Charles Schwab this week warned clients 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: Despite the continued warnings about crypto, traditional financial services firms on Wall Street are still entering.
What’s up: Schwab asset management, a unit of Charles Schwab, launched the Schwab Crypto Thematic exchange-traded fund today, an idea that was first launched in April 2021.
Quick take: The timing of Schwab’s warning and the launch of the fund can be read as a message that the only good, safe way to invest in crypto is through an investment fund from a trusted source.
- Our thought bubble: No.
Details: The crypto warning email reviewed by Axios sounds like any innocuous “beware the risks” disclaimer trading platforms often send to their clients — which makes sense given the rise in reported cryptocurrency losses due to fraud.
- “‘Guaranteed’ High Investment Returns.” That’s the most useful red flag. Good projects showcase their ideas, not their gains. And no honest people would make an investment warranty without substantial collateral.
Yes, but: The rest of the warnings that Schwab listed can pretty much 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 aren’t doing well.
- “Sky-rocking 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 nearly $70,000 by November 2021. That’s a 536% gain.
- Fake certificates and fake contacts. Well, if you know they are fake…
Yes, but: The crypto world is risky, and there are many bad and fake projects out there. Before jumping away from regulated investment vehicles, it makes sense to research a given project – thoroughly.
- Are there any credible third parties talking about it on social media? Are the people appearing on the website real?
Be smart: When in doubt, perhaps start with well-established crypto projects and diversify cautiously.
Big picture: Schwab Crypto Thematic ETF is available, tradable and secure in that the investment comes from the likes of Schwab, a firm that has been around since the 1970s.
- But that ETF, along with every other ETF available to ordinary US investors, doesn’t provide one direct bet on crypto. They have stocks or futures that provide indirect exposure.
Between the lines: The index that the Schwab ETF tracks includes stock constituents such as America’s largest crypto exchange, Coinbase Global, the crypto bank Silvergate Capital, MicroStrategy, which is a software company but has a lot of bitcoin on its balance sheet and Bakkt, a payment and rewards. shop that deals in crypto.
- It also includes mining companies.
Of the note: The fund is very similar to BlackRock’s iShares Blockchain and Tech ETF or Fidelity’s Crypto Industry and Digital Payments ETF, which also track indexes that hold some of these stocks.
- There is also the Invesco Alerian Galaxy Crypto Economy ETF. It has some of these names, but 12% of the fund is in Grayscale’s Bitcoin Investment Trust. The latter is a kind of separate fund, which we wrote about earlier.
The bottom line: Schwab has taken the plunge into the crypto world.