Fidelity Makes Cryptocurrency Move

Bitcoin was born ten years ago on 31 October 2008. The world’s first cryptocurrency is now at the vanguard of a complex financial system that is increasing attracting the interest of markets and investors. The original intention was to create a decentralised digital currency that was not reliant on a central bank or single administrator and that could be sent from user-to-user on a peer-to-peer network without the need for an intermediary.

When bitcoin surpassed $1,000 per unit for the first time in 2013, it began to attract the attention of financial institutions. In early 2014, the cryptocurrency faced its largest crisis with the hacking of a Japanese platform where about 80% of all bitcoins were traded. The resulting collapse in value led to prophecies of the virtual currency’s demise. It took until early 2017 for bitcoin’s price to fully recover. At the time of writing, it is valued at about $6,250 per unit.

Institutional investors are catching up with high-net-worth individuals as the biggest buyers of cryptocurrencies, which currently have an aggregate market value of $211bn.

Boston-based mutual-fund company Fidelity Investments recently announced that is launching a new company for institutional clients that will trade and store cryptocurrency assets such as bitcoin and ethereum. The new company, Fidelity Digital Asset Services, will not have an exchange to trade cryptocurrency assets but rather will connect with several other crypto exchanges to help its clients rapidly find the best price.

Fidelity will store the private keys that control cryptocurrencies via a combination of enterprise software and “cold storage” – a means of storing coins offline. Institutional investors are catching up with high-net-worth individuals as the biggest buyers of cryptocurrencies, which currently have an aggregate market value of $211bn. Fidelity’s move into custody for cryptocurrencies has opened the door even further for institutional investment in the fledgling asset class. The lack of custody and other back-office services by brand name financial companies has kept a cap on institutional investment in digital currencies. Fidelity’s new company could play a significant role in helping the marketplace for the new asset class mature.

Fidelity’s cryptocurrency push follows moves by other large financial companies in digital assets, including Intercontinental Exchange, the owner of the New York Stock Exchange, and CME Group. According to Abigail Johnson, chairman and chief executive of Fidelity Investments, “our goal is to make digitally native assets, such as bitcoin, more accessible to investors”. Tom Jessup, who is heading up the new division, says that “the creation of Fidelity Digital Assets is the first step in a long-term vision to create a full-service enterprise-grade platform for digital assets.” Fidelity is one of the five largest financial services providers in the world, with c.$7.2trn in client assets.