Customers of Fidelity Digital Assets, a subsidiary of the investing giant, will now be able to get cash loans by placing their Bitcoin (BTCUSD) as collateral with its digital asset custody solution. The company has linked up with crypto-lending service BlockFi, which will provide the cash loans, for the service.

Customers of both firms can receive 60% of the total amount for a cash loan, if it is backed by a digital asset. But that percentage figure is not set in stone. Zac Prince, CEO of BlockFi, told Bloomberg that there was "room for client-level customization (in the loan terms) and (the program) may be adjusted to meet the needs of large firms."

Key Takeaways

  • Fidelity Digital Assets will act as custodian for cash loans offered by crypto-lending service BlockFi.
  • This is the investment giant's first foray into crypto-lending, an industry that is rapidly growing in size.
  • Fidelity's announcement comes at a time of increased interest in Bitcoin as an investment tool.

This is the first such partnership that Fidelity has inked with a crypto-lending service. "For Fidelity Digital Assets, this is an exciting first step into supporting the thriving lending market for digital assets and deepens our relationships within the digital assets ecosystem with leading firms like BlockFi which allows us to provide even more institutional-grade solutions to investors in this space," stated Christine Sandler, head of sales and marketing at Fidelity Digital Assets.

Tom Jessop, president of Fidelity Digital Assets, told Bloomberg that adding Bitcoin as collateral for loans was a "foundational capability" and that the firm expected this feature to become a "fairly important part of the (crypto) ecosystem."

A First Mover in Digital Assets

Crypto-lending is still a nascent industry but exploded during the pandemic shutdown as more people turned to decentralized finance (DeFi), an acronym for lending practice that removes intermediaries between borrowers and lenders by using algorithms, during a time of low interest rates. DeFi and crypto-lending services promise high interest rates for collateral, but the risk is also proportionally greater. According to some estimates, the crypto-lending market was worth $10 billion in August, up by 25% from the last quarter of 2019.

Among institutional firms, Fidelity ranks as one of the first movers in digital assets. Fidelity Digital Assets, which was started in 2018, was granted a trust company charter last year by the New York Department of Financial Services (NYDFS). The charter enables Fidelity to offer cryptocurrency trading and custody services to financial services and firms.

The firm has ramped up its hiring of blockchain and technology professionals for the digital asset unit and is actively targeting accredited investors and institutional investors. Last month, it announced a similar partnership to provide crypto custody for Stack funds, a Singapore-based investment firm, to get Asia's high net worth investors involved in cryptocurrencies.

Fidelity's announcement comes at a time of increased institutional interest in the asset class. Several prominent managers of investment firms have spoken out about the potential for Bitcoin to become an investable asset. Bitcoin price, which was languishing below $7,000 at the beginning of this year, gained strength during the pandemic and recently zoomed past its 2017 high. The cryptocurrency is changing hands at $17,984.57, up by 160% from the start of this year.