Ultimate Resource On Fidelity’s Bitcoin Products And Services (#GotBitcoin?)
United States $7 trillion investment firm Fidelity will reportedly roll out bitcoin (BTC) trading for institutional clients in the coming weeks, Bloomberg reported on May 6. Ultimate Resource On Fidelity’s Bitcoin Products And Services (#GotBitcoin?)
Citing a source who asked to remain anonymous, the publication revealed Fidelity’s cryptocurrency-focused spin-off, Fidelity Digital Assets, would be adding to the existing range of services.
The subsidiary launched in October 2018 and has offered cryptocurrency custody from March this year ahead of planned over-the-counter (OTC) trading.
Now, the trading side will go live for Fidelity’s users in as little as several weeks, the source said, and will primarily target large-volume traders like other OTC offerings.
While Fidelity itself did not confirm the time frame, the company hinted that its future direction would only involve more integration with the bitcoin space.
“We currently have a select set of clients we’re supporting on our platform,” spokeswoman Arlene Roberts told Bloomberg. She added:
“We will continue to roll out our services over the coming weeks and months based on our clients’ needs, jurisdictions, and other factors. Currently, our service offering is focused on Bitcoin.”
The report comes on the back of a survey Fidelity conducted last week that revealed consistent appetite for bitcoin among its target market.
Specifically, 22% of the over 400 institutional investors who responded said they already owned the cryptocurrency as part of their portfolio. Almost half were sympathetic to including it.
“More institutional investors are engaging with digital assets, either directly or through service providers, as the potential impact of blockchain technology on financial markets — new and old — becomes more readily apparent,” Fidelity Digital Assets president Tom Jessop commented in an accompanying press release.
Fidelity’s Crypto Branch Files For A New York Trust License: Report
Fidelity’s crypto arm Fidelity Digital Assets Services (FDAS) has applied for a license to operate as a trust in New York State.
FDAS has filed an application with the New York Department of Financial Services (NYDFS) for a trust license, crypto media outlet The Block reported on July 20, citing several unnamed sources familiar with the matter.
If the license is approved, FDAS will officially be allowed to offer its crypto custodial services in the state of New York, operating as a Limited Purpose Trust Company, the report notes.
In the report, lawyer Arthur Long said that the trust license is broader than BitLicense, NYDFS’ typical crypto license, enabling its bearer to operate more financial services such as financial advice. Fidelity has not confirmed the news to The Block as of press time.
In April, FDAS hired Christine Sandler, former executive of popular American exchange and wallet service Coinbase, as head of Sales and Marketing. Sandler joined the firm to lead institutional customers service and was reportedly based in New York. In mid-May, Cointelegraph reported that FDAS was working to expand its blockchain engineering team.
Recently, Reuters reported that social media giant Facebook applied with the NYDFS to acquire a cryptocurrency business license to operate its planned stablecoin Libra in New York.
Fidelity To Expand Institutional Crypto Business To Europe
Fidelity Investments, one of the world’s largest asset managers, is setting up a new entity to serve European institutional investors in digital assets.
The firm said Tuesday that the new business will be provided through Fidelity Digital Asset Services (FDAS), its New York state-chartered limited liability trust company. Launched in 2018, FDAS already offers custody and trade execution services services to U.S.-based institutional investors.
It will now also provide European digital assets investors such as hedge funds, family offices and market intermediaries with these services, Fidelity said in press release shared with CoinDesk.
The firm has appointed Chris Tyrer as the head of FDAS in Europe. Tyrer previously worked as a managing director at Barclays Investment Bank. leading its digital asset project. He’s also served as global head of commodities trading for the bank following a long career in the traditional financial markets. In the new role. Tyrer will lead client service activity in the region.
The firm has recently made significant progress in the U.S. FDAS bagged a New York Trust Charter to custody bitcoin for institutions in November and said at the time it would onboard its first client by the end of 2019.
Tom Jessop, president of Fidelity Digital Assets, said the firm has seen “significant interest and engagement” from institutional investors since its U.S. launch a year ago.
“We’re also encouraged by continued corporate and venture investment in market infrastructure companies as well as the entry of traditional exchanges into the digital assets ecosystem,” Jessop said. “These and other market indicators, alongside interest expressed from U.K. and European client prospects, indicate a market with increasing potential which gives us the confidence to expand the digital assets business geographically.”
Fidelity International Invests in Hong Kong Crypto Company BC Group
Fidelity International has acquired a stake in BC Group, the operator of OSL, one of Asia’s largest digital asset platforms for institutions. The company purchased 17 million shares for a 5.6% ownership position.
The purchase was revealed by a Hong Kong Stock Exchange (HKEx) disclosure filed on Feb. 17. The actual transaction occurred on Feb. 12. Fidelity International is reported to have purchased HK$110.5 million ($14.2 million) worth of BC Group shares at a price of HK$6.50 ($0.83) each.
The purchase is part of a $36 million share placement announced by BC Group in January. A related HKEx filing shows that 19 million shares were issued on Feb. 12, making Fidelity International a direct investor into the Hong Kong firm.
Fidelity representatives declined to comment on the news.
BC Group is the operator of two major services: OSL, an institution-focused digital asset platform, and Branding China, a PR and marketing agency.
What Is OSL?
OSL is a digital asset platform providing a variety of services for institutions interested in crypto assets. It offers Software as a Service (SaaS) tools to interface with digital assets, Over the Counter (OTC) brokerage for large clients, custody services and an institutional digital asset exchange.
Commenting on the investment round, BC Group CEO Hugh Madden said:
“The raise represents a new phase of growth for the Group. It allows us to further invest in key areas such as technology and compliance which will be essential as we compete and win in this dynamic environment.”
He emphasized that the digital asset market is “going through a rapid changing of the guard.” Focusing on the regulatory perspective, he added:
“Licensing frameworks in every major jurisdiction are rewarding only the strongest and most professional operators, and these firms will continue to capture market share from unlicensed players.”
Retail Investors Will ‘Undoubtedly’ Move To Bitcoin, Says Fidelity
A “new wave of retail investors” is waiting to adopt digital assets.
Fidelity Digital Assets, the cryptocurrency custody and execution arm of United States financial services giant Fidelity, has claimed in a new report that retail investors will turn their attention to digital currency as they become more familiar with Bitcoin and other crypto offerings via social media platforms.
According to the report, social media and communication platforms including Twitter, Reddit, Telegram, YouTube, and Tik Tok are driving the retail adoption of Bitcoin (BTC). They dissemble financial information and advice in a “more viral and rapid” way than traditional channels.
“As this new wave of retail investors familiarize themselves with these channels, some of their attention will undoubtedly flow to Bitcoin and other digital assets,” the report states.
While the majority of the report focused on the continuing flow of institutional investors to Bitcoin, Fidelity Digital Assets was careful to note that the narratives for retail speculators are very different:
“Bitcoin is reflexive,” suggested the report. “Price and sentiment experience a self-reinforcing effect.”
The authors pointed to data from The TIE, a sentiment analysis firm, illustrating that abnormally high mentions of Bitcoin on social media can drive increases in the value of the digital currency.
“The behavior of retail investors and institutional investors can be different,” posits the report, noting that data from Coinbase suggested that the former tend to “buy the dip” following a slide in prices.
Fidelity Digital Assets identified the “retail resurgence” in traditional markets through the rise of platforms that make trading easier, presumably including millennial-favorite Robinhood, the use of which has soared during the pandemic. The report also noted the continuing increase in the number of wallets holding less than one full Bitcoin as evidence that retail investors continue to find the asset an “aspirational” investment.
Quoting Coinshares’ Meltem Demirors, The Report Says:
“What is unique about Bitcoin is that it’s retail driven. Financial media and the way people consume investment information is changing, and influencers command more attention than institutions.”
Fidelity noted a lack of correlation between Bitcoin’s price and mainstream financial assets, but higher returns for BTC investors over a long-term time horizon. In addition, the report stated that institutional interest could increase Bitcoin’s market capitalization by up to $1.3 trillion by capturing just 10% of investments from alternative investments and fixed income.
Fidelity Makes It Clear: Bitcoin Volatility Is Worth The Risk For Institutions
A new report shares a number of notably bullish sentiments with regard to Bitcoin and the larger crypto industry.
In a recently released report titled Bitcoin Investment Thesis, Fidelity Digital Assets demonstrated how portfolio managers could increase their returns by allocating a portion of their holdings to Bitcoin (BTC). The report also speculated that in the near future, increased institutional interest could expand Bitcoin’s market capitalization by hundreds of billions of dollars.
To support its thesis, Fidelity simulated sample portfolios starting with a default allocation of 60/40 between equities and fixed income instruments. They then diversified these with Bitcoin at a rate of 1 to 3 percent. In every scenario considered by Fidelity, portfolios holding higher Bitcoin allocations outperformed their less diversified counterparts.
Assets that are negatively correlated or exhibit low correlations with the rest of the market provide additional benefits to portfolio managers. They allow for a reduction in volatility without having to sacrifice returns. Simulated portfolios that continued to hold Bitcoin benefited from the asset’s low correlation with traditional assets.
The report acknowledged, however, that the increasing adoption of Bitcoin by the financial industry may lead to greater correlation in the future, thus reducing diversification benefits.
Fidelity’s report additionally estimated the potential redistribution of investments from alternative investments and fixed income to Bitcoin. The former’s market is valued at $13.4 trillion, thus if Bitcoin were to capture 5% of this market, its market cap would increase by $670 billion. If it were to capture 10%, the market cap would increase by $1.3 trillion.
The bond market is approximately worth $50.3 trillion. If Bitcoin were to capture 1% of that market, this would translate into another $500 billion.
Ever-decreasing bond yields, the report argues, could push asset managers further toward alternative assets. If the most optimistic forecasts were to materialize, Bitcoin’s capitalization could increase to $2 trillion.
Fidelity Says “There Is Almost No Relationship Between The Returns Of Bitcoin And Other Assets”
The age-old debate is over. Maybe.
In recent years, a battle of the minds has surfaced on whether or not Bitcoin’s price is correlated with other financial assets, such as stocks. A recent report from Fidelity Digital Assets brings clarity to the argument.
Fidelity’s lengthy report, titled Bitcoin Investment Thesis: Bitcoin’s Role As An Alternative Investment, shows not only a lack of correlation between Bitcoin’s price and mainstream financial assets, but higher returns for BTC investors over a long-term time horizon.
The Report Said:
“Bitcoin’s correlation to other assets from January 2015 to September 2020 (displayed in the table below) is an average of 0.11, indicating there is almost no relationship between the returns of bitcoin and other assets.”
A 0.11 correlation exists on a scale between -1 and 1, with a score of 1 meaning flawless correlation, and -1 yielding opposite price action, the report clarified. If Bitcoin had a -1 score, for example, then the asset would rise in price whenever stocks fall. A 0 score would mean no other asset movements would affect Bitcoin’s price.
In recent years, Bitcoin has seemingly traveled a price path in line with mainstream markets at times. BTC dumped alongside stocks in March 2020 during initial COVID news. The digital asset, however, recovered much faster, with higher relative gains. More recently, Bitcoin suffered a slight drop in line with stocks on the news of delayed stimulus funding.
But despite these short-term effects, Fidelity reported that “Bitcoin has distinct underlying fundamentals that are not affected by the health and economic situation created by COVID-19.”
In the report, Fidelity noted that the uncorrelated nature of Bitcoin could be partially due to a new era of retail interest in investing, driven by social media interest.
The report further discussed the fact that Bitcoin has a number of narratives that are of interest to different investing constituencies, arguing that despite the argument over whether Bitcoin is a store of value or a means of exchange, “One of the beautiful things about Bitcoin is that its success is not predicated on serving a singular purpose.”
The digital asset has soared in price over the past decade, surpassing parity with the U.S. dollar, gold and other benchmarks, as previously described by crypto analyst and stock-to-flow model creator PlanB. On that journey, some people’s perception of Bitcoin has changed from a transactional currency to a store of value.
Bitcoin’s age also plays a part in its lack of correlation. “Bitcoin is a young asset that, until recently, was untethered to traditional markets,” the report said. “As it is integrated in institutional portfolios, it could become increasingly correlated with other assets.”
Mainstream Bitcoin trading products have trickled into the crypto space since the Chicago Mercantile Exchange’s Bitcoin futures trading product launch in 2017. Since then, Bitcoin options have also surfaced on the mainstream market. As noted by the Fidelity report, correlations may begin surfacing, possibly now partially visible in the “Bitcoin CME gap” theory, around which many crypto traders place importance.
In general, however, Fidelity noted a lack of mainstream correlation for crypto asset prices, citing a study from Yale University which looked at several top cryptocurrencies, including BTC and Ethereum (ETH).
“Based on their analysis, the return behavior of all digital assets, including bitcoin, could not be explained by the risk factors that account for the returns in stocks, currencies, or precious metal commodities or by macroeconomic factors such as non-durable consumption growth, durable consumption growth, industrial production growth, and personal income growth.”
Morgan Creek Digital co-founder and crypto industry expert Anthony Pompliano has spoken many times on Bitcoin as a non-correlated asset. Amid an uncertain global situation, such an asset might serve as a hedge, at least according to MicroStrategy, a large financial player that recently put $400 million into BTC.
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