Bitcoin Is Getting a Big New Backer in Fidelity but Investors Are Lukewarm on the News
By Avi Salzman
Fidelity announced on Monday that it will start a new division to trade cryptocurrencies like bitcoin for institutional clients, and hold those assets in custody. It’s a significant move for a cautious and highly regulated company that holds $7.2 trillion in client assets.
The company, called Fidelity Digital Assets, will have about 100 employees, according to Tom Jessop, head of the new unit. “We’re going live with the platform in early 2019,” Jessop said at an event in New York hosted by Fidelity, Michael Novogratz’s crypto-focused hedge fund Galaxy Digital, and Bloomberg.
Large institutions, including most traditional money managers, have shied away from trading cryptocurrencies in part because they don’t feel comfortable entrusting client assets to exchanges with a history of being hacked or manipulated.
Some people think cryptocurrencies are a bubble waiting to pop just like the dot-com bubble in the early 2000s. Using that same analogy for cryptocurrency, what about blockchain, the technology behind bitcoin and Ether? Here's what you need to know.
Holding bitcoin for clients is very different from holding stocks or bonds, where dozens of trusted firms already make markets and insure assets. Most serious traders hold the bulk of their crypto in “cold storage,” disconnected from the Internet. Fidelity says it will use cold storage as well as “multi-level physical and cyber controls.” Jessop would not say who is providing insurance for the custody product.
Fidelity was one of the first major institutions to explore bitcoin, even mining it starting in 2015. But the company did little to actually offer crypto-related products to customers. Retail clients can see their Coinbase balances in their Fidelity account, but have to leave the account to trade. Meanwhile, free trading app Robinhood and Square ’sCash app already offer direct crypto trading to retail clients. Fidelity has done “four years of intense research and development,” Jessop said.
While Fidelity is focused now on institutional clients, he called this a “good first step” that could ostensibly lead to retail-focused products in the future.
“We’re seeing a lot of demand in the market even though the space is still evolving really quite rapidly,” he said.
Novogratz, sitting next to Jessop during the announcement, called it ”a big big deal” and pledged to be Fidelity’s first customer. Novogratz has said the crypto market, worth about $200 billion, is too small right now, and he thinks that Fidelity’s custody and trading services could help to change that.
Other crypto managers were also excited.
“For many institutional investors, a trusted custodian like Fidelity entering the space removes a huge obstacle to investing in cryptoassets,” said Hunter Horsley of Bitwise Asset Management, a crypto asset manager. “I think we’ll look back on 2018, and particularly this moment, as the time that crypto became cemented as a new asset class.”
And yet, for a supposedly world-changing moment, the market barely registered it. The price of bitcoin didn’t move at all on the news. It had jumped a few hours earlier in the morning, from just over $6,200 to nearly $7,000, before settling closer to $6,500. Jessop said no one knew in advance about the Fidelity announcement, and attributed the earlier volatility in the bitcoin price to news about Tether, a so-called “stablecoin” tied to the value of the dollar.
Fidelity’s announcement comes at a rough time for the cryptocurrency market, given that the price of bitcoin is down about 60% from its December peak. But Jessop said that the price wasn’t the determinant of Fidelity’s strategy.
“I think for some people price is a significant indicator of market health, but that’s not how we think about it,” he said in an interview with Barron’s. “We think about institutional demand irrespective of price. We think about the application of technology to new assets. I don’t think our success as a business is predicated upon bitcoin at a specific price. It isn’t.”
0 comments:
Publicar un comentario