Fidelity's Strategy to Win in the Wild Crypto World

Fidelity Investments ranks among the financial industry giants as the nation's largest mutual fund company with $2.5 trillion in assets under management. The company, founded seven decades ago, has historically been a tradition-bound firm and is led by CEO Abby Johnson, the third generation of her family to stand at the helm. Recently, however, Fidelity has been anything but conservative when it comes to cryptocurrency, as outlined in a recent Bloomberg story, citing people familiar with the matter.

Last fall, the Boston-based firm moved a step ahead of its rivals by forming Fidelity Digital Assets, to offer custodian services to crypto investors with offline, cold storage custody solutions, trade execution and other services, as outlined in an earlier Investopedia story. Now, Fidelity is upping the ante – and boosting its risk – with plans to buy and sell Bitcoin, the world’s most popular digital asset, for institutional customers within a few weeks, according to a person familiar with the matter.

Fidelity Digital Asset Trading Targets Institutional Clients

Fidelity would join a handful of firms offering cryptocurrency trading to clients, including brokerages E*Trade Financial Corp. (ETFC) and no-fee trading app Robinhood. The difference with Fidelity, however, is that its crypto offerings will only target institutional customers, rather retail investors, as do platforms E*trade and millennial-favorite Robinhood, per the anonymous sourced interview by Bloomberg.

Fidelity seemed to signal its move earlier this week by publishing a major survey showing huge interest from institutions in digital currencies. The report released on May 2 indicated that nearly half of institutional investors think that digital assets are worth holding in a portfolio. Out of more than 400 institutional investors that were surveyed, about 22% already had some exposure to digital assets, with the majority of them having been made within the past three years. And that number is only slated to balloon. About 40% of respondents indicated that they were open to future investments in digital assets over the next five years.

“We currently have a select set of clients we’re supporting on our platform,” said Fidelity spokeswoman Arlene Roberts in an email. “We will continue to roll out our services over the coming weeks and months based on our clients’ needs, jurisdictions, and other factors. Currently, our service offering is focused on Bitcoin.”

Headwinds in Crypto World

Positive results from Fidelity’s recent survey aside, the company still faces major challenges in the volatile market. Crypto trading today remains a Wild West, fraught with risk. First, while digital assets have made a comeback in recent months, they remain deep in bear market. Bitcoin, the world’s largest digital currency by market capitalization, is off over 70% from its high reached in December 2017 at the peak of the crypto-frenzy, despite rebounding nearly the same degree over the past three months.

Meanwhile, many smaller players have gone out of business, and allegations of fraud, market manipulation and a headline New York attorney general investigation involving a key crypto exchange operator have hurt the industry as it fights to win legitimacy. This uncharted territory, full of uncertainty, is hardly the kind of environment Fidelity is used to operating in.

Looking Ahead

While there is much doubt surrounding the future of digital currency, Fidelity’s decision to dive deeper into the volatile market demonstrates that risks have done little to stamp out growing interest from institutional investors. As outlined in an earlier Investopedia article, founding head of Fidelity Digital Assets, Tom Jessop, indicated that the launch of the business arm was a “recognition that there is institutional demand for these assets as a class. Family offices, hedge funds, other sophisticated investors, are starting to think seriously about this space.”