For Fidelity Investments, one of the world's largest asset managers, there was no need to explore the digital currency space. After all, as a recent profile by Bloomberg indicates, the firm earned an astonishing $5.3 billion in operating income in 2017, and the company oversees more than $7 trillion in customer assets. Nonetheless, in mid-October of 2018, Fidelity launched Fidelity Digital Assets, a limited liability corporation designed as a "full-service, enterprise-grade platform for securing, trading, and servicing investments in digital assets," according to the company's website. With this new branch, Fidelity entered into the digital currency game in a big way: Fidelity Digital Assets offers offline, cold storage custody solutions, trade execution and other services for the cryptocurrency industry. Using its clout as a major financial services firm, Fidelity Digital Assets has stated its aim to help to provide financial institutions with "highly available, trusted, enterprise-grade services to store, transact, and service...digital asset investments." One question likely on the minds of many investors is why exactly Fidelity decided to launch this new company.
Exploring the Crypto Space
In an interview with Bloomberg, Fidelity CEO Abigail Johnson described the company's initial foray into the cryptocurrency and blockchain spaces. She described a scenario-planning exercise that took place within the firm and which imagined the impact on Fidelity's business of a world in which "capital markets became completely frictionless." That happened just prior to the launch of bitcoin in 2010, at which point, Johnson says, "A few of us were like, 'Oh, this is kind of actually what were were just talking about in our crazy scenario plan.'" The exploration of the cryptocurrency industry then took place over an extended period of time.
Charitable Gift Funds
Johnson indicates that Fidelity leaders began to ask how the firm could integrate elements of the new industry into its business, utilizing sample cases to explore possible outcomes. She adds that "the one thing fairly early that...gave us some visibility in that realm was being able to contribute bitcoin to your charitable gift fund." As a result, Johnson suggested that bitcoin entrepreneurs took an interest in Fidelity as a "legacy financial services company" that was "still open to doing this and trying to help them they way we would help any investor." Johnson explains that this led toward work with adviser clients who were interested into utilizing Fidelity's services to aid with their clients who held bitcoin.
Meeting Customer Demand
Although some have cast doubt upon the future of the digital currency industry in recent months, there is nonetheless a sustained interest in cryptocurrencies, particularly among institutional investors. In this way, Fidelity's decision to launch Fidelity Digital Assets can be seen as largely a response to customer demand. Speaking to Forbes, the founding head of Fidelity Digital Assets, Tom Jessop, indicated that "this is 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."
Forbes also reports that Fidelity's new company is not the first of its public efforts at integrating blockchain and cryptocurrency into its portfolio of services, although it is likely the most prominent. In 2013, as part of the Fidelity Center for Applied Technology, the company launched the Blockchain Incubator, though it was a "discreet" launch without much fanfare. Now, with Fidelity Digital Assets, the company has created a 100-employee subsidiary with plans to make cryptocurrency investment more palatable and less confusing for institutional investors of all kinds. If cryptocurrencies do remain a viable and dynamic area of the financial world, it very well may be thanks to traditional asset managers like Fidelity.