Bitcoin Futures Could Propel Growth For Ameritrade

by Trefis Team
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TD Ameritrade (NASDAQ:AMTD) recently announced that it will be offering bitcoin futures contracts on its platform, once they are available sometime in December. With this initiative, the exchange is looking to get an early mover’s advantage in the volatile but fast-growing currency. Fidelity, the biggest brokerage in the U.S., does not currently have plans to offer a similar service in the near term, while other rivals such as Charles Schwab and E-Trade are still looking to test the waters before taking a plunge. This could provide a solid boost to Ameritrade’s trading volumes in the near and long term. Below we discuss the opportunity provided by bitcoin futures.

We have a $40 price estimate for Ameritrade’s stock, which is about 20% below the current market price.

Bitcoin Market

With strong global demand, bitcoin prices have risen more 10x since the beginning of 2017. Out of a total limit of 21 million bitcoins which can be mined, based on the existing protocol, the current bitcoins in circulation stand at around 16.7 million. Around 1800 bitcoins are mined per day currently, a number which will continue to decline going forward. With the growth in supply slowing down, bitcoin-related transactions provide a solid opportunity for brokerages.

Introducing bitcoin futures on well-established brokerages exposes the currency to a large pool of traders and investors, which could drive further demand for the currency and volumes for the brokerages. Further, with futures, traders would only need to maintain a margin and buy and sell contracts, rather than taking ownership, which could open up further avenues for growth. Overall, bitcoin futures should help Ameritrade gain substantial volumes; since the beginning of 2017, around 14.9 million bitcoins were traded monthly.

Highlights Of The Existing Trading Business

Transaction-based revenue accounts for about 34% of Ameritrade’s overall revenue. 2017 so far has seen a marginal decline in trading commissions due to the company’s decision to slash its commissions from $9.99 to $6.95 per trade in February, due to competitive pressure. However, the growth in trading volumes and brokerage accounts due to the acquisition of Scottrade managed to partially offset the pressure on trading revenues.

If Ameritrade offers bitcoin futures, it could see growth not only in trading volumes, but also in its customer base.

Please refer to our complete analysis for Ameritrade.

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