Bitcoin and a Financial Advisors’ Dilemma.
Being a financial advisor in our “new normal” does not leave me with a fuzzy feeling at the end of the day like I was promised when starting this job. This profession was supposed to make me feel proud… Everyday I get to wake up, help families grow their money, preserve their wealth and secure their future but with each new day that passes my eyes are opening to the fact that I may be steering them into an uncertain future. With inflation pushing close to 5.5 percent year-over-year in July, asset prices closing at all time highs seemingly every day, and interest rates at historic lows, the traditional 60/40 diversified portfolio touted by Buffett and the likes of conservative value investors seems to be broken.
Where is the best place for my clients to put their money? Historically stocks have been said to keep pace with inflation, but with the equity markets at all time highs and the covid shutdown showing just how fragile the economy and the supply chain can be, it may be a dumb move to go all into stocks if a big economic crash could be just around the corner. Bonds have been on a 30 year bull run and have always been an option as a place to preserve your money, but with interests rates nearing zero, you have to be crazy to buy into that system as you can barely find junk bonds with 4% yields… and then your still at negative real rates with inflation factored in.
This can’t be how the world works. I refuse to believe that everything is fine and life can continue to go on like this. We keep kicking the can down the road and hoping the bill never comes. At some point the government has to stop printing money, artificially keeping interest rates low, and inflating our stock prices, right?
I contemplated this question for months before the pandemic of March 2020, looking for a solution. At that point I was 4 years into a career in finance and sales and didn’t know any different. Every morning was the same but different news story of, “stocks rise on easing talks with China,” or “stocks fall after Chinese trade war talks hit a snag.” I came to the conclusion that this is just what has happened since the early days of finance news, only with different news stories for different generations. Today, we are dealing with a “trade war with China,” but the past was a story involving something about Russia, communism or whatever else was the hot topic of the year.
Then I discovered Bitcoin.
I want to preface this by saying that I first heard about Bitcoin in 2016. At that point I viewed it as something funny that would most likely not last but at least I could laugh at my friends who bought it. (Who is laughing now?) It was a way that the guy in town afforded that red Porsche convertible with the license plate “B1tc0in.” Another internet technology that would eventually become obsolete from newer crypto-currencies or technological advancements. I had all but forgotten about the 20$ I had left in an old blockchain.com account which was now surprisingly worth 50 dollars.
It wasn’t until July of 2020 when I dove deep down the “bitcoin rabbit hole,” partially because the price just kept going up. As someone interested in stocks and investing it was hard to ignore the returns Bitcoin was making.
I took some time to learn about how Bitcoin and the blockchain works and realized that this technological invention shouldn’t be ignored. This permission-less, immutable, digitally scarce thing could actually be a great way to preserve wealth and stop this creeping inflation and debasement of the US Dollar and best of all this was all back by a unhackable wall of energy through the proof-of-work protocol. This could potentially be a solution to stop my clients’ portfolios from losing their future purchasing power.
In comes the financial advisors dilemma:
As a fiduciary who is required to do what’s in my clients best interest, I need to be able to advise them that an allocation into Bitcoin is a good idea. One out of three US dollars were printed in the last year, and “investing” a percentage of their portfolio into an asset with a fixed monetary policy and a set supply is a great hedge again a government that is quickly devaluing the currency. This along with the fact that we are still early in the adoption of this new technology, and price discovery may allow my clients to capitalize on the upside “number go up” benefits of Bitcoin.
How do I accomplish this while working for a firm that is anti-Bitcoin?
My response to this question is simple. The opportunity cost of not owning some Bitcoin in a portfolio is too great of a risk. Clients need the option be able to make informed decisions that are in their best interest regardless of whether my firm or the financial industry are on the same page.
Bitcoin WILL be the future of the financial industry, and 99% of people in traditional finance are currently wrong about the implications that the Bitcoin network will have on us as humans. We as financial advisors can either sit on the wrong side of history and watch as the monetary assets we manage whither away, or take a stand and start using Bitcoin as a powerful tool to help our clients and friends live and retire comfortably.
I believe one of the greatest things about Bitcoin is the fact that the traditional financial institutions are not yet involved, but it won’t stay like that for long. The normal everyday investor will be able to benefit from front running the big banks and governments who eventually capitulate and bid Bitcoin to a higher price.
This is almost the exact opposite of past instances of high inflation where the middle class was absolutely massacred and the wealthy continued life as usual, the most extreme case of this being post WW1 Germany, when extravagant nightlife and restaurants were being built, and investments where yielding huge nominal gains, yet the middle class could barely afford to buy eggs on a weekly wage.
If we as financial advisors don’t start speaking out and telling our clients what they need to hear rather what our firm thinks they should hear, then we won’t have our jobs much longer.
