Ric Edelman expects the SEC will approve a bitcoin ETF

Despite an almost 50% decline in the value of Bitcoin between mid-April and late June and  crackdowns in the U.K. and China, Ric Edelman, the founder of Edelman Financial Engines and the RIA Digital Assets Council, remains bullish about cryptocurrencies. He also expects the Securities and Exchange Commission to  approve a Bitcoin ETF.

“It’s not a matter of if but when,” said Edelman, who hosted a recent webinar with guest Ben McMillan, the founder and chief investment officer of IDX Digital Assets.

About a dozen asset managers have application filings pending at the SEC to launch a Bitcoin ETF. The agency has rejected some such filings in the past and more recently has postponed decisions on about a handful, including the VanEck Bitcoin Trust for which the SEC has delayed a decision twice.

SEC Chairman Gary Gensler has said greater investor protection is needed for the cryptocurrency market, which he calls  a “speculative asset class,” but the SEC lacks the authority to regulate cryptocurrency exchanges.

Edelman is unfazed by the SEC’s delays and even put a positive face on the U.K. Financial Conduct Authority banning the U.K. operations of Binance, the world’s largest cryptocurrency exchange, and China’s recent crackdown on crypto mining, which was the catalyst for the recent Bitcoin selloff, according to McMillan.

“China’s move to ban mining is a bullish signal for the U.S. and Bitcoin,” said Edelman. “Miners will be coming to the U.S. [which will] introduce new opportunities for regulators to get engaged. This is a competitive environment. The Chinese are taking themselves out of the market, though likely to change their minds again.”

The Chinese move “highlights the geopolitical nature of crypto,” McMillan said.

In the U.S., regulators are looking at the vulnerabilities of crypto exchanges, said Edelman, adding he “wouldn’t be surprised to see limits on leverage on U.S.-based exchanges.” In China and in Binance’s U.K. operations, leverage could be excessive, according to McMillan.

Stablecoins, crypto trusts and future plans

He noted that stablecoins, which can be backed by some type of collateral including fiat currencies such as the dollar, “have exploded in popularity” among those who want to be in the crypto market but with less risk. But it’s early days for stablecoins and some, including Tether, which is not fully collateralized, broke their peg of $1 per coin during the big May 2021 crypto selloff, said McMillan.

“Stablecoins are the most obvious opportunity for federal regulation” that would treat stablecoins as money market funds, Edelman said. “It’s inevitable.”

McMillan’s IDX currently manages two private, open-ended crypto trusts — the IDX Risk- Managed Bitcoin Trust and the IDX Risk-Managed Ethereum Trust — which invest in their respective cryptocurrencies and cash, managing exposure based on risk. The trusts are long crypto 60%-70% of the time but are currently all in cash, said McMillan.

IDX is now working on bringing a long-only DeFi (decentralized finance) trust to market, which will be diversified with about a dozen different coins represented across the DeFi ecosystem.

Asked when the IDX Bitcoin Trust would move back into Bitcoin, McMillan said after Bitcoin establishes a price bottom. He couldn’t pinpoint an exact price level for re-entry but said he would consider “putting risk back on the table” if  Bitcoin continues to appreciate and climbs to around $40,000.

Bitcoin has gained almost 20% in the past four days and is now trading around $36,000.

Edelman said his current stake in Bitcoin and his wife’s is “north of the 1% allocation” they took on years ago. He said later this year and into 2022 he would be disclosing his asset allocation approach to digital assets. “We believe very strongly in diversification — coins, tokens, a variety of funds and companies … Diversity wins.”