Fidelity Says It Will Trade Bitcoin for Hedge Funds (#GotBitcoin?)
The firm’s Digital Asset Services unit will deal in bitcoin and ether, the two largest digital currencies. Fidelity Says It Will Trade Bitcoin for Hedge Funds
Fidelity Investments said it will store and trade bitcoin for hedge funds and other professional investors, becoming one of the first Wall Street giants to step into this volatile corner of the financial world.
Most large financial-services firms have resisted the idea of trading digital currencies because of concerns about risk, regulations and stability. The price of bitcoin has plunged roughly 67% since its peak last December, partially reflecting doubts about the practical use of a currency that isn’t sponsored by any government.
Bitcoin observers said Fidelity’s move will lend the cryptocurrency world some mainstream credibility and potentially remove some obstacles for buyers and sellers.
“It’s a milestone for crypto assets,” said Gil Luria, director of research at DA Davidson and a longtime follower of bitcoin.
The new business Fidelity announced Monday, Fidelity Digital Asset Services LLC, will allow money managers, family offices and other institutional clients to trade bitcoin and ether, another digital currency. It intends to expand into additional assets in the future, said Tom Jessop, Fidelity’s head of corporate-business development.
The firm for now has no plans to extend the trading of bitcoin to retail customers, Mr. Jessop said. The business has about 100 employees, including dedicated client-services representatives, he said. It is currently setting up accounts for some new clients and will open more broadly early next year. Fidelity plans to execute trades through several digital-currency exchanges and platforms.
Fidelity may seem like an unlikely evangelist for digital currency: The firm, for years best known for its slate of mutual funds and star stock pickers, operates brokerage and retirement-services businesses that directly reach millions of Americans. Fidelity has more than $2 trillion in assets under management and $5 trillion in assets under administration.
Chief Executive Abigail Johnson, however, has been interested in cryptocurrencies, and has pushed to connect her company and the fledgling asset class. Early steps included experiments with mining virtual coins and using digital ledgers to execute trades. Fidelity also put some of its own money to work in a digital-currency fund and eventually allowed clients to donate digital assets to charities.
The clearest signal of its intentions came in May 2017 when Ms. Johnson championed the growth of alternative currencies at a speech in New York.
“Some of you might be wondering: Why am I here today?” she said at the digital-currency conference. “I’m here because I love this stuff…all that the future might hold.”
Fidelity executives expect other Wall Street players to follow Fidelity and bring more institutional investors to the cryptocurrency markets.
Goldman Sachs Group Inc. has looked into setting up a trading business focused on bitcoin and other digital assets, The Wall Street Journal reported last year. The Wall Street firm also has backed Circle Internet Financial Ltd., a digital-currency trading platform. Mr. Jessop, a former Goldman executive, was on the team that invested in Circle.
Many of Fidelity’s peers, including the large custody banks and securities firms that trade and safeguard stocks, bonds and other securities, are more interested in blockchain, the decentralized platform on which bitcoin runs. They are researching ways blockchain technology can be used to make it faster and safer to move assets.
Far fewer have explored dealing more directly with the currencies themselves.
“There’s a hurdle for institutional investors,” Mr. Luria said. “Everything else they invest in, they can do fundamental analysis on it. Stocks, bonds, real estate, commodities—those are things they can analyze. That’s still hard to do for crypto assets. As long as that’s the case, investors are going to have a hard time embracing this category.”
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