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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.

What You Can Do Next

Important disclosures

Investors should consider carefully information contained in the prospectus, or if available, the summary prospectus, including investment objectives, risks, charges, and expenses. You can request a prospectus by calling 800-435-4000. Please read the prospectus carefully before investing.

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market or economic conditions. Data contained herein from third party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Past performance is no guarantee of future results and the opinions presented cannot be viewed as an indicator of future performance.

Investing involves risk, including risk of loss.

Digital currencies, such as Bitcoin, are highly volatile and not backed by any central bank or government. Digital currencies lack many of the regulations and consumer protections that legal-tender currencies and regulated securities have. Due to the high level of risk, investors should view Bitcoin as a purely speculative instrument. Digital currencies, such as Bitcoin, are highly volatile and not backed by any central bank or government. Digital currencies lack many of the regulations and consumer protections that legal-tender currencies and regulated securities have. Due to the high level of risk, investors should view Bitcoin as a purely speculative instrument.

Virtual Currency Derivatives trading involves unique and potentially significant risks. Please read NFA Investor Advisory – Futures on Virtual Currencies Including Bitcoin and CFTC Customer Advisory: Understand the Risk of Virtual Currency Trading.

Futures trading involves a high level of risk and is not suitable for all investors. Certain requirements must be met to trade futures.

Commodity-related products, including futures, carry a high level of risk and are not suitable for all investors. Commodity-related products may be extremely volatile, illiquid and can be significantly affected by underlying commodity prices, world events, import controls, worldwide competition, government regulations, and economic conditions, regardless of the length of time shares are held. Investments in commodity-related products may subject the fund to significantly greater volatility than investments in traditional securities and involve substantial risks, including risk of loss of a significant portion of their principal value.

Currencies are speculative, very volatile, and not suitable for all investors.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.

 

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