Will Schwab Launch Its Own Bitcoin ETF?

"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.

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