Schwab officially jumps into crypto, and warns about it

Charles Schwab this week warned customers against crypto scams posing as investments that are “too good to be true. The firm also launched its first crypto investment fund.

Why it matters: In spite of the continued warnings about crypto, traditional financial services firms on Wall Street are still getting in.

What’s happening: Schwab asset management, a unit of Charles Schwab, launched the Schwab Crypto Thematic exchange-traded fund today, an idea it first floated in April 2021.

Quick take: The timing of Schwab’s warning and the launch of its fund could be read as a message that the only good, safe way to invest in crypto is via an investment fund from a trusted source.

  • Our thought bubble: Nope.

Details: The crypto warning email reviewed by Axios reads like any innocuous “beware the risks” disclaimer trading platforms often send to their customers — which makes sense given the uptick in reported cryptocurrency losses due to fraud.

  • “‘Guaranteed’ high investment returns.” That’s the most useful red flag. Good projects tout their ideas, not their gains. And no honest human being would make an investment guarantee without significant hedging.

Yes, but: The rest of the warnings that Schwab listed could broadly apply to the vast majority of digital assets, without careful reading.

  • “Unlicensed or unregistered sellers.” Many crypto project founders aren’t on investor.gov, but that doesn’t mean they’re up to no good.
  • “Skyrocketing account values.” Depends, on what you call skyrocketing. The price of bitcoin, for example, rose from around $11,000 in August 2019 to an all-time high of almost $70,000 by November 2021. That’s a 536% gain.
  • Fake testimonials and fake contacts. Well, if you know they’re fake…

Yes, but: The crypto world is risky, and there are a lot of bad and fake projects out there. Before leaping away from regulated investment vehicles, it does make sense to research any given project — thoroughly.

  • Are there any credible third parties talking about it on social media? Are the people shown on the website real?

Be smart: When in doubt, maybe start with well-established crypto projects and diversify cautiously.

Big picture: The Schwab Crypto Thematic ETF is accessible, tradeable and safe in that the investment comes from the likes of Schwab, a firm that has been around since the 1970s.

  • But that ETF, alongside every other ETF available to regular U.S. investors, does not provide a direct bet on crypto. They hold stocks or futures that provide indirect exposure.

Between the lines: The index that the Schwab ETF tracks includes stock constituents like the U.S.’s largest crypto exchange, Coinbase Global, crypto bank Silvergate Capital, MicroStrategy, which is a software company but holds a lot of bitcoin on its balance sheet and Bakkt, a payments and rewards shop that dabbles in crypto.

  • It also include mining companies.

Of note: The fund is much like BlackRock’s iShares Blockchain and Tech ETF or Fidelity’s Crypto Industry and Digital Payments ETF, which also track indexes that hold some of those stocks.

  • There’s also the Invesco Alerian Galaxy Crypto Economy ETF. It holds some of those names, but 12% of the fund is in Grayscale’s Bitcoin Investment Trust. The latter is a sort-of fund of its own, the specifics of which we wrote about before.

The bottom line: Schwab has stepped into the crypto world.

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