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 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 "Trading-Miscellaneous" 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. 

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Common questions