Fidelity starts cryptocurrency unit to serve Wall Street customers
Fidelity Investments is jumping into the emerging cryptocurrency arena with a new business to manage digital assets for hedge funds, family offices, and trading firms.
The mutual fund giant will offer security and storage services, trade execution, and customer service for digital assets, Fidelity said Monday in a statement. The firm participated Monday in the Bloomberg Institutional Crypto conference in New York.
Fidelity is moving into crypto at a time when the value of bitcoin has plunged in the past year and as other financial firms have shied away because of unclear regulations, fears of market manipulation, or even the prospect that the assets could be used in money laundering.
The business, dubbed Fidelity Digital Assets, is a bet that Wall Street’s nascent appetite for trading and safeguarding digital currencies will grow. It also puts the Boston-based firm a step ahead of top Wall Street players that have mostly stayed on the sidelines so far.
“Our goal is to make digitally native assets, such as bitcoin, more accessible to investors,” Fidelity Chief Executive Officer Abigail Johnson said in the statement.
Fidelity Digital Assets initially will roll out support for bitcoin and ether starting early next year. It will also offer over-the-counter trade execution and order routing.
Top executives at Fidelity, a 72-year-old firm that’s among the largest providers of retirement savings and mutual fund products, are hoping they can build on the company’s well known brand name and win over institutional customers keen on digital currency trading. The company already works with more than 13,000 financial institutions.
Fidelity has been researching digital assets for about five years and mining bitcoin since 2015, Tom Jessop, who runs Fidelity’s crypto business, said at the conference.
“We built a lot of the capabilities underlying this platform months and years ago,” he said. “It’s not something where we woke up at the top of the year and said, ‘Let’s build this thing out.’ ”
The firm has a “robust pipeline of customers,” said Jessop, who was previously president of Chain Inc., which offers blockchain technology to financial companies. At the Bloomberg conference on Monday, Jessop said the firm has about 100 people working on the effort and has already started to bring on its first clients.
There are more than 370 crypto funds managing as much as $10 billion in assets, according to Autonomous Research — still just a drop in the bucket in the investment universe.
Crypto custody services are currently offered by startups like Coinbase Inc. Goldman Sachs Group Inc. has been considering a plan to offer custody for crypto funds, Bloomberg reported in August. Northern Trust Corp. has examined the potential for custody services.
For Johnson, who took over as CEO in 2014, the digital assets company is a dramatic step. While many other large fund companies have recoiled from crypto on the grounds that it’s too legally murky, Fidelity has embraced the evolving realm relatively early. That’s in part because Johnson has advocated for broader adoption of blockchain technology, which is a decentralized ledger underpinning cryptocurrencies like bitcoin.
The price of bitcoin has fallen 67 percent from its high in December 2017, according to a composite of prices compiled by Bloomberg.
Michael Novogratz, founder of Galaxy Investment Partners, said at the conference that he doesn’t expect big moves in the price of bitcoin until institutional players jump in, perhaps in the first half of next year.
Novogratz said he expects other firms to join Fidelity in providing custody and other crypto services. “They’re getting out ahead of the pack,” he said, adding that his firm will be a Fidelity customer.
Novogratz’s firm has a partnership with Bloomberg LP to offer the Bloomberg Galaxy Crypto Index.