Ally Invest Opts Against Offering CME Bitcoin Futures
Ally Invest is doing an about-face when it comes to giving clients access to CME Group Inc.'s (CME) bitcoin futures. The online brokerage announced that it won't offer the futures products as it carries out further analysis of the investment product.
In a statement to online publication Bank Innovation, the brokerage arm of Ally Financial Inc. (ALLY) said that, while it had previously announced that it would provide access to CME's bitcoin futures, which went live on Dec. 18, it is now holding off after witnessing the trading activities over the course of the past week. "After monitoring the activities of the past week and conducting further analysis of the level of controls and requirements for this product, we have decided not to offer it at launch. Instead, we will closely watch the bitcoin futures market as it develops and continue to evaluate the offering for our clients," Ally Invest said.
It's not surprising that Ally would be cautious given the intense volatility associated with the unregulated cryptocurrency market. After all, bitcoin began the year trading at around $1,000 and was recently close to $16,400. Bitcoin is known for wild price swings and may not be the ideal investment for risk-averse investors. But offering the bitcoin futures does pave the way for online brokerages to land more customers and build brand name recognition. Ahead of the launch of the Cboe Bitcoin futures, TradeStation, one of the few brokerages offering access to the product, said that it had already seen strong demand from its client base.
Ally Invest joins Charles Schwab in taking a wait-and-see approach to offering bitcoin futures. Fidelity Investments has said in the past that it won't offer the product to its brokerage customers at all. TD Ameritrade waded into the market this week with the launch of CME bitcoin futures, joining TradeStation as the sole online brokerages to offer the ability to trade the futures.
The discount brokerages that do provide access for their clients could be the winners, argued Morgan Stanley in a recent research report. The Wall Street firm said that one of the big benefits of offering DIY investors access to new cryptocurrency products is the potential to cross-sell. An important practice on Wall Street, cross-selling happens when a trading firm lands a new client for one service and then gets the client into other products at the brokerage firm.
Furthermore, Morgan Stanley said that offering the new products could build brand awareness among regular investors given the attention bitcoin and the bitcoin futures are receiving in the marketplace and from the mainstream media. "Brokers that offer bitcoin futures trading may appear more cutting edge than competitors without it, attracting more clients," Morgan Stanley said. "If it were 20 years ago, when the discount brokers were insurgents, we wouldn't be surprised to see them as first movers in providing access to newly regulated areas of cryptocurrency trading. Over time, they may well move beyond bitcoin futures."