BTC Inc
by Masha Prusakova, Nov 02, 2018

What Fidelity's Digital Assets Services Could Mean for Institutional Investors and Beyond


Trading Desk

Last month, the financial services company Fidelity Investments announced “Fidelity Digital Asset Services” (FDAS), a subsidiary limited liability corporation focused on bringing cryptocurrency trading to institutional investors, including hedge funds, pensions and endowments.

The company will offer custody for digital assets to support bitcoin, ether and an unnamed variety of altcoins offline, in vaulted, deep cold storage. This new corporation will also offer a cryptocurrency platform and advisory service for institutional clients 24 hours a day, seven days a week, apace with the constant trading cycle of cryptocurrencies.

This is, indeed, big news, Fidelity Investments is the fifth-largest asset manager in the world, providing financial services for $7.2 trillion in customer assets and clearing, custody and investment services for 13,000 institutional advisory firms and brokers.

Fidelity Digital Assets will provide these new services for institutional investors, helping to close the gap in gaining key institutional investors for cryptocurrencies, which in turn could very well usher in a whole new era of adoption — or at least acceptance — of cryptocurrencies for all investors. 

With Fidelity Digital Assets’ first customers already onboarded, and general availability opening in early 2019, the launch of the new subsidiary with 100 new employees signals the single most significant move into cryptocurrency by an institutional asset manager ever.

“This is recognition that there is institutional demand for these assets as a class,” said Tom Jessop, founding head of Fidelity Digital Asset Services, per Forbes. “Family offices, hedge funds, other sophisticated investors, are starting to think seriously about this space.”

FDAS will in due time help boost the validity of cryptocurrencies on a broad scale. With the acceptance and trust of institutions should come acceptance and trust of cryptocurrency investment for mainstream investors. This may signal the holy grail of moments known as the “tipping point” in any new wave of technology or society. In this case, both apply. 

What most don’t realize, however, is that Fidelity has been interested in cryptocurrencies and their potential for investors for a while. Its research into digital assets began with a blockchain incubator through the Fidelity Center for Applied Technology in 2013. Fidelity Digital Assets started within this incubator, and the incubator continues to research blockchain and digital assets. 

“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,” said Jessop, according to BusinessWire. “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."

Fidelity has also experimented with mining, allowing its customers to view their digital asset balances on Coinbase via Fidelity.com.

Fidelity Charitable, the company’s donor-advised fund, began accepting bitcoin for donations in 2015, in response to donor demand. Fidelity Charitable received $69 million in digital asset donations in 2017, a ten-fold increase since 2016. 

On April 9, 2017, Fidelity Investments became the first financial institution to join the Initiative for CryptoCurrencies & Contracts, a group of academic institutions and technology companies seeking to develop blockchain technology. Fidelity Labs, the innovation arm of Fidelity, is a member of IC3, joined by Cornell University, the University of California at Berkeley, the University of Illinois at Urbana-Champaign, the Technion, IBM and Intel Corp. 

At Consensus 2017, Abigail Johnson, chair and CEO of Fidelity Investments, showed great fervor for blockchain technology during a presentation. She discussed a halcyon "future scenario" where blockchain technologies reach their full potential through collaboration and new services.

Johnson expounded that "blockchain technology isn't just a more efficient way to settle securities — it will fundamentally change market structures — and maybe even the architecture of the internet itself,” CoinDesk reported.

How big could Fidelity’s move be for the cryptocurrency market? As the CEO of Binance, Changpeng Zhao (or “CZ” as he is known), tweeted on October 21, 2018, “What happens when a fund like Fidelity allocates a mere 5% of their portfolio to crypto? Have you calculated how much that is?”

Some on the thread estimated that figure would be about $350 billion.

Fidelity isn’t worried about the future of cryptocurrency for investors. And they’re betting big on its success here. This marks great progress in the movement toward institutional investment and mainstream acceptance of cryptocurrencies worldwide. 

Following this trend will be many more goods and services offered by other institutions and new projects, for investors both institutional and individual.