Charles Schwab's $26B takeover of TDAmeritrade casts uncertainty over crypto trading ambitions

Charles Schwab's announced intention to acquire rival TDAmeritrade was a watershed moment for the brokerage industry, following weeks of speculation and a market-wide race to zero-commission stock trading. 

The deal, which could close in the second half of 2020, is valued at $26 billion, and will result in a company overseeing $5 trillion in assets across 24 million clients. While it might put Schwab in a stronger position in the face of a more competitive landscape in the broker world, it could end up being a bad thing for digital asset enthusiasts. 

Schwab and TDAmeritrade have long had two very different approaches to the nascent market. At TDAmeritrade, the firm has embraced cryptocurrencies, offering bitcoin futures trading as early as 2017, and an array of educational tools. It has also invested in cryptocurrency companies, including Chicago-based exchange ErisX. Indeed, it was reported that the company was working on integrating with the exchange. TDAmeritrade's head of digital assets Sunayna Tuteja said during an industry conference in October that bitcoin buys and sells were a matter of when, not if. 

At Schwab, it's a completely different story. The company as recently as September has said it is not looking to offer direct trading services of cryptocurrencies.

Proper education

I tried to reach out to TDAmeritrade for clarification about what the acquisition could mean for its crypto ambitions. Tuteja referred me to a press representative, who in turn referred me to a FAQ, which ultimately left me only my own thoughts to refer to. While I am not in the business of making predictions, my hunch is that this move makes it very unlikely that TDAmeritrade will roll out bitcoin buys and sells in 2020.

To start, TDAmeritrade has never held a super strong position on enabling bitcoin trading. Tuteja noted at the DAS Markets Conference in New York that the focus for TDAmeritrade's crypto business is education, noting clients "want to start with give me the 411. Give me the information."

Here's Tuteja (emphasis is my own): 

"Something interesting that we did earlier this year as an experiment is on all of our platforms we just put a little button that said are you interested in digital assets, are you engaging with digital assets, would you like to learn about digital assets ... It became this powerful voice of the client funnel that has helped us curate and helped us understand what products should we roll out. How it should be built. And what's the sequence through which we roll-out. And through that education just keeps coming up."

When asked whether clients could expect TDAmeritrade to roll out bitcoin trading by mid-2020, Tuteja politely replied, "nice try, Frank."

TDAmeritrade's focus on education is only a piece, to be sure. As noted by Lex Sokolin, ConsenSys' global co-head of Fintech, the integration of the two firms will be a huge undertaking that would likely result in riskier projects being shelved. 

“[The combined entity] will spend the next three years working on a multi-billion dollar integration project and speculative stuff like this is unlikely to have the highest priority,” he wrote. Decrypt first reported on the note. I agree with Sokolin. 

As part of the integration, the firms expect to "bring together the best of Schwab’s and TD Ameritrade’s innovative and client-centric platforms, products, and services." 

That probably won't include crypto. 

To be sure, some of my sources weren't sold on my thesis. Dave Weisberger said Fidelity's fast-growing crypto business could keep TDAmeritrade from winding down its efforts. Possibly. 

Another source, a Fidelity employee, said the situation is binary: "Either it's very good or it's over."

The biggest loser

If all hope is lost for TD-enabled crypto trading, then that's probably a negative thing for bitcoin adoption. But nothing to write home about — indeed there's no shortage of places to trade and store digital assets.

But it's especially bad for ErisX, which as previously mentioned, has been looking to link up with TDAmeritrade. 

Its fate hinges on the bet that large retail brokers link up to its venue. As CEO Tom Chippas told The Block in July the firm is looking to partner with firms like TDAmeritrade rather than marketing directly to consumers.

If TDAmeritrade went live with its own retail broker offering for crypto that flow would likely go straight to ErisX. But this now hangs in the balance.

"They are the big loser in this deal, [in my opinion]" a source noted. 

ErisX did not respond to an email seeking comment.