Market Commentary | November 17, 2021

Cryptocurrencies: How You Could Invest in Them

You’ve researched the nuts and bolts of cryptocurrencies and considered whether you should invest in them. Now you want to participate in the cryptocurrencies market. How do you do it?

There are several ways you can get indirect exposure to cryptocurrencies through Schwab. Although you cannot directly buy or sell Bitcoin or any other cryptocurrency at Schwab (nor do we accept or disburse cryptocurrencies for settlement of securities or futures transactions), Schwab provides several ways to access cryptocurrency markets:

Cryptocurrency coin trusts: Over-the-counter cryptocurrency trusts allow investors to trade shares in trusts holding large pools of a cryptocurrency, although these can involve high volatility, hefty fees, and other risks. Typically, these products are launched as private placements to accredited investors. Once holding period requirements are met, accredited investors may sell their shares in the “over-the-counter” market to all investors, including smaller retail investors. Historically, these products have tended to trade at large premiums or discounts to the value of their underlying assets due to their limited ability to match the demand for shares with the available supply (i.e., those shares for which the holding period has been met).

Bitcoin futures: Bitcoin futures contracts are agreements to buy or sell a specific quantity of Bitcoin at a specified price on a particular future date. Schwab clients with a futures account can trade Bitcoin futures contracts directly. Traded contracts are settled in cash, not cryptocurrency.

Exchange-traded funds (ETFs) and mutual funds: ETFs and mutual funds currently provide indirect exposure to cryptocurrency through crypto futures contracts and/or the stocks of companies participating in cryptocurrency and blockchain activities. Consider:

  • Futures-based mutual funds and ETFs: Like all ETFs investing in futures contracts, buyers should be aware that “roll” costs (replacing an expiring contract with a longer-dated contract) may result in lower returns compared to owning the underlying commodity or cryptocurrency directly. Furthermore, position limits designed to restrict the quantity of futures contracts that may be held by any single investor (including a fund) may affect this type of ETF’s ability to create new shares (depending on the size of the ETF and the size of the Bitcoin futures market).
  • Equity-based ETFs: These ETFs primarily hold the stocks of companies that mine cryptocurrency, provide technology that supports cryptocurrency (such as currency exchanges), hold cryptocurrency on their balance sheets, or accept cryptocurrency as a means of payment. Based on data from FactSet (as of October 22, 2021), there are 15 equity ETFs offering exposure to the “blockchain” and “digital economy,” with fees ranging from 0.50% to 0.90%.

In addition to new funds that have been launched specifically to offer exposure to cryptocurrencies and decentralized finance technologies, some existing commodities-focused ETFs and mutual funds are also adding Bitcoin exposure to their portfolios.

Cryptocurrency stocks: Some stocks provide indirect exposure to cryptocurrency due to the company's relationship to digital assets.

Bottom line

Many aspects of the cryptocurrency market are still immature in ways that may pose risks for our clients and for Schwab—and U.S. regulators have not yet clarified their approach. When there is more regulatory guidance, you can expect Schwab to have more investment options for clients, including spot cryptocurrency trading and custody. If we do bring new solutions to market, you can—as always—expect them to be designed to support clients’ needs, and to be surrounded by the advice and education our clients deserve and have come to expect from us.

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