Learn about over-the-counter securities and how they work at Schwab
Before we get to the interview, a little background: I talk often with you about Bitwise and the BITW which is the Bitwise 10 Crypto Index Fund. This is not an ETF. It's not a stock, but it kind of trades like one because it's a security that trades over the counter, meaning you buy it in a brokerage account. Why would you want to? Well, if you're interested in investing in crypto and you believe in diversification, meaning you would like to invest in a broad array of digital assets rather than just Bitcoin or just Ethereum. That's why BITW, the Bitwise 10 Crypto Index Fund is popular. It's the largest fund of its kind - over four years old and multibillion dollar fund, and people like it because it owns the 10 largest digital assets. Not just Bitcoin, not just Ethereum. Those are the top two. But what about the other top eight? Well, that's what you gain access to in the Bitwise 10 Crypto Index Fund.
And as I mentioned, you buy this in your brokerage account, you buy it alongside stocks and ETFs and mutual funds and so on. There's no minimum amount that you have to buy. There's no minimum time requirement you have to hold. The market prices will fluctuate, of course, daily, like every market price does, and they have been readily available. But I have gotten some emails from listeners over the past month telling me that they own the Bitwise 10 Crypto Index Fund, symbol BITW, in their Vanguard brokerage account. And they have just received a letter from Vanguard telling them that Vanguard is now prohibiting the further purchase of these securities. They're allowed to sell out if they want to, but they can't buy more. Well, if Vanguard has made this decision for whatever reason they did, I frankly really don't understand it, then simply go to another brokerage firm that will let you do this. Transfer your account from Vanguard to Schwab. Schwab allows you to trade over the counter securities in your brokerage account at Schwab. That's where I do it. I own Bitwise and I do it in my Schwab account. So you can, too. And to help us talk about this, I'm happy to welcome onto the program, Barry Metzger. He's Managing Director and Head of Trading and Education at Schwab, and he is also President of TD Ameritrade, which is merging with Schwab. Barry, thanks so much for joining us on the program.
Barry Metzger: Thanks, Ric. It's a pleasure to be here.
Ric: So talk about this. Schwab allows its clients to buy over the counter securities, including those that invest in digital assets. Well, let's just start there.
Barry: Yeah, happy to. Over-the-counter securities simply are securities that are not listed on a major exchange for the informed speculative investor with a high-risk appetite. Investments in OTC securities can help drive portfolio performance. However, they're very volatile investments and they're very speculative in nature, so they may make sense, but people definitely need to swim with caution. I'll also add that OTC investors should conduct really thorough research before investing in any of these companies.
Ric: The fact that you have all those caveats is demonstrating that you want to make sure investors are taking care of themselves and not exposing themselves to risks that they're not aware of. That makes perfect sense, but that doesn't mean that you're going to go so far as to prohibit. I mean, if the SEC is allowing these companies to be public and trade over the counter, why on earth would a brokerage firm prohibit an investor from having access to them? So it's not just the fact that the investments are available at Schwab, Schwab doesn't leave it there. You also have a massive amount of education that you provide to your investors as well. Talk about that.
Barry: Speaking generally, we offer extensive education for traders of all stripes, both at Charles Schwab through the Schwab Learning Center, our podcast - Schwab Life Daily as well, through a number of resources made available by TD Ameritrade.
Ways to gain exposure to the crypto market at Schwab
Ric: And let's talk specifically about crypto within that OTC marketplace.
Barry: Yeah. So a lot's happened in the space in the last couple of years. But for investors interested in cryptocurrencies, Schwab has several choices for gaining exposure to these markets. Although these can involve high volatility, hefty fees and other risks, they trade over the counter and behave like closed end funds. There's also Bitcoin futures. Bitcoin futures contracts are agreements to buy or sell a specific quantity of Bitcoin at a specified price on a particular future date. Clients have a couple of ways to get exposure to them, depending upon the Schwab account that they have. And finally, cryptocurrency stocks. Some stocks provide indirect exposure to cryptocurrency during a company's relationship and digital assets. So clients still have the ability, if they choose to, to get exposure to the cryptocurrency market through Schwab.
Ric: And that is really the major point here, is that you're not necessarily telling people that they should buy crypto. That's not your job. Your job is to make available in the marketplace. You know, it's kind of like a buffet. You know, here's all the availability of opportunity. It's up to you, the investor, to decide what makes sense for you and your circumstances, what's in your best interest. And you're helping the investor make those decisions by providing not only the availability of these investments, but also the education to help them learn about them so that they are more likely to make the investment decisions that are right for them. Isn't that kind of what it all comes down to?
Barry: It does. And, you know, picking up your buffet analogy, we want everyone to read the menu very carefully, understand all the calories, all the risks, and make sure it's a suitable meal for them before they start diving into everything that's available to them. But that is the point. It is available to them if they feel it's suitable for their financial objectives.
Ric: So the simple answer is this: if you own BITW at Bitwise and you are not able to obtain them with the brokerage account you currently have, then simply consider moving that account to Schwab or opening a brand new account at Schwab where these securities are available. And take advantage of the education that Schwab also provides so that you know exactly how these things work and you're not going to get yourself into trouble unexpectedly. That's Barry Metzger, the Managing Director and Head of Trading and Education at Schwab. And now you know why I have my account at Schwab as well. Barry, thanks so much for joining us on the show.
Barry: Always, Ric. Very happy to be here. Thank you so much.
Ric: Barry and I actually spoke for about 10 minutes if you would like to watch that entire video cast. Or listen to the entire podcast. Just go to TheTruthAYF.com.