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.”
Bitcoin Chose Decentralization And Immutability Over Payments, Says Fidelity
Fidelity Digital Assets has published its response to commonplace criticisms of Bitcoin.
“Bitcoin has failed as means of payment” is one of the prevalent criticisms of Bitcoin (BTC) that Fidelity Digital Assets is seeking to rebut. In a blog post published on Nov. 13, the firm took on six “persistent” criticisms, including Bitcoin’s volatility, environmental wastefulness and use in illicit activities.
Regarding the coin’s purported failure as a means of payment for everyday transactions, Fidelity’s argument is that this criticism fails to understand Bitcoin’s core purpose.
The currency is outperformed, Fidelity accepts, by conventional payment rails like Visa, Mastercard and PayPal, all of which can offer higher throughput. However, Bitcoin has been designed with other priorities in mind, including “perfect scarcity,” Fidelity argues.
“Bitcoin makes deliberate trade-offs, such as limited and expensive capacity, to offer core properties such as decentralization and immutability. Given its high settlement assurances, Bitcoin optimizes its limited capacity for settling transactions that aren’t well served by traditional rails.”
While the coin is, in theory, viable as a payment tool, its limitations mean that everyday use is not necessarily the end goal for the asset. As well as price volatility, Bitcoin’s tax definition as property in some jurisdictions — meaning that users have to calculate gains and losses for every payment or purchase in Bitcoin — renders it impractical for many payments.
Fidelity claims that users should be aware that the coin’s design has prioritized aspects such as decentralization, finite supply and immutable settlement. These should be valued on their own terms, with the acceptance that they do come with downsides on the daily transactions front.
Related to payments, Fidelity tackles the criticism that Bitcoin’s extreme volatility compromises its use as a store of value. Here, Fidelity again reframes the terms of the criticism, claiming that volatility is the price paid for an “intervention resistant market”:
“No central bank or government can step in to support or prop up markets and artificially subdue volatility. Bitcoin’s volatility is a trade-off for a distortion-free market. True price discovery accompanied by volatility might be preferable to artificial stability if it results in distorted markets that may break down without intervention.”
Fidelity provides further, detailed arguments surrounding volatility as well, relating it to the asset’s “perfectly inelastic supply.”
The last four criticisms tackled in the blog post are environmental wastefulness, Bitcoin’s use for illicit activity, the asset “not being backed by anything,” and its potential overtaking by a competitor.
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.”
Fidelity Doubles Down On Hong Kong Crypto Operator
The mutual fund giant now owns 6.29% of BC Technology Group following the latest cash injection.
Fidelity Investments, one of the world’s largest asset managers, has poured more capital into a Hong Kong-based cryptocurrency operator — offering yet another bullish indicator for the evolution of digital-asset markets worldwide.
An exchange filing obtained by Singapore-based Business Times shows that Fidelity acquired a 6.29% stake in BC Technology Group after investing $6.71 million in the company. Business Times indicated that Fidelity had increased its exposure to the company, though didn’t specify the initial investment amount.
The investment was announced shortly after BC Technology Group disclosed that it had reached an agreement to raise HK$697 million ($89.9 million) in a “top up share placement.”
BC Technology Group is the operator of OSL, a popular cryptocurrency exchange that recently obtained a coveted license from Hong Kong’s Securities and Futures Commission, or SFC. A BC Group press release dated Dec. 15, 2020 claims that OSL is the world’s “first SFC-licensed, listed, digital asset wallet-insured, Big-4 audited digital asset trading platform for institutions and professional investors.”
Fidelity has made a number of strategic investments in the cryptocurrency market, including expanding its custody services in Asia through a partnership with Stack Funds, a Singapore-based crypto startup. At the end of 2019, Fidelity’s digital-asset unit established an official entity in the United Kingdom to serve institutional investors in Europe.
Headed by Abigail Johnson, Fidelity is positioning itself as an institutional pioneer for cryptocurrency adoption. Recognizing the potential value of digital assets, Fidelity has been harvesting Bitcoin (BTC) since 2014.
Fidelity’s early investments in Bitcoin and Ether (ETH) appear to be paying off today, as both assets vie for a bigger role in institutional finance and global monetary systems. Just last week, the combined value of all cryptocurrencies broke above $1 trillion for the first time, eventually reaching a high of around $1.2 trillion.
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.
Fidelity Digital Crypto Pact Aims At Rich Asians Wanting Bitcoin
A new partnership for Fidelity Digital Asset Services aims to facilitate the growing interest in cryptocurrencies among Asian investors.
Stack Funds, which is based in Singapore and provides access to crypto products, will make FDAS’s secure custody services available to its clients in a bid to meet increasing demand from Asia’s high-net-worth investors and family offices, according to a statement.
Stack says all assets it secures will be subject to monthly audits, and promises protections like insurance coverage as well as weekly contributions and redemptions. The firm aims to appeal to investors in the region with risk mitigation and the attraction of Fidelity’s involvement, Michael Collett, Stack’s co-founder, said in an interview.
“There is a critical need for platforms which have a deep understanding of what local and regional investors are looking for” that “has historically been lacking in the digital asset space,” Christopher Tyrer, head of Fidelity Digital Assets Europe, said in the statement.
Fidelity Investments has moved into digital assets earlier than many other large financial institutions. It disclosed in August that it was starting a passively managed Bitcoin fund for wealthy investors. The firm started Fidelity Digital Assets in late 2018, with CEO Abigail Johnson declaring the goal was to boost accessibility for investors.
Cryptocurrencies have been taking off again after a tough time at the beginning of the year. Bitcoin reached the highest level since January 2018 on Wednesday.
Proponents of digital assets say growing institutional interest is complementing retail buying. Recently, Paypal Holdings Inc. moved to give customers access to crypto, and JPMorgan Chase & Co.’s JPM Coin was used to make a payment for the first time, according to reports.
“This year has been tough as far as getting people into Bitcoin because it didn’t cover itself with glory in the market downturn,” Collett said. But “since the dark-dark days of March we’ve had inquiries pick up again,” he added.
Fidelity Unlocks Bitcoin As Collateral For Borrowing On BlockFi
Depositors using Fidelity Digital Assets custody will be able to access liquidity via BlockFi.
Fidelity Digital Assets, the crypto arm of the asset management conglomerate, will allow institutional customers to pledge their Bitcoin (BTC) as collateral for cash loans.
As reported Wednesday by Bloomberg, the firm partnered with crypto lender BlockFi to disburse the loans. Institutional clients of Fidelity’s custodial solution will be able to draw cash loans from their stored Bitcoin without having to move it, provided they have an account with BlockFi.
The target customers of this feature are primarily hedge funds, miners and over-the-counter trading desks. Overcollateralized lending is generally used to access liquidity without losing a long position on the asset used as collateral. The cash can be used to enter leveraged positions and build hedged strategies or to pay for business expenses.
In a conversation with Cointelegraph, a Fidelity spokesperson said that the offering comes as part of a “demand for increased capital efficiency” among its customers. “Our full-service offering that includes custody and trading will continue to help institutions enable capital efficiency, while prioritizing asset safety and stillness,” they said
The loan-to-value ratio will be set to 60%, meaning that each $1,000 in collateral can back at most $600 in borrowed money. Nonetheless, that parameter could change according to the specific customer’s needs. Fidelity clarified that it does not play any role in setting loan terms, limiting its contribution in the tri-party agreement to the safekeeping of the Bitcoin.
Fidelity Digital Assets has provided Bitcoin custodial services since October 2019. More recently, it also began offering its services to the Asian market.
BlockFi is a major cryptocurrency lender, offering interest on deposits sent to the platform. While it is a retail-centric company when it comes to collecting deposits, that money is primarily lent out to other institutions. The company recently launched a Visa debit card with Bitcoin rewards.
Fidelity-Backed Crypto Trading Platform OSL Secures License In Hong Kong
OSL is now officially licensed to operate regulated brokerage and automated trading services for digital assets.
OSL, a major digital asset platform in Asia and a unit of Fidelity-backed BC group, has been officially licensed by the Securities and Futures Commission of Hong Kong.
According to a Dec. 15 announcement, the new license allows OSL Digital Securities to operate regulated brokerage and automated trading services for digital assets. The news comes shortly after the SFC agreed in principle to issue OSL a license in August 2020. According to the announcement, OSL has successfully undergone the SFC’s strict vetting requirements.
At launch, OSL Digital Securities’ digital asset trading platform will support major digital assets like Bitcoin (BTC) and Ether (ETH), as well as select security token offerings, or STOs.
The platform will offer insurance protection on digital assets like Bitcoin, holding the assets in client-segregated wallets. OSL will maintain know-your-customer and anti-money laundering controls to mitigate the risk of market misconduct through market surveillance, the announcement reads.
Matt Long, head of distribution and prime at OSL, emphasized that licensed companies are the future of digital assets and capital markets. The exec also stressed that OSL is the first mover globally in terms of secured regulatory approvals:
“OSL now stands apart from the competition as an innovative first mover, as the world’s only listed, SFC-licensed, Big 4 audited and insured digital asset platform for institutions and professional investors to securely onboard into the digital asset economy.”
In addition to the Hong Kong licenses, OSL has also applied to the Monetary Authority of Singapore for a digital asset license under the country’s Payment Services Act, the announcement notes.
Earlier this year, Fidelity International, a subsidiary of United States asset management giant Fidelity Investments, completed a direct investment in BC Group, a Big-4-audited company and the operator of OSL. Fidelity purchased 17 million shares for a 5.6% ownership position, reportedly investing more than $14 million in the company.
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