Cryptocurrencies have had a rough go of it this year, with the prices of the leading digital tokens including bitcoin and ethereum plummeting. The knock on virtual currency: it has failed to take off with the masses as regulators have increased scrutiny and retailers haven’t embraced it as a payment method.
Fidelity Investments, however, could play a role in changing all that.
This week it announced it was creating a stand-alone company that is focused solely on bringing cryptocurrency trading to institutional investors. Dubbed Fidelity Digital Assets, the company will offer institutional investors custody services, a cryptocurrency platform and advising to its institutional clients.
Fidelity isn’t going after retail investors with the offering, but it could help boost the validity of cryptocurrencies, eventually pushing it downstream to regular investors. After all, when the CME Group and CBOE World Markets launched their bitcoin futures in the early part of 2018 most of the online brokerages balked at offering it to their retail clients. They worried that the price fluctuation and lack of regulatory oversight could get their customers in trouble. TD Ameritrade, E*TRADE and TradeStation were among the few to move full steam ahead but none have come up with a way yet for retail investors to trade digital tokens directly.
“Fidelity gets it,” said Jason Davis, former Senior UX Designer at Wells Fargo and current Chief Executive of Hoard, a platform that enables the integration and management of both crypto and fiat currencies of its new business unit. “I wholeheartedly believe Fidelity brings stronger validity to the marketplace.” While Fidelity is focused on the institutional side of cryptocurrency trading, Davis predicted it's only a matter of time before it trickles down to the retail investors, similar to how other investment products have in the past.
The executive did acknowledge that the custody model still needs to be proven at Fidelity to give more validity to the digital token marketplace but if it can, then cryptocurrency trading may very well take off with the masses. “There is still a very strong demand appetite” even with the precipitous decline in the value of the leading digital tokens, said Davis. “A lot of investors, for the time being, are just waiting to make their next moves,. Davis predicts that will happen when bitcoin starts trading between $8,000 and $8,500 again, giving it a market capitalization of more than $350 billion. As it stands bitcoin’s market cap has been reduced 70% from its all-time high reached late last year.
Investors Trust Thier Brokerages, Amazon Over Crypto Exchanges
Aiming to ascertain what it will take for retail investors to embrace cryptocurrency investing, LendEDU, the online student loan lender teamed with The Daily Hodl, the cryptocurrency news website, to survey 1,000 U.S. adults that invest via a brokerage account that doesn’t offer cryptocurrency trading. None of the investors surveyed own digital tokens. The result: 52% of respondents said they are likely to use their brokerage accounts to invest in cryptocurrency if they had the option while 59% of those investors signaled they would scale back investments in stocks, bonds, and other traditional products to invest more in cryptocurrency. What’s more, 41% of those polled said they would trust a traditional brokerage over the likes of Coinbase, the leading operator of a cryptocurrency exchange. Bad news for Coinbase: 39% would even trust Amazon.com over Coinbase when it comes to handling cryptocurrency investments.
“It ties into the overall perception of virtual currency,” said Michael Brown, research analyst at LendEDU. “There’s still a dark cloud over virtual currency and even the name cryptocurrency sounds a little bit sketchy to be people. They think its used in the dark web and not for the best reasons. They don’t fully understand.” LendEDU found that only 44% of the survey respondents who signaled interest in cryptocurrency investing would do it outside their traditional brokerage. As for trading in digital tokens via Amazon, that too could be because of its reputation, said Brown. Amazon and brokerages have been at it for years, building a reputation of trust and convenience. Coinbase isn’t there yet, in part because of the market it is operating it in.
Given the decline in the price of virtual currency, the increased scrutiny on the part of regulators, hacks of cryptocurrency exchanges and the wild wild west nature of it all, Brown was surprised survey respondents not only want to invest in it but would allocate some of the money going toward traditional investments to meet that end. “No one wants to miss out again,” said Brown, nothing there could be some boredom with traditional investments as well. “People wanted to get in on the wave and this is residual from that. It was all over the news. People were seeing every day a person getting rich from investing in bitcoin.”
By Donna Fuscaldo