Cryptocurrency Investing (2024)

For investors interested in cryptocurrency, Schwab has several choices for gaining exposure to cryptocurrency markets, though spot trading of cryptocurrency is not currently available.

Clients with afutures accountcan trade cryptocurrency futures contracts directly. Traded contracts are settled in cash, not cryptocurrency.

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• Benefits

  Benefits

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• Risks

  Risks

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  • Cryptocurrency Investing

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  • Benefits

    Potential for appreciation
    Some investors are attracted to the volatile price swings as a potential for profit.

    Portfolio diversification
    Some investors believe that if the lack of correlation with other asset classes continues, cryptocurrency could add diversification to a portfolio.

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  • Risks

    Potential for financial loss
    Cryptocurrency prices historically have been highly volatile, and fluctuations could result in significant financial losses regardless of whether you have direct or indirect exposure.

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    • Direct Investing (spot market) Considerations

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    • Benefits

      Transaction transparency
      The use of blockchain records transactions between parties in a verifiable and permanent way visible to all.

      24/7 access
      Unlike traditional exchange-traded products, cryptocurrency can be bought or sold at any time.

      Control
      With self-custody and blockchain interoperability, cryptocurrency provides substantial user autonomy outside of traditional financial networks.

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    • Risks

      Potential for fraud

      According to the Federal Trade Commission, "Many people have reported being lured to websites that look like opportunities for investing in or mining cryptocurrencies, but are bogus."

      Lack of recoverability

      Cryptocurrency assets are accessed using a key that’s not retrievable if lost. Similarly, if you lose access to the place where you store your key, you will effectively lose possession of your cryptocurrency.

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      • Indirect Investing Considerations

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      • Benefits

        Regulation

        The investment products offered at Schwab provide an element of regulation and consumer protections that spot trading lacks.

        Recoverability

        Access to conventional investment accounts can usually be recovered if your credentials are misplaced.

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      • Risks

        High expenses for trusts and funds

        Cryptocurrency trusts and mutual funds can involve high expenses, with fees exceeding 2% or more of the investment.

        Leverage risk for futures

        Cryptocurrency futures are leveraged products, meaning you could lose more than you initially invested, quickly and with relatively small price movements in the underlying futures product.¹

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    1. Virtual currencies including bitcoin experience significant price volatility, and fluctuations in the underlying virtual currency's value between the time you place a trade for a virtual currency futures contract and the time you attempt to liquidate it will affect the value of your futures contract and the potential profit and losses related to it.

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    Common questions

    What is the difference between virtual currency, digital currency, cryptocurrency, and Bitcoin?

    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.

    Why did cryptocurrencies like Bitcoin become so popular?

    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.

    Are cryptocurrencies safe investments?

    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."

    Can I buy and sell individual cryptocurrencies directly in my Schwab account?

    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.

    Can I transfer money to Schwab using cryptocurrency?

    No, Schwab does not accept cryptocurrency deposits, nor do we accept or disburse cryptocurrencies for settlement of securities or futures transactions.

    Are there Cryptocurrency ETFs?

    ETFs available at Schwab provide exposure to spot cryptocurrencies, cryptocurrency futures contracts, and to companies that are focused on servicing the cryptocurrency market and digital assets.

    Schwab Asset Management also 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 the blockchain and other distributed ledger technology. This ETF does not invest directly in any cryptocurrency or digital asset.

    These ETFs, as well as cryptocurrency or digital asset-related ETFs that the SEC may approve in the future, can be found in the Morningstar category "Digital Assets" using Schwab's ETF Fund Finder tool.

    Do I need a futures account to trade cryptocurrency futures?

    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.

    Do investors pay taxes when buying or selling cryptocurrency?

    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.

    What's the difference between Bitcoin and blockchain?

    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.

    Want to learn more?

    Check out Schwab's insights about cryptocurrency.