Cryptocurrency investing at Schwab
The topic of cryptocurrency has been in the media for years, but we're now seeing it take a more prominent place in the mainstream investing landscape, with more advisors—and their clients—expressing interest in this asset class. If you're new to the discussion, you're not alone. In fact, 27% of investors in our 2021 Investor Profile study said they would like to improve their understanding of cryptocurrency.
This article will provide an overview of how cryptocurrency works, insight into why it has become so popular, and how you can gain exposure to cryptocurrency through Schwab.
Cryptocurrency is a virtual (or digital) currency secured through one-way cryptography. It appears on a distributed ledger called a blockchain that is transparent and shared among all users in a permanent and verifiable way that's nearly impossible to fake or hack into.
The original intent of cryptocurrency was to allow parties to make online payments to each other without the need for a central third-party intermediary, like a bank. However, with the introduction of smart contracts, non-fungible tokens, stablecoins, and other innovations, additional uses and capabilities are rapidly evolving.
Cryptocurrency's value stems from a combination of scarcity and the perception that it is a store of value, an anonymous means of payment, or a hedge against inflation. You can buy or sell cryptocurrency directly in a spot market, or you can invest indirectly in a futures market or in investment products that provide cryptocurrency exposure.
Why are cryptocurrencies so popular?
Cryptocurrencies appeal to investors for many reasons. Some see them as the currency of the future and want to buy them now because they believe that they will become more valuable. A prime example is bitcoin, the most popular of the cryptocurrencies, with an estimated total market cap of about $795 billion as of January 19, 2022. Other investors are mainly interested in the underlying blockchain technology because they see it as more secure than traditional payment systems.
Ways to invest in cryptocurrency at Schwab
Schwab has several choices for gaining exposure to the cryptocurrency markets, though spot trading of cryptocurrency is not currently available.
Cryptocurrency Coin Trusts
Cryptocurrency coin trusts, such as GBTC, BCHG, ETHE, OBTC, AND LTCN, allow investors to trade shares in trusts holding large pools of a cryptocurrency. However, these products can involve high volatility, hefty fees, commissions, and other risks. They trade over the counter and behave like closed-end funds.
Bitcoin futures contracts are agreements to buy or sell a specific quantity of bitcoin at a specified price on a particular future date. Advisors can access these through Mutual Funds & ETFs that invest in bitcoin futures contracts, providing your clients with a way to get indirect exposure. You can go to the Research tab of Schwab Advisor Center® and use the screener to view these funds in the "Digital Assets" Morningstar Category.
Some stocks provide indirect and varied exposure to cryptocurrency because their businesses have a focus on electronic payments or products that utilize blockchain or cryptocurrency. Examples of such stocks include COIN, SI, MSTR, SQ, PYPL, and OSTK.
In summary, while cryptocurrency can be a speculative and volatile investment, there are some benefits that can make it attractive, including the potential for appreciation and the addition of a non-correlated asset for diversification. Given the potential opportunity and increased media coverage, you may start to get more questions from clients on cryptocurrency—especially your younger clients.
We'll continue to bring you insights on this important topic, along with updates on any new opportunities to gain exposure to cryptocurrency through the Schwab platform.
The information provided here, including references to specific securities and market data, is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
All expressions of opinion are subject to change without notice in reaction to shifting market or economic conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness, or reliability cannot be guaranteed. Supporting documentation for any claims or statistical information is available upon request.
Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.
Digital currencies, such as Bitcoin, are highly volatile and not backed by any central bank or government. Digital currencies lack many of the regulations and consumer protections that legal-tender currencies and regulated securities have. Due to the high level of risk, investors should view Bitcoin as a purely speculative instrument.
Futures trading involves a high level of risk and is not suitable for all investors.
Currencies are speculative, very volatile, and not suitable for all investors.
Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.
Investing involves risk, including risk of loss.
Virtual Currency Derivatives trading involves unique and potentially significant risks. Please read NFA Investor Advisory – Futures on Virtual Currencies Including Bitcoin (nfa.futures.org/investors/investor-advisory.html) and CFTC Customer Advisory: Understand the Risk of Virtual Currency Trading (cftc.gov/learnandprotect/advisoriesandarticles/understand_risks_of_virtual_currency.html).
All corporate names and market data shown above are for illustrative purposes only and are not a recommendation, offer to sell, or a solicitation of an offer to buy any security.