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.