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With the current decline in the crypto market, most financial advisors are staying away from Bitcoin (BTC), Ether (ETH), and other digital currencies. However, a former financial advisor views Bitcoin as a rare wealth creation opportunity and explained why people shouldn’t worry too much about the current market downturn.
Ric Edelman, a former independent financial advisor and founder of Edelman Financial Services, acknowledges that many people think that Bitcoin is a fad or a fraud. However, he views crypto as “the first major new asset class in 150 years” and has established the Digital Assets Council of Financial Professionals, a new company that aims to educate the financial industry on this asset class, CNBC reported.
Edelman is very bullish on Bitcoin’s long-term prospects. In fact, he described it as a rare wealth creation opportunity as he believes BTC will rally in the future.
“Bitcoin will very likely be massively more valuable than it is today, along with a great many other elements of the digital asset community,” Edelman told CNBC. “It represents a wealth creation opportunity that we haven’t seen in 35 years.”
While Bitcoin is currently trading at around $20,000 or a third of its all-time high price in November last year, Edelman isn’t too concerned about the current downturn. He explained that BTC has already suffered declines of more than 70 percent in the past but it always managed to bounce back higher than before.
“Even though bitcoin has experienced these massive declines many times, it has generated a 40 million percent total return since inception,” he explained. “Even since 2018, even though bitcoin is now down 70% since November, since 2018, it’s up 7x — not 7% — 7x. This is what innovation is all about, and you need to maintain a long-term perspective and be willing to tolerate this kind of incredible volatility along the way.”
In addition, Edelman explained that it’s not uncommon for emerging new technologies to experience major declines. “If you look at the first 12 years of Amazon, Apple, Google, you’ll see very similar price performance of their stocks in their early years of development,” he said. “It’s routine as you’re innovating a new technology, gaining market share, and achieving maturity that you see massive price volatility along the way to producing unprecedented levels of profits.”
For those who want to invest in crypto, Edelman suggests limiting their exposure to just 1 percent of their portfolios. As a very new asset class, he acknowledged that investing in crypto could be risky so it’s important to manage those risks by limiting one’s exposure.
“It’s developing and maturing, and it faces a great many risks,” he explained. “You have the potential for regulatory risk. You have the risk of fraud and abuse. There’s technological risk. There is always the potential of decreased market demand. Because of that, I recommend a very low single-digit allocation to this asset class as part of a diversified portfolio.”
