The Truth About Crypto: A Practical, Easy-to-Understand Guide to Bitcoin, Blockchain, NFTs, and Other Digital Assets

My ah-ha moment on digital assets came during a discussion with Ric Edelman. But the revelation didn’t come from Ric.

I was interviewing him at a conference I was hosting for Barron’s “Hall of Fame” financial advisors. To even get into the room, they had to clear a very high bar: 10 years or more as a top-ranked Barron’s advisor. This was not merely an elite group; it was the elite of the elite. (And three times, Ric was #1 in our rankings.)

I wanted to get a sense of the crowd—how rudimentary would we need to get in order to give them the information they needed on bitcoin and other digital asset investment opportunities? After all, this wasn’t exactly a Silicon Valley tech-bro confab. Ric and I were onstage in the elegant ballroom of a 125-year-old hotel on the ocean in Palm Beach. The advisors we were addressing were mostly well past their 50^th birthdays and had spent decades constructing smart, resilient portfolios of stocks, bonds, and alternative assets. They warn their clients against chasing fads, and while they take calculated risks, they manage money for people who are already rich, and who don’t want to have to get rich twice.

I speak with financial advisors regularly in my role at Barron’s, and most of them are crypto-skeptics. They’re used to measuring intrinsic value based on cash flow and other metrics; all digital assets—even bitcoin and Ethereum—fail these tests. Many of the advisors work for companies that won’t let them buy digital assets for client accounts even if they want to. About half are “fiduciaries,” meaning they are legally bound to put their clients’ interests ahead of their own.

So, there Ric and I were, talking to nearly a hundred of his peers, the nation’s most successful financial advisors. I asked them, “How many of you own digital assets in your personal accounts?” Well over half of them raised their hands. Shocked, I asked, “How many include digital assets in client portfolios?” Again, far more than half the hands in the room went up. To get around their firms’ restrictions, some of the advisors quietly point clients in the right direction. That could not only get them in trouble with their compliance officers, it also could cost the advisor—if clients remove funds from their accounts to buy crypto elsewhere, that leaves a smaller asset base on which to charge fees. But these advisors had decided, to my surprise, that it was in their clients’ best interest to own digital assets. So, they were fulfilling their fiduciary duty by helping them do so.

We’ve come a long way since 2018, when John Oliver described cryptocurrencies as “everything you don’t understand about money combined with everything you don’t understand about computers.” Now, a group of fairly conservative, highly sophisticated money managers, working with some of the nation’s wealthiest individuals, have converted. These men and women did not chase the dot.com bubble, they didn’t hop on the SPAC bandwagon, they hadn’t poured money into Bernie Madoff’s scam. But they’ve decided digital assets belong in a well-balanced portfolio. They join a long list of establishment types—pension funds, endowments, and even a small 401(k) provider—who have embraced digital assets as well.

Ric, of course, has been urging all of them to do so for a long time. They are probably kicking themselves for not listening to him sooner. I certainly was a skeptic. As an editor at Barron’s, I first became aware of bitcoin in 2013 when it was priced at $31. I watched as it climbed, and thought of it as the greater fool theory at work—you bought bitcoin simply in the hope that someone else would pay a higher price. And did they ever; 2,210 times higher by November of 2021. Had I invested a mere $200 back in 2013 and cashed out near the recent high, I would have covered one of my children’s college education for the cost of a high-end toaster.

While I haven’t ruled out the possibility that we are witnessing the greater-fool theory on steroids, I now think of digital assets as analogous to the internet in the ’90s. Sure, there were excesses, but like the internet, I see this new technology as a transformational force, changing the future more than most of us can imagine. Yes, some of today’s highflyers will become the Pets.com of our era (Dogecoin, anyone?), but as Ric lays out in the pages that follow, the utility of blockchain technology is undeniable.

The ability to tokenize illiquid assets can allow investors to own a share of almost anything, or an aging couple to tap the equity of their home without a pricey reverse mortgage. Photographers and songwriters and even makeup artists will be able to profit from their intellectual property in ways they never could have imagined. Ric predicts that the US government will create a stablecoin by the end of this decade. Why would the government do that? For one thing, digital money will allow governments to track transactions, meaning they can tax them.

So, I am doing my part to educate people, particularly financial advisors. As I say to skeptics, it’s not my place to tell advisors how to construct portfolios, but I assure them that basic knowledge of digital assets will be a prerequisite for a thriving practice. Your clients may not expect bitcoin in their portfolios, but their children will.

A time machine can be a helpful decision-making tool. Imagine, 10 years from now, uttering this sentence: “Damn, I wish I had not learned about that emerging technology that was minting billionaires and transforming the world of finance.”

Enjoy the journey!

Jack Otter

Global Head of Wealth & Asset Management at Barron’s and host of Barron’s Roundtable