The Biggest Practice Building Opportunity in a Decade for Advisors

And an important financial strategy for anybody who owns GBTC

Ric Edelman: It's Tuesday, April 2nd. On today's show for financial advisors, the biggest practice building opportunity in a decade and an important opportunity for anybody who owns GBTC. What is GBTC? It's the Grayscale Bitcoin Trust. You know, that since the early January of this year, we now have 10 spot bitcoin ETFs available on the market. 

For years prior to that, pretty much the only game in town for most ordinary investors who wanted to invest in Bitcoin was the Grayscale Bitcoin trust. I bought this fund as well, and it performed spectacularly along with the price increase of Bitcoin itself. But GBTC was originally structured as a grantor trust. 

This traded over the counter and originally had a very high minimum available only to accredited investors and no liquidity for a year. But eventually, the trust began trading over the counter and available in any brokerage account such as from Charles Schwab. The downside to a grantor trust is that the price of the fund is not set by the trust itself. 

In other words, Grayscale created the trust, and Grayscale collects your money and uses it to buy Bitcoin, but Grayscale doesn't set the actual price of the shares. That is determined by the investors themselves. In other words, if you own GBTC and want to sell it, the price you sell it for is determined by the price you negotiate with the buyer. 

Same thing in the stock market, right? If you want to buy shares of IBM, IBM doesn't set the price of IBM stock. That's set by the marketplace. As a result of this, when dealing with Bitcoin and GBTC, the price of the shares may not be the same as the value of the underlying Bitcoin itself. And over various periods of time, sometimes the price of GBTC was trading at a premium to Bitcoin. Sometimes it's been trading at a discount to Bitcoin.  

None of that really mattered a whole lot to people who were choosing to invest in GBTC, people like me, because for a lot of folks, it was pretty much the only game in town. And when it was trading at a discount, it was a wonderful opportunity to create an arbitrage play. In other words, you could buy shares of GBTC at a discount of 40% to Bitcoin's actual price. In other words, why pay a dollar for Bitcoin when you could pay 60 cents for it? And that's a big reason why GBTC proved so popular.  

But along have come now the ETFs. There are now 10 of them. And these ETFs, because they trade as ETFs, regulated by the SEC, you don't have this premium discount feature. Individual investors don't set the price of the fund. That price is determined by the price of Bitcoin itself. So it makes life so much simpler and so much easier. And Grayscale in fact, did what it promised it would do. They converted the GBTC grantor trust into an ETF, eliminating the discount and eliminating this question of: What is the share price at a given moment? 

Now, just like all the other ETFs, GBTC trades just like all the others, based on the actual price of Bitcoin. So, okay, all that's pretty good. Now let's take a look at GBTC, at Grayscale, from their perspective as a business model. That fund is very, very popular. At the time, the SEC's approval of the ETFs back in January, there was $26 billion in the Grayscale Bitcoin Trust. 

Investors were really happy with it because it was a readily available, easy way for people to buy Bitcoin. And thanks to their investments, plus the increase in growth of the price, $26 billion in that fund. And Grayscale's fee? With 2%. That's a really big fee for pretty much doing nothing but holding a single asset, huge revenue to Grayscale. 

Well, now along comes the ETFs and a price war starts. Now that Grayscale is not the only game in town. There are now nine other companies that you can buy Bitcoin from in the package of an ETF, companies like Fidelity and BlackRock and Franklin Templeton, Bitwise, Invesco, you name it. 

You now have nine of these companies and they're all doing the same thing. They're all buying Bitcoin, which means you as an investor have a simple choice to make. Which of these ETFs are you going to choose? Well, since they're all buying Bitcoin, they're all doing the exact same thing in pretty much the exact same way at pretty much the exact same time, pretty much the only real material difference between them is the fee they charge. 

Well, we had a big price war. Franklin Templeton came in at the lowest. They're charging 19 basis points. In other words, 0.19%. That's a really low fee. 

Bitwise came in second cheapest at 20 basis points. Not much of a difference there. One basis point between the two. Several of the others, such as Invesco and BlackRock and Fidelity, they came in at 25 basis points. 

The others have come in at different numbers as well. And then there's Grayscale. Remember they were charging 2%. That's 200 basis points compared to Franklin's 19 or Bitwise's 20. 200 basis points is a huge additional cost for investors. And the folks at Grayscale realized this. And so they decided to lower their fee. 

So they lowered it from 200 basis points to 150. They're still charging 1.5% per year, whereas Franklin Templeton and Bitwise and BlackRock and Fidelity and Invesco are all charging 25 basis points or less. Those other funds are 80%, 90% cheaper than Grayscale.  

So here's the big opportunity for financial advisors. You see, you have clients who own the Grayscale Bitcoin Trust because this fund is owned by millions of investors. The fund has over $20 billion in assets. If all of its investors have a total of 500 grand in their total investment portfolio, and they allocated only 2% of their assets to Bitcoin, that's $10,000 per investor. In other words, there's about 2 million people who own the Grayscale Bitcoin Trust. And since two thirds of all investors have an advisor, we're talking about 1.3 million people who own a GBTC investment and have a financial advisor. In other words, if you're a financial advisor, odds are pretty good you have clients who own GBTC, the Grayscale Bitcoin Trust. And I'll bet you don't even know it, because according to our survey research, 60% of financial advisors have not asked their clients if they own crypto.  

So, go ask them. It's as simple as that. If you were to poll your clients, next time you do a client review meeting, for example, when you ask them for an update about their financial holdings, do they own investment real estate? Do they own life insurance? Do they own annuities? Do they have money in the bank in cash reserves? Ask them, do you own crypto? I'll bet you'll discover that 30 to 40% of your clients do own digital assets.  

They haven't told you about it. Why? Because you haven't been able to allocate to Bitcoin in the past. There was no simple, easy vehicle that allowed you to do this as part of your investment management practice. Chances are your compliance department didn't allow you to engage with your clients in the area of crypto, but now you can thanks to these new spot bitcoin ETFs because they're ETFs just like all the other ETFs and you've built your practice and using them and clients love them. They're low cost. They are very low fee. They are highly liquid. They're totally transparent. This is why ETFs are the most popular investment vehicle in the country.  

So here's the point. I'm willing to believe that a lot of the people who own the Grayscale Bitcoin Trust have not been paying close attention to the launch of the new spot bitcoin ETFs. They don't fully realize that they've been paying 2% a year to Grayscale. They don't fully appreciate that Grayscale has lowered its fee to one and a half percent and that the other ETFs are now available at 80% less than that. In other words, it's a wonderful opportunity for you as a financial advisor to add value to your clients. 

You can demonstrate to your clients a very simple benefit. You talk to your clients and you say, do you own the Grayscale Bitcoin Trust? You're going to stumble upon a bunch of clients who do. And when you do discover that they own GBTC, just ask them, are you aware of the fees of that fund compared to its competitors that are suddenly recently now on the market? 

You didn't make a mistake by buying GBTC years ago. I owned it. I loved it. I was really happy I bought it. But that was the only game in town at the time. That's not true today. In fact, a lot of these ETFs have even lowered their fees to zero for six or 12 months. Grayscale hasn't done that. So I believe a lot of clients don't know that they're paying a fee far higher than they need to these days. 

And even if they do know it, some of them aren't acting simply out of inertia. Oh, they intend to, they'll get around to it, but life's in the way, and they just haven't done it yet. I mean, that's kind of routine, common, isn't it, for investors? So they have been planning to deal with this, but they simply haven't bothered to yet. 

So, this is your opportunity to help them get into action. And there's a final reason that maybe some clients haven't done it. They don't want to pay the taxes. Because if they've owned Grayscale for any number of years, they've made a lot of money with it. If they sell their shares in the Grayscale Bitcoin Trust and move that money to one of these other bitcoin ETFs, that'll trigger a tax liability. 

And some of them don't want to incur the tax and therefore they're sitting on the sidelines and they're going to continue paying one and a half percent a year. Instead of say two tenths of a percent a year because they don't want to incur the taxes. You know the drill, we never let the tax tail wag the money dog. 

We should never make an investment decision solely based on the tax implication. Your clients are going to sell that investment at some point anyway, which means they're going to incur the tax at some point anyway. So, we shouldn't allow their desire to defer or avoid a tax interfere with their ability to save a lot of money by going from a 1.5% fee to a 0.2% fee. In fact, the savings are so large that by even getting your services, the fee you'll charge them will be absorbed by the savings of eliminating the GBTC fee. This can really work out to everybody's mutual advantage, particularly the clients, because by having you manage the asset for them, by moving the money from grayscale into one of the other ETFs that you place into your diversified portfolio, where you're managing the rest of the client's assets anyway, now you can do your full job for them. You can rebalance the asset. You can do all the tax recordkeeping and reporting. You can engage in tax loss harvesting. You can do all of your services that you do for the rest of your client's assets, now also including Bitcoin for the first time. 

This is a wonderful opportunity for you to show additional value add to your client. It's a wonderful opportunity for you to generate new assets under management. And it's a wonderful opportunity for you to generate new referrals for new clients, because any of your clients who owns the Grayscale Bitcoin Trust has friends who own it too. And I bet their financial advisors aren't talking to them about it. Now you have an opportunity to help out not just your client, but your client's friends and family as well. This is an unusual opportunity to not only build your practice, but to improve your client's services. 

Take advantage of it. Of course, it does mean that you need to be able to offer your clients one of the Bitcoin ETFs. That is something that financial advisors around the country are scrambling to add to their practices. And now you have another reason to do exactly that. And if you're not a financial advisor, but you are recognizing that my conversation has resonated with you because you own Bitcoin, perhaps even the Grayscale Bitcoin Trust, now you have an opportunity to have a new, fresh conversation with your financial advisor as well, because your financial advisor might not know you own GBTC. Now your advisor has a way to solve a situation you didn't even know you had.  

Hey, on tomorrow's show, are states and employers finally starting to recognize the challenge you're facing as a caregiver? 

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