Charles Schwab Corp. files to launch a ‘crypto’ index ETF and ‘jump the track’ of its product development railroads, while Vanguard and others will likely follow the market roaring locomotive
The Westlake, Texas-based broker-dealer and $8 trillion custodian of AAU promises an in-house “crypto-tangential” index that is all but certain to disrupt prices and send scares to other holdouts.
Marking at least a symbolic nod to the crypto investment craze, Charles Schwab Corp. has applied to launch a passive “crypto” ETF and is creating the index it will use to invest.
The move may or may not be very lucrative for Schwab, but it will almost certainly have an impact on the industry, analysts say. For starters, this will likely lead to lower prices and force Vanguard Group to rethink its timeline to offer RIAs a cryptocurrency option in some form.
The Westlake, Texas-based broker and custodian of $8 trillion AUA filed today with the Securities and Exchange Commission (SEC) for the right to sell the new Schwab Crypto Economy ETF on the New York Stock Exchange Arca (the NYSE digital exchange).
Schwab’s asset management division, Charles Schwab Investment Management, will manage the proceeds.
Schwab’s move caught crypto and ETF watchers off guard, as it ends its crypto reluctance, but also deviates dramatically from the way it has built its list of ETFs.
“I was a bit shocked,” says Eric Balchunas, ETF analyst for Bloomberg. “But also, not really. Schwab would be pretty much the last to fall. Vanguard would be the last.”
It will happen
Schwab is clear that this ETF will not hold Bitcoin or other cash digital assets, knowing that the SEC has rejected all other claims. See: SEC Effectively Says “No,” Again, To Bitcoin ETFs With Request For Public Comment, Allowing Charles Schwab & Co. To Keep Hedging And Avoid Crypto For Now
What’s not tense here is whether the SEC will approve Schwab’s ETF application on short notice, says Ben Johnson, ETF analyst for Morningstar.
“It’s an equity ETF, so I have no doubt it will be approved,” he says.
Indeed, Balchunas says that 12 or 15 reasonably similar blockchain ETFs already exist in the market, although they are not that popular. Together they have an AUM of around $2 billion.
Companies that Schwab could possibly include in its crypto index include Coinbase and Robinhood, two companies that achieved IPOs last year, at least in part, because Schwab chose not to enter the markets. crypto where these Silicon Valley companies earn the bulk of their revenue.
Unlike Schwab, Vanguard has yet to report that it is researching a way to offer exposure to crypto assets.
Indeed, Schwab CEO Walter Bettinger has made it clear on several occasions that his company is torn over the offering of a crypto product.
He hears the growing clamor from his investors for a Schwab offering and made noise about such a launch as early as April 2021 during a call with analysts at the company.
“We do recognize what’s going on,” he said.
“We would like to see more regulatory clarity, and if and when that happens, you should expect Schwab to be a player in this space the same way it has been in other investment opportunities. across the spectrum.”
“We keep our eyes [on] …whether there will be an investor-oriented product, an ETF, or another that will offer crypto investing to a larger portion of the market than can get it today,” he added.
Schwab’s entry into the “crypto”-related ETF category will be its largest yet as Schwab tends to enter ETF markets at ultra-cheap rates.
Currently, the lowest priced crypto-related ETF is Global X Blockchain (BKCH) and charges 50 basis points. Balchunas predicts that Schwab will likely price its new ETF at around 25 basis points.
“They face a ton of competition in the crypto-tangential equity ETF space, where there are at least a dozen incumbents — depending on your definition,” Johnson adds.
Pricing aside, this ETF launch — largely a thematic product — moves Schwab out of its mode of selling giant, vanilla index funds where it can outperform competitors and pass on low pricing and liquidity. high, according to analysts. .
“This is a significant departure from Schwab’s historical ETF product development path,” Johnson said. “Actually, I would say they skipped the trail here.”
No arguments from Balchunas.
“I would totally agree with that,” he says. “It’s not their bag. They do vanilla and healthy. They don’t do cute.”
Yet Schwab embraces its inner beauty to face one overriding principle: the customer is always right.
“The RIAs need something,” Balchunas says. “They’re getting requests. It’s a sign of how many requests they’re getting.”