Cryptocurrency Investing

What is cryptocurrency?

Cryptocurrency is a virtual currency secured through one-way cryptography. It appears on a distributed ledger called a blockchain that's 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 online payments to be made directly from one party to another 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. Cryptocurrency investors can buy or sell them directly in a spot market, or they can invest indirectly in a futures market or by using investment products that provide cryptocurrency exposure.

Ways to invest in cryptocurrency at Schwab

For investors interested in cryptocurrency, Schwab has several choices for gaining exposure to cryptocurrency markets, though spot trading of cryptocurrency is not currently available.

Cryptocurrency-related ETFs

Exchange-traded funds (ETFs) that provide exposure to companies that are focused on servicing the cryptocurrency market are available.

  • Schwab Crypto Thematic ETF—NEW

    Our Schwab Crypto Thematic ETF is designed to deliver global exposure to companies that may benefit from the development or utilization of cryptocurrencies (including Bitcoin) and other digital assets, and the business activities connected to blockchain and other distributed ledger technology.

  • Additional ETFs

    Third-party ETFs available at Schwab also invest in equities or futures contracts related to cryptocurrencies. You can find these funds in the Morningstar category "Digital Assets" using the Schwab ETF Fund Finder tool. You can also find these funds in the Morningstar categories "Trading-Miscellaneous" and “Miscellaneous Sector” using the Schwab ETF Fund Finder tool.

Cryptocurrency Coin Trusts

These products allow investors to trade shares in trusts holding large pools of a cryptocurrency, although these can involve high volatility, hefty fees, and other risks. They trade over-the-counter (OTC) and behave like closed-end funds.

  • Grayscale Bitcoin Trust

  • Grayscale Ethereum Trust

  • Grayscale Litecoin Trust

  • Bitwise 10 Crypto Index Fund

  • Grayscale Bitcoin Cash Trust

  • Grayscale Digital Large Cap Fund

  • Grayscale Ethereum Classic Trust

  • Osprey Bitcoin Trust

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. Clients have a couple of ways to get exposure to them, depending on the Schwab account they have.

  • Futures Account

    Clients with a futures account can trade Bitcoin futures contracts (BTC) directly. Traded contracts are settled in cash, not cryptocurrency.

  • Mutual Funds & ETFs

    Several mutual fund and ETF products invest in Bitcoin futures contracts, providing clients with a brokerage account a way to get indirect exposure. 

    These funds can be found in the Morningstar category "Digital Assets" using Schwab's Mutual Fund or ETF Fund Finder tools.

Cryptocurrency Stocks

Some stocks provide indirect exposure to cryptocurrency due to the company's relationship to digital assets. Here are just a few examples:

Schwab's perspective

We suggest that clients who are interested in cryptocurrency approach them as speculative investments and consider their goals as well as the risks involved. For those who already have a diversified portfolio and a long-term investment plan, we see cryptocurrency as being used primarily for trading purposes outside the traditional portfolio.

Here are some aspects to consider about cryptocurrency investing in general, as well as differences between investing directly in the spot market vs. indirectly.

Cryptocurrency Investing table

Cryptocurrency Investing table
  • Benefits
    Benefits
  • Risks
    Risks
  • Cryptocurrency Investing
  • Benefits
    Potential for appreciation
    Some investors are attracted to the volatile price swings as a potential for profit. 

    Portfolio diversification
    Some investors believe that if the lack of correlation with other asset classes continues, cryptocurrency could add diversification to a portfolio.  
  • Risks
    Potential for financial loss
    Cryptocurrency prices historically have been highly volatile, and fluctuations could result in significant financial losses regardless of whether you have direct or indirect exposure. 
  • Direct Investing (spot market) Considerations
  • Benefits
    Transaction transparency
    The use of blockchain records transactions between parties in a verifiable and permanent way visible to all. 

    24/7 access
    Unlike traditional exchange-traded products, cryptocurrency can be bought or sold at any time. 

    Control
    With no ties to banks, regulators, or governmental policies, cryptocurrency theoretically provides user autonomy. 
  • Risks
    Potential for fraud 
    According to the Federal Trade Commission, "Many people have reported being lured to websites that look like opportunities for investing in or mining cryptocurrencies, but are bogus." 

    Lack of recoverability 
    Cryptocurrency assets are accessed using a key that’s not retrievable if lost. Similarly, if you lose access to the place where you store your key, you will effectively lose possession of your cryptocurrency. 
  • Indirect Investing Considerations
  • Benefits
    Regulation 
    The investment products offered at Schwab provide an element of regulation and consumer protections that spot trading lacks. 

    Recoverability 
    Access to conventional investment accounts can usually be recovered if your credentials are misplaced. 
  • Risks
    High expenses for trusts and funds 
    Cryptocurrency trusts and mutual funds can involve high expenses, with fees exceeding 2% or more of the investment. 

    Leverage risk for futures 
    Cryptocurrency futures are leveraged products, meaning you could lose more than you initially invested. 

We're here to help.

Common questions

News about Bitcoin and other cryptocurrencies have been impossible to ignore. Investors hear news about overnight millionaires who lose their fortunes just as quickly. For example, a single bitcoin ranged in price from $1,000 in early 2017 to a high of over $66,000 in October 2021, with intense volatility in between. 

Like many new technologies or products, cryptocurrency has attracted adherents interested in innovation and the perceived absence of governmental control. Traders saw it as an alternative to traditional investments such as stocks, bonds, and cash, and trading momentum led to a rising, if highly volatile, price. All of this attracted media attention, which drove mainstream awareness and, ultimately, increasing acceptance. Major companies, including Microsoft, PayPal, and Overstock now accept Bitcoin as a form of payment.

Cryptocurrencies are speculative investments, with significant volatility of cryptocurrency prices and the prices of indirect investments that have exposure to the cryptocurrency market. Cryptocurrency doesn't fit within traditional asset allocation models, as it is neither a traditional commodity, such as gold, nor a traditional currency. Its volatility is driven primarily by supply and demand, not inherent value. Bitcoin, for example, doesn't have earnings or revenues. It doesn’t have a price-to-earnings ratio, price-to-sales ratio, or book value. Traditional value metrics don't apply, so there are no methods for assessing its value that we endorse or find persuasive beyond the trading value. Considering its volatility and the possibility that the entire value of a cryptocurrency investment could disappear, investors who don’t think they could handle the market swings might want to steer clear.

There is also cryptocurrency risk besides volatility, as no regulatory infrastructure is in place for cryptocurrencies. Nothing exists yet to back you up like the Federal Deposit Insurance Corporation does for U.S. bank customers. That means investors are entirely responsible for the security of any cryptocurrency spot holdings. The SEC has noted that with cryptocurrencies, there is "substantially less investor protection than in our traditional securities markets, with correspondingly greater opportunities for fraud and manipulation."

Though you can get exposure to cryptocurrencies in multiple ways at Schwab—trusts, futures, ETFs, and individual equities—you cannot currently buy or sell individual cryptocurrencies directly in a Schwab account. 

We understand there is some client interest and engagement in cryptocurrencies, and we are looking closely and cautiously at this space. Clarity from regulators will be important before we consider offering a retail cryptocurrency experience. If we do, you can expect it to be a great value, designed to support client need and surrounded by the advice and education our clients have come to expect and deserve from us. 

No, Schwab does not accept cryptocurrency deposits, nor do we accept or disburse cryptocurrencies for settlement of securities or futures transactions. 

While several investment firms have submitted applications to the SEC for ETFs that hold cryptocurrency directly, none have been approved to trade in U.S. markets. Some available ETF products provide exposure to companies that are focused on servicing the cryptocurrency market and digital assets. 
 

Schwab Asset Management offers the Schwab Crypto Thematic ETF that provides global exposure to companies that may benefit from the development or utilization of cryptocurrencies and other digital assets, and the business activities connected to blockchain and other distributed ledger technology. This ETF does not invest directly in any cryptocurrency or digital asset.
 

These ETFs can be found in the Morningstar categories "Sector-Miscellaneous" and "Digital Assets" using Schwab's ETF Fund Finder tool.

Yes, a futures account is required to trade Bitcoin futures contracts, and certain requirements must be met to trade futures. Clients can log in and apply online to open a futures account. 

The IRS treats cryptocurrency as property, not currency. Transactions in cryptocurrency spot markets are thus considered taxable by the Internal Revenue Service (IRS) whenever a taxable event occurs, such as selling cryptocurrency for a fiat currency (i.e., U.S. Dollars, Euros, etc.) or when traded for another asset. Investors are responsible for tracking cost basis, gains, and other reporting. If you have questions or concerns about the potential tax implications of transacting in cryptocurrencies, you should refer to this IRS publication or consult with a tax advisor.

Blockchain is the underlying technology that supports cryptocurrencies like Bitcoin. It is an open-source, public record-keeping system operating on a decentralized computer network that records transactions between parties in a verifiable and permanent way. Blockchain provides accountability, as the records are intended to be immutable, which presents potential applications for many businesses. While blockchain has often been associated with cryptocurrency, it has many potential uses beyond payments, including smart contracts, supply chain management, and financial services. Note that ownership of Bitcoin or other cryptocurrencies is not an investment in blockchain, the technology, or its current or future uses.