I’m showing Bitcoin market cap (in dollars) in the top pane and then spot Bitcoin price (also in dollars) in the bottom pane. We’re sitting close to new highs for both right now and Bitcoin’s market capitalization is something like half of the total market cap of all digital assets. So the industry has captured something like $3 trillion dollars. This time, the “capture” seems to be a bit more permanent than the last few times. The first boom, in 2017, is barely visible on the chart. The second boom of 2020-2021 is visible but occurred during the time where the legality of these assets was still an open question.

The question is no longer open. It’s been answered. A lot of money had to be lost in order for that question to have gotten answered, but here we are on the other side.

This past March, more than a third of financial advisors surveyed said they would be recommending Bitcoin and other digital assets to their clients within the next six months. As of December of 2023, that percentage stood at just one fifth or 21%.

Advisor adoption is now underway, even if slower (or faster!) than some would like it. It’s a drip, not a flood, but the drip is steady. And should Bitcoin prices resume their first half rally in the second half of the year, the drip will become more insistent.

So what happened?

Three things, from my point of view, which led to advisor resistance to Bitcoin falling like dominos: 

1. In 2024, the digital assets industry captured Washington. The same way everyone else captures Washington: Spending a lot and making noise on Twitter. Republican politicians - including Donald Trump - began publicly extolling the virtue of crypto technology, American Bitcoin mining and the need to support the industry domestically rather than see it move offshore. This meant a lot of fundraising activity and a boost in support from younger voters.

Here’s Politico on May 10th:

Democrats were forced to respond and - just like that - President Biden's White House began issuing supportive statements about coming up with a regulatory framework for the industry. A resolution which would have paved the way for increased crypto custody among SEC-regulated traditional brokerage firms was vetoed by Joe Biden - but not without some conciliatory language accompanying the veto. In a press release on May 31st, the White House stated:

He’s “eager to work with Congress” because the polls make it clear - young people care about crypto and don’t respond at all to the negative messaging from Elizabeth Warren et al on this issue. Plus there’s the money. A widely-circulated story last week claims that the Biden campaign is considering a partnership with Coinbase to raise Bitcoin-denominated donations via their formally loathed platform. That’s a gigantic about-face considering that, just a year ago, the Biden SEC seemed to be hellbent on crushing Coinbase and litigating it out of existence.

Importantly, there is no organized resistance to Bitcoin in Washington D.C., on Wall Street or anywhere else. Not anymore. You cannot raise money, politically, by saying you are going to work hard to legislate against digital assets because the people who don't own Bitcoin don't care enough and just aren't getting animated about it. Even the traditional finance industry incumbents have dropped their resistance and now want to play in digital assets - on the brokerage side, custody and clearing, lending and securitization, asset management, etc. All of the energy, capital and passion is on the other side - the pro-Bitcoin side. 

The only resistance to crypto now is coming from people in traditional finance like Jamie Dimon who either despise the concept or are suspicious of how this market functions. It's worth noting that Dimon's firm, JPMorgan, is trading digital assets just the same. Job number one in politics is to get re-elected and the way one does this is by raising money. Why would you turn off the crypto money-raising spigot given how few people there are who will reward you for it. 

Here's Bill Allison from the Bloomberg Crypto newsletter, writing on May 16th, 2024: 

According to the same article, the anti-crypto progressive politician Katie Porter was “pummeled” by $10 million in attack ads by Fairshake, which successfully kept her off the ballot for an open Senate seat this coming November. Fairshake didn’t use the words “crypto” or “Bitcoin” anywhere in these ads (they never do), branding her as a bully, a liar and a fake “actor” instead. It worked. Porter probably lost for a variety of reasons having nothing to do with these ads, but in what way did her anti-crypto stance help? In no way. There is no constituency for whom blocking digital assets is particularly important. They’re certainly not writing you checks for taking this stance and its not turning out any additional votes.

Crypto leaders have now learned the influence game and have mobilized their audiences. You're not going to be able to turn them off or shut them down. In 2022, an overall ban was conceivable given the carnage in prices and the wreckage among startups, reputations and retail account holders. Not anymore. The industry has bought powerful friends. Should Donald Trump win the White House this fall, support for the crypto industry (and its propensity to donate and tweet loudly) will go from tacit to explicit on the right wing. The left will find reasons to embrace it too (sustainable mining projects, “banking the unbanked”, providing an online consumer alternative to evil credit card issuers, keeping jobs here in America, etc).

It’s a wrap. Crypto is here to stay until quantum computing breaks all the blockchains. We’ll deal with that at the end of this decade.

2. BlackRock and Fidelity Bitcoin ETF filings made it clear that the most reputable firms in the financial services industry were going to become more deeply involved in the crypto / digital assets space and were unafraid to build products for both institutional and retail investors and traders. These filings led to the approval of a dozen such products, each with its own spin on the concept of Bitcoin being traded freely in traditional brokerage accounts by anyone who wanted to engage. 

Advisors are not exactly flooding into these products, with some firms dipping their toes in and talking about it as a 1% allocation. Most investment advisors remain in wait and see mode, which makes sense given how risk-averse and conservative the personality type is within our industry. Advisors rarely face the consequences of being too cautious in their work for clients. They might get fired during market manias for holding back, but they’d prefer that than to find themselves before a FINRA arbitration panel or explaining to a state securities regulator why they took so much risk.

Here’s a look at the largest of the Bitcoin ETF products now available on brokerage platforms for advisors to use (from launch through May 31st) in terms of how many Bitcoin they hold:

All the ETFs combined are holding less than a million Bitcoin. You will know that something has seriously shifted in the wealth management / advisor space by this chart. Advisors oversee trillions in assets. When there is a decisive move to incorporate Bitcoin into asset allocation models as a “non-correlated” asset class, these ETF totals will be where it shows up. Advisors are very comfortable with ETFs and these products will allow for the allocation to exist alongside stock and bond ETFs, obviating the need for account replication, porting holdings into the portfolio accounting software, API connections to third-party custody solutions, etc. If you were building something crypto-dedicated for advisors, the ETFs are going to drink much of your milkshake. Crypto OGs and early adopters may favor owning the digital coins themselves. But normies don’t care at all and normies are what the wealth business is catering to. I think there will be a two-track adoption, where younger users who are savvy about digital assets will favor owning the assets themselves and everyone else will just default to iShares. The “everyone else” is where the next trillion dollars will come from, if it comes at all.

3. The conviction and sentencing of FTX’s Sam Bankman-Fried and the jailing of Binance founder “CZ”, along with a slew of settled lawsuits, penalties and fines have made it clear that there is regulatory oversight of digital assets and that bad actors in the space will be punished just as they are in any other industry. It is true that the SEC has suffered some high profile legal setbacks - most notably for blocking Grayscale from converting its trust into an ETF. But it’s also true that lots of crimes in progress were probably stopped by the SEC’s zealous campaign to clean up the town after 2020-2022’s Wild West Show. How many investors were saved by the crackdown that may have gone too far? We’ll never know, but it’s safe to assume that it’s a lot.

Last October, the court ruled in Grayscale’s favor and the word went out that there would be no appeal. The combination of Grayscale's victory in the fall and the subsequent approval of a dozen ETFs in January basically put an end to the existential threat to the crypto industry posed by securities regulators. The authorities would shift from disputing the very legality of digital assets to finding ways to protect investors from some of the industry’s worst practices. Token drops favoring insiders, message board manipulation, social media promotion and all other unsavory aspects of the landscape will now end up under the purview of the traditional industry regulators. Licensing requirements for the sale, distribution and management of digital assets will probably be among the next wave of proposed rules.

They couldn’t kill it, so now they’ll have to regulate it and incorporate it and mainstream it. The regulators learned what Bugs Bunny taught us all a long time ago: If you can’t beat ‘em, join ‘em.

This is how the west was won. It took forever and then it happened seemingly overnight. The combination of political resistance fading, regulatory challenges subsiding and “safe” ETF options for the general public was enough to bring advisors around to at least considering the role digital assets ought to play in client portfolios.

They’re not jumping in with both feet, but now the industry has their attention. There’s been a big shift in the attitude of the average advisor, one that will have reverberations for years to come.

Ric Edelman on The Unlock

Over on The Unlock, Ric Edelman sat down with us to discuss how financial advisors are using crypto and digital assets in client portfolios today. We take a look at the data and some of the leading methods for bringing the non-correlated returns of this asset class into millions of investors’ lives.

Ric has been incredibly prescient about the mainstreaming of crypto and what would be needed in order to bring our fellow financial advisors around to the concept. He’s been banging this drum for years now and he was right about a lot of developments along the way.

Ric is the Founder of Edelman Financial Engines, an RIA with $290B+ in AUM. Ric is a NYT best-selling author, hosts The Truth About Your Future podcast, and is the Founder of the Digital Assets Council of Financial Professionals, a professional educational platform for establishing expertise in Blockchain digital technology and digital assets.

Please enjoy the show! If you are a financial advisor or work professionally in any part of the wealth management business, it’s easy to get on The Unlock distribution list - just go here and register, free:

The Unlock - by advisors, for advisors

That’s it from me today, have a great week!