Even as big names like Goldman Sachs Group Inc. (GS) and JPMorgan Chase Inc. (JPM) are considering offering bitcoin derivatives, other brokerage firms are staying away from cryptocurrency trading. (See also: Goldman Considering Bitcoin Trading.)
A WSJ report on January 3rd outlined how Merrill Lynch has forbidden brokers from offering bitcoin-related derivatives, such as futures contracts or shares in Grayscale Investment Trust bitcoin fund, to its wealth management clients. (See also: If You Had Purchased $100 Of Bitcoin In 2011.)
Other banks have similar prohibitions in place. Wells Fargo & Co. (WFM), which is the second-largest U.S. bank by market capitalization, has a similar policy in place. In an interview last year, Tracie McMillion, head of global asset allocation at Wells Fargo Investment Institute, cited the risks of difficulty in tracking bitcoin’s price movements and its illiquid markets as reasons to not invest in it.
According to reports, UBS Group AG (UBS) has also chosen not to offer bitcoin products due to its volatility and high transaction fees. (But the Swiss bank is bullish on blockchain, bitcoin’s underlying technology).
What Does This Mean For Bitcoin And Other Cryptocurrencies?
Institutional money is important to bring liquidity and price stability to the cryptocurrency ecosystem. Brokerage firms are typically required to adhere to FINRA’s Investment Suitability clause, which obligates them to offer products based on “customer-specific” suitability.
While the volatility in cryptocurrency markets may be attractive to customers with a high tolerance for risk, the unregulated nature of such markets brings its own set of problems. (See also: FINRA: How It Protects Investors).
But that may change soon.
The introduction of futures contracts has helped bring a semblance of regulation to bitcoin-related investment products. It may have opened the gate for prominent brokerage firms to deal in bitcoin futures. TD Ameritrade Holding Corp. (AMTD) began offering bitcoin futures contracts to its clients last month. (See also: TD Ameritrade To Launch Bitcoin Futures.)
Different units within Morgan Stanley are also reportedly investigating the feasibility of using offering bitcoin futures as an investment option. This is in addition to JPMorgan and Goldman Sachs, which are offering futures trading capability to clients.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns 0.001 bitcoin.