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Fidelity’s Entrance into Institutional Crypto Could Blaze New Trails
Traders Magazine Online News, October 16, 2018
Sometimes all it takes is one to get things started.
And in the crypto universe, which has seen limited institutional investment due to several issues, such as custody questions, liquidity and major sponsorship, things might might have just taken a huge turn as Fidelity Investments announced it was entering the space. The global asset manager, with over $7.2 trillion of assets under management and currently serves more than 13,000 institutions announced its building out a whole new crypto service targeting the buy-side.
"Our goal is to make digitally native assets, such as bitcoin, more accessible to investors," Fidelity Investments Chairman and CEO Abigail Johnson said in a press release. "We expect to continue investing and experimenting, over the long-term, with ways to make this emerging asset class easier for our clients to understand and use."
About two years ago Fidelity opened its platform to retail investors in cryptocurrencies held on held on Coinbase on Fidelity’s website. The money manager has also been testing bitcoin and its underlying technology blockchain internally. But now, the foray into the institutional space could really give the nascent asset class legitimacy with such a trailblazing player involved and at the vanguard with a huge investor base.
Fidelity plans to achieve all this via its newly launched subsidiary - Fidelity Digital Assets, which will be based in Boston and provide enterprise-grade custody solutions, a crypto trading desk and advisory services. Tom Jessop will head the new group, which is reported to have 100 employees already.
One of the biggest drawbacks to date for institutional investors when it comes to crypto trading has been the custody issue. Who is going to hold the asset? Where will it be held? Is the keeper secue enough in this day and age of cyberterror? Fidelity’s technological prowess and enormity make it a natural to satisfy investors. Custody services are being designed give institutional investors a compliant way to secure their assets by holding them in a physical vault. Other crypto companies Coinbase, Gemini, BitGo and others are also working on custodial services as are Nomura. According to CNBC, Goldman Sachs and Northern Trust are reportedly exploring custodial services.
Also, Fidelity will be handling its crypto trading in-house, another major plus for smaller institutional investors such as hedge funds and small family offices. The trading desk will employ an internal crossing engine and smart order routing technology tapping into multiple liquidity pools. One trader that Traders Magazine spoke to said that this electronified trading desk could be bringing algorthms to the sector soon too.
“With smart order routing and crossing engines, you have to wonder if they don’t already have some type of algo in the works,” the trader said. “With their resources and strategic view of the market, I’d bet money on the fact they’ve got and algorithm already in the skunk works. Its just a matter of time and testing.”
As for timing, Fidelity’s move could be perfect as it taps into the current crypto craze and zeitgeist. LendEDU just released its most recent crypto study this week which gauged investor interest in the sector. LendEDU surveyed 1,000 adult American investors that are not currently invested in virtual currency to gauge if the traditional investor would ever take the plunge into virtual currency.
A few of the report’s highlights included:
- 52% of respondents said that if their brokerage account offered a virtual currency investment option (at the time of polling, no respondent's brokerage had such an offering) than they would invest in virtual currency. 55% of those respondents even said they would scale back their other investments to invest heavily in virtual currency.
- 41% of respondents would trust a traditional brokerage more than Coinbase in handling their virtual currency investments, while 14% would trust Coinbase more.
- Further, 39% would trust Amazon more than Coinbase in handling virtual currency investments, while 15% opted for Coinbase in that scenario.
- 48% of respondents said they would consider moving their portfolio to a brokerage account that allowed them to invest in both traditional investments and virtual currency.
- 32% of respondents were disappointed that their brokerage account does not offer a virtual currency investment option, while 26% were not sure if they were or not.
Check out the full LendEDU report here: https://lendedu.com/blog/brokerage-accounts-investing-in-crypto-survey/
“At the end of the day, this is a major development in the crypto universe,” said another trader in New York. “The whole sector might have just been propelled into a whole new trajectory.”
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