Ultimate magazine theme for WordPress.

Why the SEC’s green light for Bitcoin ETFs could not assure Charles Schwab & Co. that it can make crypto trading available to its 32.5 million private accounts

The giant with $ 7.6 trillion in assets under management sees mixed signals from regulators as they continue to draw boundaries – treacherous regulatory conditions for a large company that wasn’t built to change course on its own

Brooke’s Note: Cryptocurrency certainly has its moment in the sun, but everything is still bathed in an air of radical unreality. It would certainly seem more down to earth if Schwab and Fidelity (who are far more advanced in Bitcoin investments) offered this factually on their trading platforms. Of the two, however, Charles Schwab & Co. stands out because it is publicly traded. The Securities and Exchange Commission (SEC) can make an example like no other if crypto suddenly goes south. The share price is visible to everyone. See: Charles Schwab Corp. Stock Finally Goes Above $ 80, Hitting Record RIA Custody Unit Net New Money Of $ 81 Billion, Much of the industry could be pleased that Schwab is entering the market at around normalizing the abnormal, but also acting as a giant lightning rod for regulators. Schwab isn’t so sure it’s ready to provide this particular public service, although crypto trading is almost certainly a huge new source of income. It can afford to let others test the water and still emerge victorious.

Charles Schwab & Co. is still hesitant to dig deeper into the cryptocurrency pool – likely so as not to become a regulatory target – despite an  -parent state thaw in Bitcoin ETFs.

David Lindenbaum: Schwab has more to lose than many other companies if something goes wrong.

The broker-dealer in Westlake, Texas, informed Wall Street analysts that the recent  -proval of Bitcoin ETFs by the Securities and Exchange Commission (SEC) still does not achieve the desired “greater regulatory clarity”.

“Some problems have to be solved so that companies like us consider offering direct trading in cryptocurrencies as an investment,” said Schwab CEO Walt Bettinger in the conference call last Thursday.

His comments  -peared to be in direct contradiction with earlier comments in an  -ril analyst call.

Bettinger said at the time that Schwab was ready to crash the cryptocurrency market in “very competitive” and “disruptive” ways – once federal regulators figure out how to define it. Charles Schwab & Co. is a budding cryptocurrency converter and will be entering the market in large, “disruptive” ways, says its CEO – but not before the SEC says it is barking or quacking

“We believe that the future SEC  -proval of a cryptocurrency ETF will be an important step in the development of the market and an attractive, cost-effective option for clients interested in the area,” the company stated in a research memo.

wild West

Schwab is smart to look before it jumps because the SEC uses a sacrificial lamb  -proach to setting the parameters of compliance in this Wild West asset class, says Lex Sokolin, global fintech co-head of New York blockchain software company ConsenSys , via email.

Lex SokolinLex Sokolin: Schwab tries not to be a target given his size.

“The regulatory stance is pretty aggressive right now, with the SEC still trying to enforce a variety of positions.” [to be fully] defined, ”he says.

“It previously did this by targeting companies that exceed its perceived rules, so Schwab may be trying not to be a target given its size.”

Schwab’s continued caution doesn’t mean he moved the goal posts internally.

“We’re looking at this area carefully and carefully, and additional clarity from regulators will be important before we consider offering a retail crypto experience,” spokeswoman Mayura Hooper said via email.

Schwab barely needs more on his $ 7.6 trillion AUA record as IT staff are busy integrating TD Amertrade’s system and overwhelmed staff handle the skyrocketing demand for service after COVID spikes in triggered new investment accounts.

Conservative  -proach

For Schwab, the introduction of retail access is a far bigger task than for a startup, says David Lindenbaum, strategic advisor to Full-Service-Krypto-TAMP, BlockChange and former head of managed accounts, structured products and alternative investments at Schwab.

“It is not a trivial undertaking to adhere to the traditional supervisory rules for broker-dealers and customer service in the crypto space [with] 24/7 trading

“I don’t think Schwab’s major shareholders or board members are hammering the table for crypto. They like Schwab’s conservative  -proach to increasing sales, ”he adds.

The market for digital currencies also remains very volatile.

Bitcoin was trading at $ 59,200.30 today, more than double the price of $ 29,388.30 on Jan. 1. The currency has already lost half of its value once this year before roaring again in recent weeks.

After the successful launch of the first exchange-traded fund for US investors, it rose to a record high of $ 66,000 for the first time last week.

Direct trade nixed

Schwab has also made it clear that he has no interest in dabbling.

“We would be h -py to be able to offer direct trading. We’d love to do it the Schwab fashion, it would be great service, experience and disruptive value, ”said Walt Bettinger in the company’s winter business update last February.

Schwab already enables RIAs and retail investors to trade third-party funds, including Grayscale’s Bitcoin, Ethereum and Litecoin trusts, as well as Bitcoin futures contracts and the publicly traded ProShares Bitcoin Strategy ETF (BITO), which will be launched on the NYSE on October 20 Arca.

That’s enough for most investors, says Bettinger.

“What we don’t currently offer is direct trading,” he says.

“And I think if you look at the companies that do direct trade and those that aren’t, there is consistency with the regulatory oversight of the companies that don’t offer it, they decided that companies like us were considering going direct To offer trade. “

Volatility Concerns

Schwab’s caution regarding the market maturity of cryptocurrencies also  -pears prudent in light of recent events.

Although BITO is now the fastest growing ETF of all time. It reached $ 1.1 billion in assets under management in just two days, beating the 2004 three-day record set by the SPDR Gold Trust (GLD) in 2004.

However, the ETF faces a potential futures crisis due to regulatory c -acity constraints.

In fact, BITO risks being unable to meet demand if it exceeds $ 1.7 billion in AUM too quickly due to regulatory restrictions on the number of futures contracts it can buy, Bloomberg reports.

An impending price war will also increase uncertainty in the Bitcoin futures ETF market.

For example, New York-based wealth manager VanEck has just announced that its upcoming Bitcoin Strategy ETF will undercut BITO by 30 basis points.

Earlier this month, Interactive Brokers announced the launch of cryptocurrency trading for RIAs in the United States. See: Small RIA Depositary Launches Dream Crypto Trading and Custody – Che -, Wide, and on One Screen – But Will Supply Drive Profitable Demand?

Crypto explosion

Analysts have sounded the alarm about potential tracking errors that could cause Bitcoin futures ETFs to overestimate or underestimate the digital currency.

The large number of digital assets available for retail is another issue that Schwab should consider, says Lindenbaum.

“The regulatory picture is not that simple,” he adds.

“[SEC Chair Gary] It was clear to Gensler that Bitcoin was not a security, but there is limited clarity about the other thousands of tokens. [so] so that Schwab can enter the space that they want across the spectrum and not just Bitcoin. “

According to CoinMarketC – data, more than 13,015 cryptocurrencies are traded in the open market today. The five major currencies Bitcoin, Ethereum, Cardano, Tether and Binance Coin make up about 71% of the total assets of the market.

Threat of competition

Discount broker Robinhood is also offering Schwab a potential warning light to consider as it is considering adding crypto features.

The Menlo Park, Calif. Retail brokerage business revenue lagged Wall Street estimates in the third quarter, in part because transaction-based crypto revenue fell from $ 233 million quarterly to $ 51 million.

Robinhood’s share price subsequently plunged 12%, falling to $ 34.85 on October 27, down from $ 39.57 on October 26 as investors also digested a decline in the number of funded accounts on its platform.

However, the staggering growth of companies with crypto-trading c -abilities, including Robinhood and San Francisco-based Coinbase, means Schwab’s prudence is not without risk, Lindenbaum continues.

“Coinbase has amassed more customer accounts than Schwab in a fraction of the time, so it’s a competitive threat,” he explains.

“I would challenge Schwab to look at the economics of crypto because there is a lot of money to be made, especially when you fill Schwab’s size and scalability with solutions that offer asset managers and investors more value, such as sophisticated SMA solutions, in comparison to other standardized ETF products, “he adds.

Sprint ahead

Regardless of these potential pitfalls, Schwab deserves the right to take it slow as it can easily catch crypto first movers at a time of their choosing, Sokolin says

“I do not believe that [cautious] Position is really justified given the [crypto] The asset class is now worth $ 2.5 trillion. Schwab is great at being quick to follow up when they choose – just take a look at their market and AUM position in robo-advice. “

Although Schwab launched its robo-advisor Intelligent Portfolios seven years after first movers like Betterment and Wealthfront, its robo now manages more than $ 65.8 billion, more than double the $ 32 billion under management of Betterment.

Schwab has also already outlined his crypto intentions.

“If there is more regulatory guidance, you can expect Schwab to have more investment options for clients, including spot crypto trading and custody,” read an August blog post.

Needle moves

Schwab’s ongoing crypto caution is also arguably more consistent than the various news reports in  -ril, June, and October suggest, as SEC  -proval of a futures ETF is by no means equivalent to  -proval of a full-blown digital currency ETF, Sokolin says.

Only the latter can be enough for Schwab to act, he argues. “The green light may be a Bitcoin ETF based on spot markets rather than futures markets.”

The pressure from RIAs will also play a key role for Schwab’s timing, says Lindenbaum.

“So far, institutions and private customers have been the main users [of crypto]as independent RIAs become a r -idly growing segment. When RIAs request this service, Schwab will respond, ”he explains.

“Crypto is still hard to understand, difficult to do across platforms … and has poor customer service. In theory, Schwab could disrupt the entire space by calling or emailing people back within the same month,” he adds added.

Comments are closed.

%d bloggers like this: