Schwab's Crypto Offerings: Invest In Digital Currency?

Cryptocurrency is a hot topic for investors, with Bitcoin being the most well-known. Charles Schwab & Co., a $7-trillion brokerage firm, has expressed interest in entering the cryptocurrency market, but only with the approval of the SEC. While Schwab has not yet begun to offer direct trading in Bitcoin, it does offer its clients access to the cryptocurrency market through over-the-counter cryptocurrency trusts and Bitcoin futures trading. Investors can also take advantage of the company's low-cost trading platform and lack of account minimums.

Charles Schwab & Co. is entering the cryptocurrency market

Charles Schwab & Co. is a $7-trillion Westlake, Texas brokerage that has been described as "investor-friendly". The company currently offers trading in Bitcoin futures, with an attractive commission of $2.25 per contract. Additionally, clients with a futures account can trade Bitcoin futures (BTC) through the company.

Charles Schwab & Co. also provides access to the cryptocurrency market through "over-the-counter" cryptocurrency trusts, such as the Grayscale Bitcoin Trusts (GBTC and BCHG) and Grayscale Ethereum Trusts (ETHE and ETCG). These trusts allow investors to trade shares in large pools of a cryptocurrency, although they come with high volatility, fees, and other risks.

The company's entry into the cryptocurrency market is significant, as it indicates the growing acceptance and legitimacy of cryptocurrencies as an investment asset class. Cryptocurrencies have been gaining a lot of attention from investors, with some early investors seeing sizable gains. However, it's important to note that cryptocurrencies are highly speculative and volatile investments, and investors should carefully consider their goals and risk tolerance before venturing into this market.

Schwab clients can trade Bitcoin futures

Trading Bitcoin futures involves agreeing to buy or sell a specified amount of Bitcoin at a predetermined price on a future date. This allows traders to profit from both rising and falling Bitcoin prices. For example, if you believe the price of Bitcoin will increase in the future, you can enter into a contract to buy Bitcoin at the current price and then sell it at a higher price in the future, pocketing the difference as profit. On the other hand, if you anticipate a drop in Bitcoin's value, you can enter into a contract to sell Bitcoin at the current price and buy it back at a lower price later, again profiting from the difference.

It is important to note that trading Bitcoin futures comes with significant risks. The highly volatile nature of cryptocurrency markets means that price movements can be unpredictable, and traders can face substantial financial losses if their bets go wrong.

Schwab clients interested in trading Bitcoin futures should carefully consider their risk tolerance and financial goals before proceeding. While futures trading can offer the potential for significant profits, it is crucial to remember that it also carries the risk of significant losses.

Over-the-counter cryptocurrency trusts are available

However, it is important to note that investing in these trusts can involve high volatility, hefty fees, and other risks. Investors should carefully research and compare the different cryptocurrency trusts available before making any investment decisions.

In addition to over-the-counter cryptocurrency trusts, Schwab clients with a futures account can also trade Bitcoin futures (BTC). This provides another avenue for investors to access the cryptocurrency market through Schwab's platform.

While Schwab does offer access to cryptocurrency markets through these trusts and futures accounts, it is important for investors to carefully consider the risks and volatility associated with cryptocurrencies before making any investment decisions. Cryptocurrencies are highly speculative investments, and investors should understand the potential for significant financial losses due to price fluctuations.

Cryptocurrency ETFs

• IShares Bitcoin Trust (IBIT): This ETF has grown to over $17.2 billion in assets under management (AUM) and offers exposure to Bitcoin's spot price during market hours for a 0.25% expense ratio.
• Bitwise Bitcoin ETF (BITB): This ETF made history by being the first Bitcoin ETF to disclose its public wallet address, allowing prospective investors to verify its reserves and transactions. It has attracted over $2.1 billion in AUM and charges a 0.2% expense ratio.
• Grayscale Bitcoin Trust ETF (GBTC): GBTC was the first spot Bitcoin ETF, launched after Grayscale won a landmark legal victory against the SEC. It currently has around $19 billion in AUM and charges a 1.5% expense ratio.
• VanEck Ethereum Strategy ETF (EFUT): This is an Ethereum "strategy" ETF that uses Ether futures to provide synthetic exposure to Ether's price. It charges a 0.66% expense ratio and has around $29 million in AUM.
• Global X Blockchain ETF (BKCH): BKCH offers exposure to crypto exchanges, miners, and asset managers such as Coinbase, Riot Platforms, and Galaxy Digital Holdings. It has a 0.5% expense ratio.
• Amplify Transformational Data Sharing ETF (BLOK): BLOK holds 52 stocks actively selected for their involvement in blockchain technology, including MicroStrategy, Robinhood Markets, and PayPal Holdings. It charges a 0.76% expense ratio.
• ProShares Ultra Bitcoin ETF (BITU): This is a leveraged Bitcoin ETF that targets a daily return two times that of the Bloomberg Bitcoin Index. It uses swaps, a type of derivative, to achieve this exposure and charges a 0.95% expense ratio.

It is important to note that cryptocurrency ETFs are highly speculative and subject to significant price volatility. Investors should carefully consider their investment goals, risk tolerance, and conduct thorough research before investing in these products.

Cryptocurrency is a highly speculative investment

Cryptocurrencies are not currencies at all. They are digital or virtual currencies underpinned by cryptographic systems. They enable secure online payments without the use of third-party intermediaries. "Crypto" refers to the various encryption algorithms and cryptographic techniques that safeguard these entries, such as elliptical curve encryption, public-private key pairs, and hashing functions.

Unlike traditional currencies, cryptocurrencies are decentralised, meaning no single entity has control over how they're governed. Instead, they're driven by consensus and the peculiarities of the cryptocurrency itself. For example, bitcoins are "mined" using high-powered computers that solve exceedingly complex math problems.

The value of cryptocurrencies is highly volatile. The volatility of bitcoin to US dollar is almost six times the volatility of the Rand to US dollar. While this is great in good times, it is potentially devastating for investors in bad times.

There are also other risks involved in investing in cryptocurrencies. These include:

• Fraud: Many people have reported being lured to websites that look like opportunities for investing in or mining cryptocurrencies, but are bogus.
• Lack of recoverability: If you lose your cryptocurrency "key," you cannot retrieve your cryptocurrency.
• User risk: There is no way to reverse or cancel a cryptocurrency transaction after it has been sent.
• Regulatory risks: The regulatory status of some cryptocurrencies is still unclear in many areas, and a sudden regulatory crackdown could make it challenging to sell cryptocurrencies or cause a market-wide price drop.
• Counterparty risks: Many investors and merchants rely on exchanges or other custodians to store their cryptocurrency. Theft or loss by one of these third parties could result in losing one's entire investment.
• Management risks: Due to the lack of coherent regulations, there are few protections against deceptive or unethical management practices.
• Programming risks: Many investment and lending platforms use automated smart contracts to control the movement of user deposits. An investor using one of these platforms assumes the risk of a bug or exploit in these programs.
• Market manipulation: Market manipulation remains a substantial problem in cryptocurrency, with influential people, organisations, and exchanges acting unethically.

Despite these risks, cryptocurrencies have seen a significant price leap, and some have created substantial fortunes by taking on the risk of investing in early-stage cryptocurrencies.

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