Speculation now starting – How will Schwab buying TDA impact cryptos?

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Updated: 25 November 2019

Schwab’s acquisition of TD Ameritrade, if it goes through, could reshape the brokerage industry for years to come. As reported by Leaprate.com: “Charles Schwab Corporation, one of the largest brokerage firms in the US, has set its sight on TD Ameritrade (TDA) in a potential $26 billion acquisition… According to press, the strategic move is not surprising, as Charles Schwab is making strides to rival with titans such as BlackRock.” The question for crypto advocates is what impact will this deal have on all things crypto?

The merger will be the combination of giants in the industry. Assets under management (AUM) will be a staggering $5 trillion, serving 20 million customers. For comparative purposes, however, observers have chosen to use Fidelity Investments. The numbers are larger – $8 trillion AUM and 30 million clients, but the latter is privately owned and more inclined to experiment in the crypto space. Charles Schwab has found cryptos to be too “speculative”, and TD Ameritrade has moved cautiously into the space.

TDA has facilitated its clients trading activities in the Bitcoin futures market by way of the Chicago Mercantile Exchange (CME) since 2018. It also made headlines when it became an early stakeholder in the ErisX crypto exchange project, a bitcoin spot and futures exchange that has stated that it might also expand in the future to include both ethereum and litecoin futures trading, as well. Steven Quirk an executive vice president for TDA, has stated publicly that their clients are interested in cryptos: “We get calls, emails, 60,000 clients have traded something in this complex.”

Schwab has experimented with BTC futures contracts that were discontinued by the CBoE exchange. The firm chose to back out at the same time as the CBoE, but it has not given the market an indication that it has any active plans going forward to reopen any access to digital assets. It does maintain a “toe” in the crypto “pool”, so to speak, since Chris Dodds, one of its directors, also has a position on the board of Coinbase.

Industry observers, however, generally believe that the newly merged entity, since Schwab is the acquirer, will continue forward with its conservative stance regarding cryptos. Here are just a few opinions that were gathered by Coindesk over the weekend:

  • Kostya Etus, a portfolio manager at money management firm CLS Investments: “Schwab, similar to Vanguard, tends to be more conservative in their general approach. They are more methodical in launching new products and evaluating new initiatives, having a longer-term view and outlook, because they don’t want to abandon something that doesn’t work. Another way to put it is that they are very cost-conscious.”
  • Samuel Lee, a financial advisor at SVRN Asset Management: “Fidelity can be more experimental with crypto services than Charles Schwab and TD Ameritrade since it is privately held and more free of shareholders’ opinion over new investments than the other two public companies. TD Ameritrade is a technologically advanced investment firm”
  • Jeff Tjornehoj, director of Fund Insights at Broadridge: “Merging them could increase the scale of their businesses and further reduce transaction fees to boost their position as two of the most cost-effective brokerage services providers in the industry. But it is still too early to tell how exactly the two firms would benefit from the deal.”

At the moment, Fidelity Digital Assets is focused on institutional clients only. It is slowly rolling out its new services, both brokerage and custodial services related to Bitcoin, to its larger clients, but it has said that it might also enable its retail customers to have access to the digital market. All things in due course over time is the message from the privately held firm, but competition has a way of changing methodical timelines for future services and products. E*Trade is also in the equation and could look for a good way to distinguish itself from the leaders, perhaps, with broader crypto access.

As for the merger, Wall Street accepted the news as favorable. Both stocks appreciated by several percentage points afterwards, if that meets the definition. Analysts were, however, a bit surprised. Many had expected E*Trade to be the targeted firm. In the case of TDA, the “TD” actually belongs to Toronto-Dominion Bank, one of Canada’s largste financial institutions. It presently owns 43% of TDA and will have to agree with the deal. It would most likely move to remove its association with the combined entity by dissolving any applicable arrangements between it and the newly merged enterprise.

The impact of the proposed merger on the crypto-verse is still open for speculation. There are much more pressing details than Bitcoin futures and access for retail traders, but awareness is the name of the game. Any support going forward will be openly received as a stamp of approval, and, from this point forward, competition can cause many favorable changes to take place, more than just a reduction of fees.