The news made ripple as you would often expect in the crypto world whenever any mid to large-size established company jumps in.
TD Ameritrade started a formal crypto division. While the move was somewhat expected, since it had already invested in crypto exchanges, the news still left many people wondering: what does this mean?
What is TD Ameritrade?
In order to know whether this move matters or not, we first need to know the company we’re talking about.
TD Ameritrade is a long-established American broker. With almost fifty years in the market, its mission is to help customers both buy and sell all kinds of stocks, funds, and futures.
In other words, Ameritrade is a very large stock trading house, one with established success in the business.
While this might look as just another financial company trying to break into crypto, the type of company matters a lot this time around.
As we have mentioned in many of our articles, the crypto world is a lot like the stock market. Crypto exchanges, and many crypto investors, work in more or less the same way stock traders do.
So when a company renowned for stock trading options joins in, it can’t but be important. The fact that such a company is jumping into cryptocurrencies means two things:
- Its managers see a future to cryptocurrencies, and
- They feel the market has settled and is stable enough that they can start offering their expertise without risking much.
Both of these things are huge, since many traditional economy-related businesses have shunned crypto, and at times even outright tried to sabotage it.
But TD Ameritrade trades in many things, doesn’t it?
TD Ameritrade works both as an exchange of sorts and as an investments company. Its goals aren’t just to commercialize stocks and values, but to help those looking to invest find the right things to invest in.
To attain this, it offers customers several both premade and customized portfolios containing mixtures of stocks, funds, futures, and now crypto its team of experts consider good investments.
The advantage of these services are huge for clients who don’t know the stock market inside out. With Ameritrade’s guidance, they can choose where to put their money following the advice of leading experts in the market.
This helps minimize, although not eliminate, the risk involved in investments.
TD Ameritrade also offers many specialty plans dealing with managing both one’s own finances and one’s economic future. Customers get help not only investing, but also managing their properties and assets. TD Ameritrade thus seeks to help its customers optimize their own portfolios.
For more knowledgeable customers, it also offers personalized portfolios where they can choose exactly what to invest, although always while receiving advice from professionals in the area.
How important is this for crypto? Is it important at all?
In a way, it’s huge.
One of the main problems with cryptocurrencies is driving adoption. Many people who have thought of investing in crypto have found the whole blockchain-related environment much too confusing.
Even people who are used to trading in the stock market can feel taken aback when talking about private wallets, public wallets, wallet keys, nodes, mining, and so on.
With this move, TD Ameritrade is allowing its customers to invest in cryptocurrencies without needing to know all this.
It’s also offering professional guidance in the process, both to minimize the risk any newcomers face and to help them understand how the crypto world moves.
What this means for the crypto world is that as of now millions of accounts managed by Ameritrade can jump into cryptocurrency investments.
This doesn’t mean that many people will, or that they will even display any interest in it, but that they have the option to.
In other words, there’s now a simple way for people not in the know to invest in cryptocurrencies.
So is this a game changer? Is mass crypto adoption about to happen?
Let’s slow down.
TD Ameritrade entering the market is big, yes. But not necessarily as big as to drive mass adoption on its own. This is but another step towards that goal, but there’s still a long way to go.
First, because we don’t know how many of TD Ameritrade’s customers will actually invest in crypto. For all we know, Ameritrade might roll out this platform only to have it fail to attract any relevant interest and become just another offering with relatively low adoption rates.
Sure, the opposite might happen. It’s always possible Ameritrade’s customers will be thrilled to hear they can now invest in crypto and rush to their services, causing the beginning of a new crypto rush that drives all prices up and leads to a golden age of cryptocurrency.
But being honest, that’s very unlikely. However, TD Ameritrade’s VP has stated his company’s customer base is very interested in crypto investments.
Whether this is true or just a comment to hype up the crowd and help drive adoptions we can’t know, although it does mean the firm is expecting their new program to do well.
So, to be honest, we should keep our expectations tempered about this. It’s a big thing simply because it marks a new household-level investment company joining the crypto world.
This means trust in the market is growing, which at the same time means we’re one step closer to mass adoption. It also will help drive more crypto adoption, but you shouldn’t expect it to cause a rush.
Can I buy any crypto I want with TD Ameritrade?
No, you can’t.
TD Ameritrade, and most brokers, will only trade in select stocks considered by their experts to have relatively low risk.
While it does have high-risk offers, they’re usually offered only to clients who specifically look for them, and even then, they tend to come from already curated lists that ensure a certain degree of predictability.
This is because Ameritrade, as any brokers do, wants its customers to have some success in their investments.
It doesn’t look good for a broker to have many clients who end up losing their investments, particularly if they count the elderly among their main demographics.
So even when offering “risky” investments, TD Ameritrade will want to limit the risk.
The crypto market, as we know, isn’t particularly stable. Any crypto investments offered by Ameritrade will be considered high-risk right away, due to the unpredictability of the market. Allowing customers to invest in about any coins will only make it worse.
There’s another reason to limit their crypto offerings. As of November 2018, there were over 2,500 available cryptocurrencies.
That’s a ridiculous number, and making customers browse through such a list trying to understand what each of them is and get a grasp of the risk involved wouldn’t be an option for any brokers.
Also, the vast majority of those cryptocurrencies would make for really awful investments nobody would ever recommend even to their worst enemies.
In the spirit of making it easier for their users to understand what they’re getting and to avoid them going bankrupt, TD Ameritrade is for now only offering Bitcoin and Litecoin.
Is there any logic behind these choices?
Yes, although it might not be the kind of logic most crypto users would follow.
Bitcoin is there mostly because it’s easily recognizable. Also, because it’s been relatively stable over the past year, with a tendency to rise the last couple months. But most of all, people know about it.
General media often uses “bitcoin” to mean cryptocurrencies in general, and while most people might not know what Ethereum or Ripple are, they do have a grasp of what Bitcoin is. After all, it was all over the news just a year and a half ago.
Bitcoin is indeed unstable, outdated, slow, and it will never become the crypto for widespread use. We know that. But many of the people looking into crypto will go straight for Bitcoin, because that thing was once worth almost $20,000 each.
Also, Ameritrade is offering crypto as an investment solution, meaning users getting it through them will mostly be parking it.
They won’t buy and sell stuff with it, since that’s not the goal its customers are after. Since Bitcoin is well-known and has kept a stable price with a tendency to rise this past year, it’s an easy choice.
As for Litecoin, it has been on the market for long, has a decent price record, and once again has been rising this last year.
Being a fork of bitcoin, it also isn’t likely to ever attain mainstream use. But once again, this is investment. These people will see it as a value, not a proper currency.
The fact that Bitcoin’s value is mostly based in expectations and isn’t actually tied to anything other than public perception doesn’t matter either. As long as its value keeps going up, people will want to invest in it.
Will this affect the market?
It sure does.
Part of Bitcoin’s rise over the past two months can be attributed to this, among other things. BTC is currently experiencing a bit of a renaissance thanks to several projects being launched around it.
The fact that the crypto market is quickly growing into maturity and BTC’s price is basically an indicator for public trust in crypto also helps.
Should we expect this rise to continue?
We can’t tell. There are currently actors predicting another BTC rise, along with a rush to $50,000, but the last time such a thing was predicted it was quickly followed with a crash once the bubble burst.
Since bitcoin’s nature is that of a bubble, it’s better to remain wary of any extremely positive predictions.
It might even not be in the crypto world’s best interests to have Bitcoin grow too much, in fact. BTC is known for being outdated, and the sooner another, newer crypto takes over the market the better.
BTC reaching a ridiculously high price will make this very, very difficult – which would in turn make widespread use and adoption of crypto about as difficult.
On the other hand, BTC creating another bubble and bursting would be even worse. Crypto already had a terrible 2018, and it’s only now recovering and making it to the news again.
Another quick price drop would erode public trust in crypto in general, which would greatly slow down general adoption for crypto.
The best we can expect is for BTC to keep rising… a bit. And then stabilizing. A stable market is a requirement for widespread adoption and use.
People can’t trade using a coin that’s constantly changing its value, after all. BTC stabilizing would help bring stability to the market as a whole, which might lead a few high-profile companies to start accepting some cryptocurrencies for payments.
If enough of these companies do so, we’ll start seeing widespread use of crypto.
Adolph Obasogie is a Partner at Harrison Global Capital. Get firsthand info from email@example.com