The Charles Schwab Corporation CEO, Walt Bettinger dismissed crypto assets as speculative and insignificant for its RIA platform. With a reputation of being a safe pair of hands, is he at the risk of getting left behind?
Schwab Wary of Crypto, Much to Rivals’ Benefit
Per a recent report by leading media outlet RIABiz, Charles Schwab Corporation’s CEO Walt Bettinger has dismissed the use of cryptocurrencies and is not keen on exploring the growing crypto-custody trend. Interestingly, observers consider that the custody giant has indeed a lot to lose as other firms march ahead with the crypto bandwagon.
Furthermore, the firm does not show any rush to creating crypto-based trading or custody platforms, even as its closest rivals Fidelity, TD Ameritrade, and Pershing are dealing with cryptos.
Direct trading of cryptocurrencies just isn’t on the Schwab radar “at this time.”
says Rob Farmer, Schwab’s managing director for corporate communications.
When asked if Bettinger would like to join the consortium backing Facebook’s new crypto-currency, Libra, he denied any prospects of undertaking any such steps in the future.
“Let’s answer that question out in the future a little bit,”
“The response is totally within Bettinger’s character. Schwab didn’t get to where it is by racing to be first, says Tim Welsh. Walt got his job by being the king of the status quo,”
said the President of Larkspur, Calif.-based consultancy, Nexus Strategy
Welsh further explained.
“He’ll never willingly upset the apple-cart unless the market forces him to do so. Until [Schwab’s] biggest advisors demand they do something, they will continue their sleepwalk through innovation.”
Is the Crypto Market Too Small?
With that being said, it is sort of understandable that why Schwab shows no interest in being a part of the crypto race. One of the major reasons for the same is that crypto market’s average market cap amounts to $300 billion only, which interestingly, makes it only 10% of Schwab’s $3.2 trillion in assets under management. 8,000 RIAs custody amounting to $1.7 Trillion through Schwab Advisor Services are a part of the total, and interestingly, they make up for Perishing, TD Ameritrade and Fidelity’s assets combined.
“Indeed, $300 billion, however large a sum in real terms, remains chicken-feed in the market”
said Gabriel Wang, financial technology analyst for Boston-based consultancy the Aite Group, via email.
“It’s only about one percent of US equities’ market size.”
Prospects of a Future Leap
With such a huge amount of assets, the firm could easily jump in the game by making an acquisition.
“In the short to medium term, [Schwab’s] missing an opportunity.”
says Will Trout, senior analyst for Boston, Mass.-based consultancy, Celent
He further said,
“Schwab will be forced to move into space at some point, although most likely in a small way, custody of client assets or a stake in an exchange.”
Well, while analysts and leaders continue to debate that how not being crypto-friendly can be a loss for Schwab, Lex Sokolin, global co-head for financial technology at New York-based blockchain software firm ConsenSys has a different perspective. He said,
“The idea of Schwab getting left behind may also be overstated, given the firm’s deep pockets. Traditional companies have a long-term advantage right now because they can acquire for cheap.”
He further said,
“The overall market size of cryptocurrencies, at this point, is still not big enough for firms like Schwab … to justify the risks they will be taking … [with compliance and security],” he explains. “It could be worth it for these firms to wait.”
The Interesting Case of Libra
Facebook’s controversial currency, Libra can also be a factor which may put pressure on Charles Schwab to act, the reason being that the firm’s share price continues its post-May fall, while Facebook’s has rallied.
First Mover Advantage for Rivals
Furthermore, upstarts like Apex, crypto first-movers like San Francisco-based Coinbase and wirehouses like Goldman Sachs could use crypto as a wedge to disrupt the RIA custody status quo.
While Charles Schwab continues to be wary of crypto- at least for the time being- it gives rivals a chance to gain first-mover advantage and it seems Fidelity will leave no stone unturned to reap the benefits of this opportunity.
In another case of crypto-custody heating up, E*Trade Financial Corp., which custodies $19.7 billion in RIA assets, has begun the marketing of its upcoming crypto-trading capabilities.
Outgoing TD CEO Tim Hockey told The Street on Jul. 23, that everything need not be rushed. He said,
“[It’s a] crawl, walk, run approach”
Ed Haravon, the chief operating officer for Apex Crypto said
The motivation is simple, build cryptosystems or lose business to third parties. Crypto is here to stay.”
It will be interesting to note if the San Franciso based giant makes a dive in the crypto arena. Will it bring more fortunes for the firm or will it not make that huge an impact? Let us know, what you think!