It’s no secret there’s trillions of dollars on the sidelines — just waiting for the right time to wade into unchartered waters of cryptocurrencies.
Thanks to Fidelity’s new company, Fidelity Digital Assets, institutional investors can do just that, and possibly exert upward price pressure on what has been a year-long bear market. On Monday, the financial powerhouse with $2.5 trillion in assets under management launched three crypto solutions aimed at big-money “whales” such as hedge funds, family offices, pensions and investment banks. These solutions include institutional-grade custodianship, crypto trading platform, and dedicated client service.
According to the Boston-based company’s research, 70% of institutional investors said that new asset classes will emerge because of advancing technologies, such as blockchain. Last month, Wall Street veteran Mike Novogratz said that cryptos could be poised for gains in Q1 and Q2 next year because of infusion of institutional money.
Fidelity’s entry into cryptos, where Goldman Sachs balked, represents a tectonic shift in thinking — and risk-taking — among Wall Street’s preeminent firms, especially given regulators’ reluctance and often befuddled approach to tech governance.
Relatedly, U.K. banking giant Barclays recently cancelled the rollout of its crypto trading platform that would have onboarded Europe’s old money.
Fidelity serves 13,000 institutions. And partial conversion of generational fortunes into tokenized assets will invite inquiring minds at affluent yacht clubs and black-tie galas from Martha’s Vineyard to the French Riviera. In other words, wealthy people are always looking at where neighbor Bob is potentially stashing his cash.
Fidelity’s custodianship service for institutions is a massive leap for the crypto industry, and one that could be emulated by competing investment firms. The firm’s early entry gives it a solid chance to create best practices that it can promote as industry-leading as a way to persuade skeptical prospects.
Whales have long avoided multi-billion-dollar bets on Bitcoin (BTC), Ethereum (ETH) and other coins because they are effectively bearer instruments (like lottery tickets) in which the possessor (of private keys) owns the funds.
Understandably, big-time wealth managers don’t want to lose their shareholders’ millions (or billions) simply by misplacing passphrases and multi-factor codes, or by unintentionally granting access to sophisticated cyber criminals who fraudulently pose as exchange reps and whatnot.
The Boston-based company will also offer high-end client service to institutions that are new to the ecosystem — an advisory-type support that will bring familiarity to an innovation that, in turn, brings with it an abundance of cypher-punk idiosyncracies that don’t mesh well with a gentleman’s or matriarch’s sensitivities.
Despite crypto’s technicalities, Fidelity chairman and CEO Abigail Johnson said she wants to make this new asset class easy to understand and use.
“Our goal is to make digitally-native assets, such as bitcoin, more accessible to investors,” said Johnson in an Oct. 15 statement. “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.”
The company will provide “institutional-grade omnibus storage solution for bitcoin, ether and other digital assets” that “consists of vaulted cold storage, multi-level physical and cyber controls.” Internal and external digital asset experts will support the custodian solution.
Fidelity has 27 million customers who have $6.9 trillion in assets with the firm. That’s nearly the size of the global gold market.
The $211 billion crypto market may look like an interesting opportunity for institutions, but it’s key to put that amount into perspective. At 3% of the physical gold market, cryptos are one way for whales to diversify some liquid assets away from inflationary sovereign fiats.
The author holds digital assets but none mentioned in this article.
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