Cryptocurrency Investing

Digital currency refers to any currency that exists online. Virtual currency is a digital representation of value and subset of digital currency. Cryptocurrency is a subset of virtual currency and Bitcoin is a type of cryptocurrency.

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. By the end of 2022 it declined to around $16,000.

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 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. See the Schwab Crypto Thematic ETF details > 

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.