities? 

Josh Brown: I love that question. 

Conference Attendee: Wouldn't we rather live in that world where everybody knows where they are? 

Josh Brown: So, if you're in an exchange, there are huge ramifications for whether or not there are securities. If they are, you're violating the law every minute of every day. If you are an investor, an end investor, the ramifications, I think, are potentially positive just in terms of more transparency from these foundations and policy makers that have some level of control over the protocols. So it actually might turn into a positive if they are declared to be securities. The problem is the people in the middle, if you're somebody selling these to investors or if you're an advisor trying to advise on these as assets, that that's where the conundrum lies. Our approach has been to pretend that they are securities for the time being. Act as if our responsibility over that portion of the portfolio is no different than it is for stocks, ETFs, mutual funds, closed end funds, whatever else we're doing, especially from a fiduciary standpoint. 

Ric Edelman: Yeah. And there's one other category in addition to the two you cited, Josh, and that are the Crypto Bros, the original folks who were in the Bitcoin community back in 2009 and 2010. Their whole thing was anarchy. They loved the DeFi element of crypto and the fact that this would supplant and replace fiat currencies. Registering these as securities kills that and turns this into a CeFi world, which is the antithesis. 

Josh Brown: Gemini's marketing campaign was “The Revolution Needs Rules.” 

Ric Edelman: Which is a contradiction in terms, which is fun. And so that's the reason everybody in the crypto community is upset about this, right? 

Josh Brown: The crypto libertarians do not. They would rather it go to zero than be regulated like it's a stock market. 

Ric Edelman: So their day is over. Their time has passed. They lost and they need to get the hell out of the way. In other words, there's 1% of the world that are in that camp. But if we're going to get the other 99% of the world engaged, we've got to work within the financial system rather than trying to replace it. So that's a big part of the underlying philosophical debate that is going on in and outside the crypto community. The financial services industry, headed by the SEC, is basically saying, we're not having any of that. You can do what you want to do but work within the rules for consumer protection.

And so let me just close on this one element. It kind of says it all. Financial Times, I don't know if you noticed this story a couple of weeks ago, asked a series of questions to Binance. They said, where are you headquartered and who is your primary regulator? Binance refused to answer. Do you have a board of directors? Who are they? Who are the independent directors? They refused to answer. Who is your auditor? What's the most recent year for which you have audited financials? Which entity was audited? They did not answer. Are client assets held in segregated accounts? They did not answer. Do you segregate your trading and custody activities? They did not answer.

Why the hell would you want to do business with a company that operates this way? So this is the part of the due diligence process we've got to engage in to help steer our clients. Look, it's already a risky asset. We know that. There's no reason to pile on the risks by dealing with a platform. 

Josh Brown: Counterparty risk is unnecessary. 

Ric Edelman: Exactly. This is how the FTX scenario blew up. Coinbase was asked the same questions and answered every single one of them. Because they're a public company, they provide full disclosure. And that's the world of difference between the two. Last thing before we end, talk about FutureProof the Festival. 

Josh Brown: Crypto and digital assets are among many topics that we're going to cover. It's September 10th through 13th. I appreciate you giving me the chance to talk about it. Today, we actually announced 50 more speakers, so there's a full agenda online future proof.advisor circle.com and we announced a lot of big speakers previously and then a whole new set of speakers today. It's going to be part festival. The whole thing is outdoors. It's on the beach in Huntington Beach, California. The city loves us. They gave us a lot of resources to do this. 

Ric Edelman: It's a lot of fun. 

Josh Brown: It is and Ric has been there.

Ric Edelman: It’s a festival environment. Yeah. 

Josh Brown: Yeah. Method Man and Redman are headlining. We'll have all kinds of bands and rappers and DJs, and that's at night. During the day, we do work. Bring your laptop. But it's a really cool environment and I think it's the future of financial advisory events because it really feels like an event and I hope you guys can check it out. 

Ric Edelman: That's Downtown Josh Brown, ladies and gentlemen.

Josh Brown: Thank you. Thank you, Ric.

Ric Edelman: That's CNBC's downtown Josh Brown with me at the fifth annual DACFP VISION Conference in Austin. In coming weeks here on the podcast, I'll be presenting you with additional conversations from the conference. Right now, though, you can check out the photos and other highlights of VISION. It's all on my Facebook, Twitter and Instagram pages.

Ric Edelman: If you like what you're hearing, be sure to follow and subscribe to this show wherever you get your podcasts. Apple, Google, Spotify, YouTube. Follow and subscribe on your favorite podcast app.

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