Fidelity’s Cryptocurrency
How Fidelity is Connecting Institutional Capital with Cryptocurrency
This blog is the first part of a series focused on covering the implications of industry titans such as Facebook or Microsoft entering cryptocurrency. The focus of this post is on Fidelity’s FDAS, which is an institutional-focused cryptocurrency trading platform. While this is not the first attempt to create an enterprise grade crypto platform, it is the only attempt thus far by such a large financial company.
The holy grail for Bitcoin ever since it was created is global adoption. This same goal has applied to all cryptocurrencies created after Bitcoin. Over the past decade, there have been events that have grown public and corporate interests in cryptocurrency, but the majority of it was fueled on idle speculation. For cryptocurrency to be adopted at a wide scale, catalysts need to fulfill the following three objectives:
- Link cryptocurrency with institutional capital
- Facilitate easier crypto management and investing
- Engage an international user base
Over the past month, there has been a massive wave of support thrown behind cryptocurrencies and blockchains by some of the largest companies in the world. We believe that many of these new offerings and events fulfill have the potential to push crypto adoption to a global scale. Fidelity, the fifth-largest asset manager in the world ($2.5 trillion AUM), will offer bitcoin trading for institutional investors. Facebook has announced they are developing their own corporate cryptocurrency. Microsoft launched the Azure Blockchain Service, a blockchain development platform. All these events have huge implications, but let’s dive into why Fidelity’s offering has the potential to be one of the most significant crypto catalysts in years.
Fidelity’s Cryptocurrency Solution
Fidelity is the first Wall Street firm to launch and offer a crypto trading desk for enterprise clients. Called Fidelity Digital Asset Services (FDAS), the service looks to be an all-inclusive option that trades, stores and monitors crypto holdings. It takes away the headache of managing and securing digital wallets, as FDAS also can manage crypto holdings on behalf of its clients.
This is a tremendous first step towards enabling institutional clients to invest in crypto. Historically, the process of investing in crypto has been viewed as a risky proposition for companies – it meant setting up, maintaining, and monitoring cryptocurrency wallets. Accidental leakage or a small typo could cause losses in the millions. Fidelity’s crypto solution means that institutions can enter the market with significantly less risk, as Fidelity can manage all crypto holdings on a firm’s behalf.
Fidelity is huge. As the fifth-largest asset manager in the world, Fidelity has over $7.2 trillion assets under management. It has the financial power to weather losses and much like a bank, it can guarantee that investments will be held safely. Fidelity’s stamp of approval has vast implications for cryptocurrency adoption and investments.
How FDAS Expands the Global Audience
A Low-Risk Trading and Crypto Storage Solution
FDAS expands the global investor base for cryptocurrencies in two ways. First, it provides a lower-risk way for institutional clients to invest and hold cryptocurrencies. FDAS’s cryptocurrency custody service mirrors what is already available for traditional financial assets, such as stocks. A third party holds onto the securities to reduce the risk of that asset being lost or stolen. While crypto custody services have existed, Fidelity is the first Wall Street firm to offer that service. The custodial system makes it far easier for institutions that work with Fidelity since the process is familiar, which will lower the barriers to entry for institutional money to access cryptocurrencies.
FDAS’ solution appeals to companies and wealthy individuals who don’t have the technological prowess to manage cryptocurrency holdings confidently. Cryptocurrency exchanges and wallets have been a hotbed of horror stories regarding losses due to hacks or stolen passwords, which has swayed many risk-averse companies from entering crypto. The assurance and backing of a financial titan will open the floodgates for institutional money.
Leading the Charge for Global Adoption
Fidelity’s public backing of crypto signals to the global financial market that the digital asset is vetted and trusted. This will lead to a new wave of adoption and initiatives for crypto among financial firms of the world. As of early 2019, Fidelity has been working with more than 13,000 financial institutions on digital currency trading and it has allowed a select number of them to start using FDAS. While Fidelity is the first Wall Street firm to launch a cryptocurrency trading desk, it is not going to be alone for long. Bakkt is a platform for the cryptocurrency market that is run by the same company behind the New York Stock Exchange. More importantly, Bakkt is looking to create more complex trading options for cryptocurrencies, such as Bitcoin futures.
FDAS is a Huge Catalyst for Cryptocurrency
When reviewing the previous three criteria for which catalysts are judged on, it is clear that FDAS fulfills all three of them. Offering crypto custody and trading services makes it far easier for institutional money to flow into cryptocurrency at far less risk than before. In addition, Fidelity’s customer base is global, meaning this newfound ease of access is not just limited to U.S.-based corporations, but rather institutions around the world. Fidelity’s stamp of approval won’t just mean companies will be more willing to put money into cryptocurrency, but it also signals to the global financial market that the crypto market needs to be taken more seriously.
