Brokers working with Apex Clearing will soon be offering clients cryptocurrencies alongside traditional assets.
Apex Crypto, which is launching in the fourth quarter, gives firms using Apex for custody and clearing the ability to open a client cryptocurrency account to buy and trade various coins. Apex will custody the assets and provide investors access to quotes, market data, pricing, confirmations and statements on the digital holdings.
Apex Crypto will support several of the most-popular digital currencies, including bitcoin, Bitcoin Cash, Ethereum and Litecoin, and plans to add more based on demand.
The service is launching as a separate legal entity, which CEO Bill Capuzzi said is to avoid complications because the Financial Industry Regulatory Authority Inc. does not recognize cryptocurrencies as an asset class. Mr. Capuzzi said Apex will make it clear to end investors that cryptocurrency assets are not regulated like traditional assets, but the process of opening accounts and transferring money between the entities will be simple and seamless.
Just as Apex offered custody and clearing to early digital advisers like Wealthfront (which now self-custodies), Mr. Capuzzi believes Apex Crypto will answer the demand from a next generation of providers.
"We're focused on democratizing investing. As such, our job is to provide assets for folks to access the market. The way we see crypto is, effectively, as just another asset" Mr. Capuzzi said. "Instead of it being an equity or an option or fixed income instrument, in this case it's a crypto asset."
Mr. Capuzzi says the loudest demand is coming from online brokerages and fintech startups. One of Apex's clients, the mobile brokerage app Robinhood, already offers cryptocurrency trading, and Apex Crypto could add popular new features to its robo-advice clients like Stash.
However, there is increasing interest from the traditional financial services industry.
"Investors, especially hedge funds, are looking to gain alpha and as a result are looking for more institutional ways to trade [cryptocurrency], custody it," Mr. Capuzzi said. He's also starting to hear from advisers who are fielding questions about cryptocurrency from clients.
Apex is apparently filling a void in the custody business as other custodians are not rushing into the market.
TD Ameritrade Institutional spokesman Joseph Giannone said his company is taking a "toe in the water" approach.
"TD Ameritrade offers access to bitcoin futures to selected retail clients as well as advisers approved to trade futures," he said. "We make these futures available only to experienced investors, with additional parameters in place, to help us and our clients manage risk. If we believe there's an opportunity to broaden the offering down the road, we'll consider it."
Fidelity allows retail clients to look up information on cryptocurrencies through a partnership with Coinbase, but spokeswoman Jessica McDonald said the company does not offer cryptocurrency support on the institutional side. She did say the company is "exploring a number of areas in the cryptocurrency space" but doesn't have anything official to announce.
Pershing and Schwab Advisor Services did not respond to a request for comment.
Pinnacle Advisory Group director of wealth management Michael Kitces says that while cryptocurrencies may be in demand from digital advice firms, he doubts traditional advisers are ready to switch custodians over Bitcoin.
"From everything I've seen, advisers are overwhelmingly negative on bitcoin, not at all clamoring to add it to client portfolios, and even if they did, it would likely only be a very small slice of diversification. I don't see any advisory firm moving 99% of their assets from a current RIA custodian just to invest the last 1% in bitcoin," Mr. Kitces said in an email. "Advisers would more likely just hold out for the issuance of a bitcoin ETF that they could buy on any platform if they really wanted to go this route."
Mr. Capuzzi doesn't think there will be massive adoption from traditional RIAs and broker-dealers right at launch, but he says Apex Crypto is as much a move for the future as it is for the present. Traditional firms are now embracing robo-advice nearly a decade after Apex began supporting the technology, and Mr. Capuzzi believes cryptocurrencies will have similar adoption in five to 10 years.
He also isn't worried about new regulations coming from state regulators or the Securities and Exchange Commission, which is giving cryptocurrencies increased scrutiny. Mr. Capuzzi says there has been active dialogue with regulators on how they are getting a handle on this new world of digital coins.
Apex has struggled recently to gain market share from the larger custodians. According to InvestmentNews research, Apex's number of broker-dealer clients has dropped more than 12% since 2017. The firm said its total number of clients increased after making a shift in 2017 toward retail and RIA clients.
But Mr. Capuzzi said Apex Crypto isn't trying to score cool points by adding a buzzword to its name, like the iced tea company that added "blockchain" to its name and doubled its value. Apps like Robinhood have proven that there is a market for new active trading technology, and Mr. Capuzzi believes Apex Crypto will help the firm win that business.
"We consider ourselves a fintech company that happens to custody assets. This is the natural next step for Apex," he said. "It's not our job to opine on the price of bitcoin. Our job is to provide access, make it seamless and help that end customer access and hold that asset, whether it's an equity or bitcoin."