Schwab's Guide To Buying Bitcoin

Bitcoin and other cryptocurrencies have been growing in popularity for years, and while they are not available for direct purchase on Schwab, there are several ways to gain exposure to the cryptocurrency markets. This includes investing in cryptocurrency-related exchange-traded funds (ETFs), mutual funds, coin trusts, and stocks. These options allow investors to access the cryptocurrency space without directly buying or selling Bitcoin or other cryptocurrencies. It is important to note that investing in cryptocurrencies is considered speculative and comes with significant risks, including high volatility and potential financial losses.

Schwab's Fund Finder tool can help you find Bitcoin ETFs and mutual funds

Schwab clients can use the Fund Finder tool to find Bitcoin ETFs and mutual funds. The tool simplifies the process of finding mutual funds or exchange-traded funds that fit specific criteria with easy-to-use filters.

To access the Fund Finder tool, go to the Schwab.com client Account Summary page, roll over "Research", and click "ETFs" or "Mutual Funds". From there, click "Find ETFs and Mutual Funds". You can then narrow your search by unchecking boxes for certain criteria or by selecting specific criteria.

Schwab's Fund Finder tool allows clients to find spot bitcoin ETFs and spot ether ETFs in the Morningstar category "Digital Assets". These funds invest in cryptocurrencies, cryptocurrency futures contracts, or equities related to cryptocurrencies.

In addition to the Fund Finder tool, Schwab offers several other ways for clients to gain exposure to the cryptocurrency market, including cryptocurrency-related ETFs and mutual funds, cryptocurrency coin trusts, cryptocurrency futures, and cryptocurrency stocks.

Schwab Crypto Thematic ETF provides exposure to companies that benefit from cryptocurrencies

The Schwab Crypto Thematic ETF is designed to deliver global exposure to companies that may benefit from the development or utilisation of cryptocurrencies (including Bitcoin) and other digital assets. The fund seeks to track the total return of the Schwab Crypto Thematic Index, which focuses on businesses involved in blockchain and other distributed ledger technology.

The ETF provides a way to gain exposure to the growing crypto ecosystem by investing in companies that service the cryptocurrency market. This includes businesses involved in mining, trading, banking, and implementing blockchain applications. It is important to note that the fund does not invest directly in any cryptocurrency or digital asset.

The Schwab Crypto Thematic ETF offers a low-cost investment option with intra-day trading and potential tax efficiency. It serves as a complement or diversifier to core exposures, allowing investors to benefit from the increased adoption of cryptocurrencies as a store of value and medium of exchange without owning them directly.

With a net expense ratio of 0.300%, the ETF provides access to a range of companies, including Microstrategy Inc. - Ordinary Shares - Class A MSTR, Coinbase Global Inc - Ordinary Shares - Class A COIN, and Marathon Digital Holdings Inc MARA.

Bitcoin futures contracts can be traded by clients with a futures account

While Schwab does not currently allow for the direct buying or selling of Bitcoin or any other cryptocurrency, clients with a futures account can trade Bitcoin futures contracts directly.

It is important to note that investing in cryptocurrencies is considered highly speculative and may be subject to extreme price volatility, illiquidity, and increased risk of loss. The market for cryptocurrencies is relatively new and largely unregulated, so investors should be cautious and consider the high volatility and risks involved.

In addition to Bitcoin futures contracts, there are other ways to gain exposure to the cryptocurrency market through Schwab, including cryptocurrency-related ETFs, cryptocurrency coin trusts, and cryptocurrency stocks.

Cryptocurrency stocks provide indirect exposure to Bitcoin

Cryptocurrency stocks provide investors with indirect exposure to Bitcoin and the broader crypto market without needing to hold any virtual assets directly. This route is ideal for investors who are averse to the volatility of crypto prices.

One way to gain indirect exposure to crypto is to buy stocks of companies that are plugged into the blockchain economy. For example, PayPal (PYPL) started allowing customers to buy, sell and hold crypto in 2020, and in 2023, consumers could use the PayPal app to buy, transfer, and sell cryptocurrencies both within and outside of the PayPal platform. MercadoLibre (MELI), an Argentinian e-commerce giant, is another example of a company that has introduced its own cryptocurrency, akin to PayPal’s strategy, to offer shareholders indirect crypto exposure.

Another way to gain indirect exposure to crypto is to buy stock in companies that hold a lot of crypto. For instance, the financial technology company Block (SQ), formerly known as Square, made headlines for owning—and in 2022, taking markdowns on—balance-sheet cryptocurrency. Similarly, the enterprise analytics platform MicroStrategy (MSTR) has been among the most prolific corporate investors in cryptocurrency, holding 132,500 Bitcoin as of the end of 2022.

Investors can also gain indirect exposure to crypto by investing in companies that are using blockchain technology to innovate. Blockchain technology is being used across a diverse range of industries, including technology, e-commerce, and banking. For example, NVIDIA (NVDA) and Advanced Micro Devices (AMD) are two competitors that manufacture specialized hardware for crypto miners. IBM (IBM), a legacy technology pioneer, is also at the forefront of offering blockchain-based solutions to businesses.

Cryptocurrency coin trusts allow investors to trade shares in trusts holding large pools of Bitcoin

Cryptocurrency coin trusts, such as the Grayscale Bitcoin Trust, allow investors to trade shares in trusts that hold large pools of Bitcoin. These trusts are designed to trade like stocks while tracking the underlying cryptocurrency. This means investors can gain exposure to cryptocurrencies without the hassle of holding the digital coins themselves. For example, investors don't need to set up a digital wallet or protected hard drive to invest in cryptocurrencies through trusts.

Grayscale's investment trusts provide an entryway into the crypto market for investors who are new to the space. They also offer more transparency in a new marketplace that regulators are still trying to figure out. Grayscale, for instance, must abide by SEC rules regardless of what happens to the underlying cryptocurrencies.

However, cryptocurrency coin trusts come with significant downsides. They trade at a premium/discount to net asset value (NAV), involving high volatility, hefty fees, and other risks. For example, the Grayscale Bitcoin Trust charges an annual fee of 2%, while the average expense ratio for ETFs was 0.45% in 2019.

Another disadvantage is that these trusts are exposed to the volatility of the crypto market. For instance, following China's ban on initial coin offerings (ICO) in September 2023, the Bitcoin Investment Trust slumped by as much as 12%.

Overall, while cryptocurrency coin trusts provide investors with an alternative way to gain exposure to Bitcoin, they come with significant risks and fees that investors should carefully consider before investing.

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