Finance industry establishment splits between lovers and haters of digital currencies
Robin Wigglesworth, US markets editor
Fidelity has launched a company to facilitate cryptocurrency trading for hedge funds, endowments and family offices, underscoring how some establishment players in the finance industry are attempting to profit from the wild west frontier of digital assets.
The Boston-based investment giant said it would offer institutional investors access to “enterprise-quality custody and trade execution services” for cryptocurrencies, such as bitcoin or ethereum, as a first step towards creating a full platform for the nascent industry.
“Our goal is to make digitally-native assets, such as bitcoin, more accessible to investors,” Abigail Johnson, chairman and chief executive of Fidelity Investments, said in a 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.”
I’m here because I love this stuff . . . all that the future might hold
Abigail Johnson, Fidelity chief executive, at bitcoin conference in 2017
Bitcoin, the first and biggest of a swelling ecosystem of cryptographic digital currencies, emerged in the wake of the financial crisis and has quickly become one of the hottest — and most controversial — subjects on Wall Street. Critics say cryptocurrencies enable crime, are a fad, and in many cases fraudulent. Supporters argue that they will revolutionise capitalism.
Howard Marks, the founder of Oaktree, has argued that bitcoin “will be shown not to have any substance”, while JPMorgan Chase’s Jamie Dimon has called cryptocurrencies “a scam”.
However, there has been rising interest from the some of the financial industry establishment to capitalise on the mania. The Chicago Mercantile Exchange and Cboe Global Markets, two big exchange groups, have launched bitcoin futures, Intercontinental Exchange earlier this year launched Bakkt, a group that also aims to build modern market infrastructure for the crypto industry.
The gradual entry of the Wall Street establishment has done little to quell the industry’s volatility, with bitcoin tumbling from a high of over $19,500 in December to $6,420 today.
Bitcoin’s average volatility this year is more than five times the average volatility of the US stock market. Fidelity said it had started exploring cryptocurrencies and blockchain, the decentralised ledger that backs bitcoin, in 2013, and had since then experimented with mining bitcoin and partnering with other players in the nascent industry, as Ms Johnson starts to stamp her mark on a company founded by her grandfather.
“Some of you might be wondering: Why am I here today?” Ms Johnson said at a cryptocurrency conference in 2017. “I’m here because I love this stuff . . . all that the future might hold.”
But while Coinbase and other cryptocurrency platforms are primarily aimed at retail investors, Fidelity said its new “Fidelity Digital Assets” arm would help more sophisticated institutional investors into the field by helping trade and store cryptocurrency assets safely.
“We started exploring blockchain and digital assets several years ago, and those efforts have been successful in helping us understand and advance our thinking around cryptocurrencies,” Tom Jessop, head of Fidelity Digital Assets, said in the statement. “The creation of Fidelity Digital Assets is the first step in a long-term vision to create a full-service enterprise-grade platform for digital assets.”
By Robin Wigglesworth, US markets editor