Fidelity Launches Institutional Platform For Bitcoin And Ethereum
Article Published by: forbes.com
Fidelity Investments is spinning off a stand-alone company dedicated to bringing cryptocurrencies to institutional investors.
Called Fidelity Digital Assets, the limited liability corporation based in Boston will provide enterprise-grade custody solutions, a cryptocurrency trading execution platform and institutional advising services 24 hours a day, seven days a week, designed to align with blockchain’s always-on trading cycle.
Fidelity Investments provides financial services for $7.2 trillion in customer assets and provides clearing, custody and investment services for 13,000 institutional advisory firms and brokers. But the fifth-largest asset manager in the world has largely limited its cryptocurrency exposure to a few peripheral services and through donations via their non-profit Fidelity Charitable.
With Fidelity Digital Asset’s first customers being onboarded now, and general availability scheduled for early 2019, the launch of the subsidiary with 100 employees marks the latest and perhaps the largest push into cryptocurrency by an institutional asset manager.
“This is a recognition that there is institutional demand for these assets as a class,” says Tom Jessop, founding head of Fidelity Digital Assets. “Family offices, hedge funds, other sophisticated investors, are starting to think seriously about this space.”
Announced at an event in Bloomberg’s New York City headquarters, Fidelity Digital Assets will offer three main services. The most elaborate of these appears to be custody services for bitcoin, ether and other digital assets. In particular, the service is being designed give institutional investors a compliant way to secure their assets by holding them in a physical vault.
The vaults “distributed over multiple geographically dispersed locations.” are so-called “cold storage” facilities, according to Jessop, meaning they not only consist of software-based security protections but are physically separated from the internet, making them more difficult to hack.
Other Fidelity Digital Assets services will include trade execution services that leverage an internal crossing engine and smart order router that will execute trades using multiple third-party cryptocurrency liquidity suppliers. Importantly, these trading services do not amount to an exchange; rather, they are the piping that directly connects Fidelity customers to existing exchanges. To make it easier for institutions that are new to cryptocurrency to get involved, Fidelity Digital Assets will also offer a dedicated client services team to help with the onboarding process.
Collectively, Fidelity Investments chairman and CEO Abigail Johnson said the digital assets spinoff is part of a larger plan to make it easier for investors of all types to “understand and use” a wide range of assets issued on a blockchain: “Our goal is to make digitally native assets, such as bitcoin, more accessible to investors.”
Leading the crypto spinoff is Tom Jessop, formerly the head of corporate business development at Fidelity. While Jessop is certainly no newbie to the world of cryptocurrency and blockchain, he only recently returned to Fidelity with the express purpose of advancing its digital asset offerings.
Jessop joined the asset management giant in January 2018 after a brief stint at enterprise blockchain startup Chain, which was recently acquired by the for-profit subsidiary of the Stellar Development Foundation that helps oversee development of the stellar cryptocurrency.
Jessop was brought on as president of Chain in April 2017 after 17 years at Goldman Sachs to leverage his deep Rolodex of contacts to help bridge the gap between enterprise financial institutions and non-cryptocurrency applications of distributed ledger technology.
As president of Fidelity Digital Assets, Jessop’s will provide a similar bridge between institutions and blockchain applications. In this case however, his focus will be on cryptocurrency, and in the future a wide range of other assets issued on a blockchain.
“Our clients are thinking about this as an investable asset class,” says Jessop. “They’re doing their research, they’re developing a thesis around why these tokens may have value in the future, and that’s really driving a lot of interest.”
Fidelity’s experiments with blockchain technology began in 2013, with the discreet launch of its Blockchain Incubator, a part of the Fidelity Center for Applied Technology, according to a statement. In 2015 Fidelity Charitable started accepting bitcoin donations, and by February of this year, cryptocurrency was the nonprofit organization’s fastest growing kind of donation, bringing in more than $69 million.
Last year Fidelity started letting its clients view their cryptocurrency balances via an integration with exchange and custody firm Coinbase, though at the time they were unable to actually trade via the Fidelity user interface. The integration led to speculation that Fidelity was building its own cryptocurrency exchange.
So it was no surprise when in May of this year Fidelity partnered with the MIT Digital Currency Initiative to host the first Layer 2 Summit, which focused on the research and protocols being built to help address the scalability issues of blockchain assets as they reach an ever-growing market.
The timing of the launch is interesting for a number of reasons. First, bitcoin’s price has dropped 68%, to $6,391, since its peak in 2017. Second, the price drop has given new ammunition to skeptics who have long doubted the scalability and use cases of bitcoin.
Nevertheless, Jessop says Fidelity views crypto assets as more than just a store of value. They represent an investment in future use cases currently being developed, or perhaps not yet conceived.
“Our long-term vision is really that you’ll see lots of assets exist in this new medium,” says Jessop. “And this new medium will bring a host of benefits around efficiency, around access, around automation, which is very exciting for financial services.”
About Jaime Bonetti Zeller
Jaime Bonetti Zeller is an investment professional and entrepreneur with businesses in multiple industries. He is president of Servicios Consulares Eurodom, the local partner in the Caribbean region for VFS Global, a leader global outsourcing and technology services specialist for diplomatic missions and governments worldwide. Jaime Bonetti Zeller also started the company Sofratesa de Panama inc., an organization in the engineering services industry located in Panama City.