Fidelity Investments said it will
store and trade bitcoin for hedge funds and other professional investors,
becoming one of the first Wall Street giants to step into this volatile corner
of the financial world.
Most large financial-services firms
have resisted the idea of trading digital currencies because of concerns about
risk, regulations and stability. The price of bitcoin has plunged roughly 67%
since its peak last December, partially reflecting doubts about the practical
use of a currency that isn’t sponsored by any government.
Bitcoin observers said Fidelity’s
move will lend the cryptocurrency world some mainstream credibility and
potentially remove some obstacles for buyers and sellers.
“It’s a milestone for crypto
assets,” said Gil Luria, director of research at DA Davidson and a longtime
follower of bitcoin.
The new business Fidelity announced
Monday, Fidelity Digital Asset Services LLC, will allow money managers, family
offices and other institutional clients to trade bitcoin and ether, another
digital currency. It intends to expand into additional assets in the future,
said Tom Jessop, Fidelity’s head of corporate-business development.
The firm for now has no plans to
extend the trading of bitcoin to retail customers, Mr. Jessop said. The
business has about 100 employees, including dedicated client-services
representatives, he said. It is currently setting up accounts for some new
clients and will open more broadly early next year. Fidelity plans to execute
trades through several digital-currency exchanges and platforms.
Fidelity may seem like an unlikely
evangelist for digital currency: The firm, for years best known for its slate
of mutual funds and star stock pickers, operates brokerage and
retirement-services businesses that directly reach millions of Americans.
Fidelity has more than $2 trillion in assets under management and $5 trillion
in assets under administration.
Chief Executive Abigail Johnson,
however, has been interested in cryptocurrencies, and has pushed to connect her
company and the fledgling asset class. Early steps included experiments with
mining virtual coins and using digital ledgers to execute trades. Fidelity also
put some of its own money to work in a digital-currency fund and eventually
allowed clients to donate digital assets to charities.
The clearest signal of its
intentions came in May 2017 when Ms. Johnson championed the growth of
alternative currencies at a speech in New York.
“Some of you might be wondering: Why
am I here today?” she said at the digital-currency conference. “I’m here
because I love this stuff…all that the future might hold.”
Fidelity executives expect other
Wall Street players to follow Fidelity and bring more institutional investors
to the cryptocurrency markets.
Goldman
Sachs Group Inc. has looked into setting up a trading business
focused on bitcoin and other digital assets, The Wall Street Journal reported
last year. The Wall Street firm also has backed Circle Internet Financial Ltd.,
a digital-currency trading platform. Mr. Jessop, a former Goldman executive,
was on the team that invested in Circle.
Many of Fidelity’s peers, including
the large custody banks and securities firms that trade and safeguard stocks,
bonds and other securities, are more interested in blockchain, the decentralized
platform on which bitcoin runs. They are researching ways blockchain technology
can be used to make it faster and safer to move assets.
Far fewer have explored dealing more
directly with the currencies themselves.
“There’s a hurdle for institutional
investors,” Mr. Luria said. “Everything else they invest in, they can do
fundamental analysis on it. Stocks, bonds, real estate, commodities—those are
things they can analyze. That’s still hard to do for crypto assets. As long as
that’s the case, investors are going to have a hard time embracing this
category.”
Click
here for the original article.