Crypto ETFs
Freddie: Wall Street is rolling out the red carpet for crypto ETFs. Yes. And private equity in your 401k, but is it a breakthrough for retirees or just another slick sales job? In this episode we uncover the real motives behind these flashy new investments and what every retiree needs to know before getting pulled into the hype.
Hello again everyone and welcome to this episode of Leibel on Fire. I'm Freddie Bell and it's my pleasure to be with Leibel Sternbach. He is Amazon's bestselling author on Living with Financial Anxiety and also the book Authenticity. Leibel, hello and welcome back.
Leibel: Hey, how are we doing today?
Freddie: Unbelievable.
I talk to a lot of different people about scams and I never thought we'd be talking today Leibel Sternbach about crypto ETF scams and what we need to know about it. I thought all of this was shielded somehow. There was some type of barrier around it, but the wall, Wall Street is rolling out the red carpet for crypto ETFs, as you've told me privately, and also private equity in your 401k.
Freddie: But is it a breakthrough? And I'm wondering what is Wall Street really pushing for right now in crypto private equity in 401ks? What's going on right now?
Leibel: Yeah, so, the golden rule, right, when it really comes to any financial transaction is you gotta follow the money, right?
You gotta ask yourself, why is it that they are giving me this opportunity? People don't just, especially, large institutions, they don't give things out of the goodness of their heart because they don't have hearts, they have shareholders. And so you need to follow the financial motive.
And when it comes to crypto, when it comes to private equity, when it comes to and this really is about the 4 0 1 Ks and it is about individual investors. We're seeing this push and I really should expand it. It is not just, it's not just. 401k. It's not just Bitcoin and cryptos and private equity.
It is this whole gamut of investments that traditionally were not available to the average investor. You had to be in an accredited investor to get access to that you had to have introductions to get access to, like hedge funds. The SEC limits how many investors a hedge fund can interact with.
They can't have an unlimited number of customers. Whereas like yields4u, in a financial institution, we can take on as many people as we want because we're very highly regulated. The less regulated you get, the more controls the government puts in place so that if you decide to be a Bernie Madoff and walk away with people's money, there's a limit to how much you can harm.
And that the people who you're harming are people who are sophisticated enough that they should have seen it coming. Now when it comes to Wall Street and this goes by extension to Congress and it goes right now, we've got, the administration I would include in this category. When they want you to do something, you really gotta look and you gotta say, why is it that they want me to do this thing? Because
usually it's not because it's good for you. Right. Even though they'll tell you that it's good for you. You gotta look for the way that they're making a profit. And when it comes to crypto and when it comes to these investments you gotta really look deep and hard for what their profit motive is and understand it.
You may be okay with it but you gotta understand that. And I think, at least my read on it is Wall Street has profited off of these private investments for a very long time. They've made a lot of money off of it. In fact, most of the crypto market is Wall Street.
It wasn't private investors, it wasn't crypto enthusiast, it wasn't, Sam Altman and his FTX. It was wall Street hedge funds who were funding it because there was IRS tax loopholes, there was an ability to there was no regulations, so they were able to do every single security scam that was outlawed in the last 150 years.
They were able to replay those in the crypto market, right? Things like pump and dump, where you got a whole bunch of investors excited about something so that the stock price went up and then you dumped it at the high and left the everyone holding the bag. That was not regulated in crypto. You could do that, and nobody stopped you from doing it.
But they then profited to the tune of hundreds of billions of dollars and they drove up the value of cryptocurrency. The question is how do you get out of a Ponzi scheme? When there's no real value how do you get out without everyone becoming wise to the fact that it was all a scam?
Freddie: So what are you telling retirees when they're talking to you about these kinds of investments?
Leibel: Well, I think that when it comes to these types of investments, they have a place in everyone's portfolio. Whether it's cryptocurrency or it's other, private credit. There is real value in that.
There is real value because they move in a way that is different than the stock market. It gives you diversification. It gives you access to returns that you can't get in the open market. In the open market, things get priced in very quickly, right? Just watch the news and watch the stock market, and it moves in line with the news, right?
Like news events happen and the market moves. Having access to things that aren't priced quite as efficiently as that gives you access to alternative returns, alternative income streams that allow you really to diversify your portfolio, insulate it from the shocks of the market, and get outsized performance.
Having said that though, I think there's a warning sign, the fact that Wall Street wants everyone to be involved in this. The fact that Wall Street is pushing to kind of securitize this in new ways that open up access to broader capital markets. It means one of two things. With crypto specifically, and I'll address that in a second.
But in general, what it means is Wall Street has either found something new that's more profitable and they've moved there. And so now they're just trying to eke out every bit of profit with the broadest market possible 'cause the profit margin has disappeared from this thing. That's possibility number one.
Possibility number two is that the market is oversaturated and is overheated, and Wall Street knows this. So , they're trying to reduce their risk by offloading the risk to other people who aren't sophisticated enough to evaluate the risk properly. Because when we as investors don't fully understand the risk we're taking on, we assign it a value of zero. Because
it goes into our mind and we go, I don't know what this is. So we just throw it out. Instead of taking the time to investigate and learn what this risk is, we just put the value to zero. We assume that it's nothing. We throw it out and we evaluate the risks that we know. And when we look at the risks that we understand in these products.
They're very small. When it comes to cryptocurrency, we're like, well, we know people who made millions in it. We know people who made lots of money. We know that it's up, 10,000% and the stock market's only up a few hundred percent. So therefore it's an opportunity to make a lot of money when it comes to private credit.
I think everyone knows somebody who's made a lot of money in real estate or a lot of money in hard lending. We know these people who, or we've heard stories of these people who make this money, and so we don't know of all the downsides in this and Wall Street does. So they're trying to reassign that risk.
Freddie: Talk to me Leibel about the hidden fees or the conflicts of interest that retirees should be at least aware of or come to people like you with questions.
Leibel: So I think with all of these products, you gotta look at, how do they actually operate because these don't operate like your traditional investments.
And so therefore, whether it's fees that are being charged on the inside of the investments or whether it's transaction costs. Because these things aren't very liquid, so when you go to buy and sell it, you may not get the price that you think it should be you, like you buy it at a hundred dollars, but when you go to sell it, it might sell for $90, even though it's trading at a hundred dollars.
And that's just because it's not very liquid. So it's very hard to buy and sell it. So you need to be aware of it. You need to understand who is the person who's selling it to you, what is their incentive for selling it to you, because their incentive may not be lined up with yours. Just the other day, I had a prospect come to me and I had a conversation with 'em and I said, this type of investment is ideal for you.
Go tell your banker to, to get this for you. The bank that he works for is a big issuer of this type of product. They issue this type of product and you should be able to get it from him. And you like your banker, keep him. He comes back and says, my banker tried to sell me this other product.
And he told me it's the same thing. It looks very similar, but it's not the same product. And I was very disappointed and I said, go give him this ticker and he can go purchase it for you. But the product that he tried offering you is different. It has more risks associated with it.
However, it also pays him a higher commission, right? He gets paid 5% on this and he maybe gets 1% on the other one, right? And so you've gotta really understand where the financial incentives line up because that will make all of the difference in terms of why is someone pushing this on you versus , someone else.
And with Wall Street, you gotta really ask the question, why are they trying to put this in ETF format? Why are they trying to put it in my 401k? Why are they trying to even turning Bitcoin into an ETF. What's the purpose behind that? And it's sinister when you start to understand it.
Freddie: Oh my goodness.
So is it fear mongering or is it, can you really lose everything or do you just feel like when you've talked to us before, we need to be wise about what we're doing?
Leibel: You need to be wise about what you're doing. There are some things that you can definitely lose all your money in. There are definitely ETFs out there
that have gone to zero, right? If they're not managed properly and you take too much risk, it could go to zero. That is a possibility. And when you're talking about something, I wouldn't necessarily ascribe that to Bitcoin, but to some of these other cryptocurrencies, especially if it turns out that the, it's a scam or it turns out that the mechanisms that have been put in place don't really work.
That can cause a real problem. I think more with the Bitcoin, you gotta worry about the fact that where is all this cryptocurrency coming from? Right? The ETFs have to have hard currency, hard, hard cryptocurrency, somewhere locked in a vault in cold storage. That is the deal of these ETFs. So where is that coming from?
Who contributed these hundreds of billions of dollars worth of crypto 'cause it didn't come from the private market. And so if it came from all these hedge funds, why are the hedge funds exiting? What do the hedge funds know that you don't know? Why are they taking their risk off the table?
Freddie: Tell me what I can find by going to yields4u.com concerning this topic.
Leibel: So if you go to yields4u.com, we've got lots of great articles and resources and tools and all that kind of great stuff. What we do have is we have a 60 second retirement calculate tool that'll create a plan for you.
As part of that plan. It'll assign you three different buckets that we recommend for investments. You have your spending money, you have your short term money, and then your growth money, if you want to take a portion of your growth money, and we do think that a portion of your growth money should be put into these types of alternative assets based on your risk tolerance, right?
You shouldn't just go into it for no reason. And if the return that you're looking for, is you know, something that is easily returned by traditional assets. Then that's fine. You don't need to start exploring the universe. But if you are looking to expand your universe, if you are looking for something that can make, a 7% return, become a 10% return, sometimes with the understanding that it can make it a, 2% return as well.
Then definitely explore where these fit into your portfolio.
Freddie: That makes a lot of sense. We'll leave it right there, but you can get information as Leibel just said by going to yields4u.com. Yields, the number four, the letter u dot com.. And before you jump into the latest Wall Street trend, remember this, if you don't fully understand the product as Leibel just said, you might be the product. Stay sharp.
Ask the hard questions and protect your retirement like your future depends on it because it really does.
