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Bitcoin with ETF text

Will Schwab Launch Its Own Bitcoin ETF?

By Dinah Wisenberg Brin

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What You Need to Know

  • Bitcoin ETFs will be ubiquitous, Ric Edelman predicted.
  • Schwab could be a low-cost competitor when and if it offers its own spot bitcoin ETF.
  • Eric Balchunas expects Schwab to file for a spot bitcoin ETF within a year.

It could take a year or more before Charles Schwab introduces its own spot bitcoin ETF, which market experts expect the giant asset manager to do eventually. And it could make a big splash when and if it does.

Schwab typically isn’t the first to enter new categories, analysts note. In the meantime, the company can reap the benefits of offering all the new spot bitcoin ETFs developed by other asset managers and approved by the Securities and Exchange Commission this month, including funds from Fidelity and BlackRock.

Schwab, as a “financial supermarket,” has good reasons to avoid or delay entering the spot bitcoin ETF fracas, according to Ric Edelman, founder of the Digital Assets Council of Financial Professionals.

Remaining Agnostic

“They pride themselves on making available an array of products and services to both investors and advisors that allow them to cater to the largest number possible. So by making available all 11 of these new spot bitcoin ETFs, Schwab is able to remain agnostic,” Edelman told ThinkAdvisor on Monday.

“They don’t have to put themselves in a position of promoting a particular product or even promoting the asset class. They can simply stand above the fray and make it clear to their investors and advisors that the products are available for them to select as they wish,” he added.

Eric Balchunas, Bloomberg senior ETF analyst, sees Schwab potentially introducing its own spot bitcoin ETF within a year.

Schwab and Fidelity are “always looking to stay in competition with each other, and so as Fidelity gets more and more success with their bitcoin ETF, it may start to torture Schwab,” Balchunas said.

“Unlike Vanguard, they’re not anti-crypto at all. In fact, they have a crypto thematic ETF. So we know they’re open to it. … And then there’s just the fact that they generally enter categories late. They’re never the first,” the Bloomberg analyst said in an interview with ThinkAdvisor on Monday.

A Competititve Splash?

“So those are the reasons I could see them coming in with something and I could see them being really cheap. I mean, they do enter late, but when they enter, they usually make a splash with the lower fee,” Balchunas added. He predicted the company would at least file an application for a spot bitcoin ETF within 12 months, noting he was only speculating.

“The timetable in this new category always seems sped up to me versus normal time. It just feels like it’s been like six months since they launched and it’s been two weeks,” Balchunas added. As Schwab sees demand for Fidelity and BlackRock spot bitcoin ETFs on its platform, there would be no reason for the brokerage not to develop its own, he said.

Fidelity and BlackRock already have gathered $2 billion in assets for their new bitcoin ETFs, Balchunas noted. “That’s strong for two weeks. It’s more than strong … That happens never, to be honest.”

Schwab doesn’t comment on speculation, a spokeswoman said Monday.

Schwab has no need to launch its own ETF in this category, according to Edelman, who nonetheless expects most all ETF sponsors to eventually offer crypto products.

By staying above the fray while offering other companies’ spot bitcoin ETFs, Schwab reinforces its objectivity and the investment community’s ability to obtain and execute any strategy they wish on Schwab’s platform “without worrying that there are limitations that could interfere with the preferences of the investors or advisors,” Edelman said.

As for a delayed entry, Edelman added, “it makes sense for Schwab to wait and see what market reaction is to these new products. Is there demand? Is there sufficient asset flow to justify the effort of creating your own investment option?”

Edelman noted that “there’s been a race to the bottom” as spot bitcoin ETF providers, in an effort to win assets under management, are offering fees as low as 19 basis points, with many waiving fees for as much as a year.

“So Schwab could rightly take the attitude of waiting to let the dust settle to see which of these funds survive, which ones generate the most assets, and what features of those most successful ETFs are of greatest interest to advisors and investors, so that Schwab can then launch a product that replicates or even improves upon those features. Being second is often better than being first,” Edelman said.

Regulatory Concerns

There’s also a regulatory consideration, he noted.

“The SEC approved these ETFs on January 10th, but Gary Gensler, the chair of the SEC, made it clear that even though he voted to approve them, he doesn’t like them. And he has made it clear that the SEC will be watching the investment advisory community to ensure that they are engaging in practices that are not harmful to investors,” Edelman said.

“So by Schwab not offering its own product and not engaging in the promotion of these existing products, it’s taking a safer regulatory path,” he added.

The Financial Industry Regulatory Authority “has simultaneously released a statement that it has found that the majority of financial advisors and firms that are promoting bitcoin are making a number of factual mistakes in their claims.

“And FINRA has made it clear that their examinations are going to focus on the marketing practices that firms are engaging in to ensure that the industry is not engaging in false and misleading marketing activities in the area of bitcoin generally and the bitcoin ETFs specifically,” Edelman noted.

Between the SEC’s statements and FINRA’s statements, he said, “it is reasonable for Schwab to conclude a delayed posture rather than an immediate engagement posture in terms of its own launch of an ETF.”

Edelman does anticipate that Schwab someday will offer a spot bitcoin ETF.

“I believe in the future everybody who sponsors and manages ETFs will add crypto as an asset class of offerings. There is too much investor interest. The asset flows are going to be too significant. The outperformance of these assets is highly anticipated by many people, so it will be impossible for ETF sponsors to refrain from engaging eventually,” the DACFP founder said.

“They’ll choose when they’re going to engage, but just as every fund sponsor has an S&P 500 index fund at this point, it’s ubiquitous, bitcoin ETFs in the future will be equally ubiquitous,” he said, predicting that providers will gain approval for various crypto product extensions as well.

“I believe that five years from now there will be dozens of ETFs within the crypto space and the vast majority of ETF sponsors will offer versions of these products,” Edelman said. “Even Vanguard. If Vanguard can offer a gold ETF, there is no reason for them not to offer a bitcoin ETF.”

So far the new ETFs have collectively attracted $5 billion in AUM, according to Edelman, who expects $150 billion in asset flows in the next two years. And that doesn’t take into account potential asset appreciation, he added.

“If Schwab had offered one of these products, it would have a piece of that $5 billion. It might even attract additional assets that have not yet been invested in any of these ETFs. In other words, from people who would invest because of the Schwab brand,” Edelman said.

RIABiz spoke earlier on the issue with Balchunas and Edelman.

Image: Adobe Stock

Dinah Wisenberg Brin

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