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.
Fidelity’s Head of Global Macro Says Bitcoin May Have Place In Some Portfolios
“Is it any wonder that bitcoin seems to be having its day?” Fidelity’s global macro chief said.
The bullishness shown by Fidelity Investments’ cryptocurrency-focused arm appears to be spreading to the rest of the investments giant, with Director of Global Macro Jurrien Timmer now comparing bitcoin (BTC, +10.85%) directly to gold.
* Timmer told investors in a February research note that bitcoin may be emerging as a legitimate hedge against inflation and stable store of value as a form of “digital gold.” “In my view, bitcoin has gone mainstream.”
* What’s noteworthy here is Timmer is not part of the investment giant’s digital assets arm that is, almost by remit, disposed to be pro-crypto. Instead, he’s part of the broader company and his pro-bitcoin report speaks to the cryptocurrency’s increasingly warm welcome on Wall Street.
* Grappling with how to model the cryptocurrency, Timmer noted that, if evaluated against simple supply and demand metrics, demand continues to grow “exponentially” while supply remains fixed. That scenario does not apply to gold, whose annual production has remained steady over time. “Bitcoin supply, by design, is finite.”
* He said the monetary environment naturally favors bitcoin. “With interest rates close to zero – or negative – and central banks printing money like there’s no tomorrow, is it any wonder that bitcoin seems to be having its day?”
* While Timmer admitted bitcoin’s risks – including volatility – may not amount to a “prudent” investment choice for all, he said it could nonetheless find a home in the bonds slice for certain portfolios. “For those investors, the question of bitcoin may no longer be ‘whether’ but ‘how much?'”
* He also said that he expects bitcoin “over time” will take more market share from gold.
Fidelity To Hire More Crypto Hands Amid Growing Institutional Interest
Fidelity Digital is planning to hire 100 more people for its crypto business to service the growing needs of institutional investors.
Fidelity Digital, the crypto arm of the global asset management giant Fidelity Investments Inc., will reportedly hire more people for its expanding cryptocurrency business.
According to Bloomberg on Monday, the company is planning to increase its staff size by about 70% to handle the growing patronage from big-money crypto investors.
The increased workforce, numbering at least 100, will reportedly be deployed to locations in Salt Lake City, Boston and Dublin.
As part of the staff headcount expansion, Fidelity Digital president Tom Jessop said the company is looking to offer exposure to other cryptocurrencies apart from Bitcoin (BTC), telling Bloomberg: “We’ve seen more interest in Ether, so we want to be ahead of that demand.”
Indeed, institutional interest in Ether (ETH) has been growing since the start of the year with investment inflows for ETH-based products even outpacing Bitcoin’s on some occasions.
Apart from diversifying into crypto investment and custody catalog, the recruits will also reportedly help the company extend its operating time in an attempt to offer full-time services “for most of the week.”
Unlike the legacy trading arena, the crypto market operates 24 hours a day, seven days a week. For Jessop, Fidelity Digital needs to upscale its operations to mirror this operating paradigm.
Jessop also offered a unique perspective to view the evolution of institutional crypto interest beyond hedge funds and family offices. According to the Fidelity Digital chief, retirement advisors and companies are now looking for some form of exposure to crypto assets.
As previously reported by Cointelegraph, Avalanche blockchain founder and Cornell University professor Emin Gün Sirer revealed that retirement funds were looking to become the next big-money players in the crypto space.
Even the current crypto market downturn has done little to dampen the enthusiasm among institutional investors. Earlier in July, $55 billion hedge fund Marshall Wace announced plans for late-stage investing in blockchain firms with a special focus on digital payment systems and stablecoins.
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.
Most Asset Managers Still In ‘Education Mode’ On Crypto, Says Fidelity
Michael Derbin, head of Fidelity Institutional, says that while some wealth managers are by now “sophisticated” and “comfortable” with crypto, many others are still playing catch up.
Michael Derbin, head of Fidelity Institutional, thinks that many wealth managers and financial advisors still lack the requisite in-depth knowledge when it comes to digital assets.
Whereas some wealth managers are by now “sophisticated” and “comfortable” with cryptocurrencies and their underlying technology, he said, many others lag behind. In an interview at Reuters Digital Asset Week, Derbin noted:
“They know what they are doing, and more importantly their end investor base also knows what they are doing — but the vast majority are still in the education mode.”
Fidelity Institutional is a division of Fidelity Investments, whose $9.8 trillion in client assets (as of the end of 2020) make it one of the world’s top investment managers. It has also been one of the first to take cryptocurrencies seriously, launching a subsidiary focused on the new asset class back in fall 2018.
While the knowledge gap remains among financial managers, Derbin stressed that demand for digital assets among larger investors has increased. Tesla and Bank of New York Mellon are just two of the latest household names to venture into the crypto space, during the course of a historic bull season for Bitcoin (BTC). Over the past year, the top cryptocurrency has soared in value by over seven-fold and was trading as high as $61,200 earlier this month.
Back in October 2020, Fidelity Digital Assets published a report forecasting that heightened institutional interest could expand Bitcoin’s market capitalization by hundreds of billions of dollars in the near future, and argued that portfolio managers could significantly increase their returns by allocating a portion of their holdings to Bitcoin.
Fidelity’s Tom Jessop Says Crypto Has Hit A ‘Tipping Point’
Rock bottom interest rates and fiscal stimulus has driven momentum in the crypto sector the Fidelity executive said.
Executives at investment giant Fidelity are confident that cryptocurrency market momentum will continue for the foreseeable future.
Speaking to MarketWatch on April 8, Tom Jessop who heads the investment firm’s crypto division said that he believes crypto has opened a new chapter in traditional finance circles and things have reached a tipping point for the industry.
Jessop stated that the maturation and adoption of crypto assets as an investment class will continue at a rapid pace in the coming years. There are a number of reasons according to the finance manager, one of which is extremely low interest rates in traditional finance.
This, coupled with an environment stimulated by monetary policies, has driven momentum for crypto markets. The Fidelity executive said that this environment is unlikely to change any time soon:
“I think we’ve reached a tipping point. I think you’ve had the accumulated experience of now roughly 12 years of the Bitcoin blockchain being operative since the genesis block in early 2009. And the pandemic, quite frankly, was a catalyst for institutional adoption, and specifically Bitcoin and the narrative, or use-case, around digital gold,”
Jessop added the narrative has been exacerbated by the unprecedented monetary stimulus from central banks and governments in response to the pandemic.
Since the pandemic began, U.S. stimulus packages have topped $6 trillion with much of that money being freshly minted by the Federal Reserve.
Jessop is not the only finance executive to believe that Bitcoin and crypto has reached a tipping point. In early March, Galaxy Digital CEO Mike Novogratz used the same phrase while commenting on the CI Galaxy Bitcoin ETF on Bloomberg:
“Bitcoin adoption has hit a tipping point and investors don’t want to sit on the sidelines,”
On March 24, Fidelity filed paperwork with the U.S. Securities and Exchange Commission to list a new Bitcoin exchange traded fund (ETF). The Wise Origin Bitcoin Trust aims to track the asset’s daily performance using the Fidelity Bitcoin Index PR, an index derived from several price feeds.
Analyst at CFRA Research, VanEck, and Fidelity Investments, Todd Rosenbluth, opined that the SEC is likely to approve an ETF in the coming year or two.
Fidelity created the digital asset unit in 2019 and has been integrating digital assets into traditional investment portfolios ever since.
Fidelity Launches Institutional Cryptocurrency Analytics Platform Sherlock
Sherlock will provide fundamental and technical analysis for fund managers and investors.
Asset management giant Fidelity is delving deeper into the digital asset space with the announcement of its analytics platform called Sherlock.
In an announcement on Thursday, Fidelity Investments, which has $10 trillion assets under management, unveiled a digital assets data and analytics solution to assist institutional investors and fund managers.
The platform, dubbed Sherlock, will be similar to Bloomberg’s Terminal and will collate data on fundamental and technical analysis, blockchain data, market data, social sentiment analysis and industry news into one portal.
It will include research on crypto assets from some of the leading institutional data providers in addition to unique analytics to help investors evaluate the market, according to the announcement.
The new platform will compete against existing solutions from companies, such as Messari, which was launched in 2018 to provide institutional-grade analytics. Research firm Delphi Digital, which announced a partnership with gaming venture firm Bitkraft on Thursday, is another provider of in-depth research and analytics for institutional clients.
Other platforms offering a deeper level of data and analytics include Glassnode, Skew, Coin Metrics, Dune Analytics and Santiment.
Kevin Vora, vice president of product management at the Fidelity Center for Applied Technology, acknowledged the increased institutional interest in the crypto space:
“It’s been exciting to see the tremendous growth in the digital assets data space over the past few years, and while the market is maturing rapidly, we’ve heard from institutional investors that there’s still a need for a comprehensive and accessible data solution.”
In addition to an advanced set of analytics tools for institutional investors, Sherlock will also allow users to explore the data off-platform for modeling and back-testing.
Kinjal Shah, a senior associate at Blockchain Capital, commented that one of the major challenges when researching crypto markets is piecing together information from numerous resources, adding that “Sherlock helps us research more efficiently by giving us access to holistic, timely data, which is crucial in this fast-paced market.”
Fidelity’s Center for Applied Technology also has a blockchain incubator team that conducts research and builds proofs-of-concept around specific use cases for distributed ledger technology.
Fidelity is bolstering its crypto asset presence, which began in 2014 with Bitcoin (BTC) mining. On March 24, the investment giant filed for a Bitcoin exchange-traded fund aiming to be the first to provide such a product in the United States.
On April 8, Tom Jessop, who heads Fidelity’s crypto division, stated that he believes things have reached a tipping point for the crypto asset industry.
Fidelity Digital Assets’ Research Director Leaves to Join Castle Island Ventures
Before Fidelity, Mrinalini Bhutoria served as senior research analyst at Circle and spent three years at Credit Suisse.
Fidelity Digital Assets’ director of research, Mrinalini “Ria” Bhutoria, has left the company to join early-stage crypto fund Castle Island Ventures as a principal.
* Bhutoria announced her new role on Twitter on April 28.
* Prior to joining Fidelity in October 2019, Bhutoria served as a senior research analyst at payments company Circle after spending three years at Credit Suisse as an equity research analyst, covering financial technology companies such as PayPal and Stripe.
* Castle Island Ventures, led by Nic Carter and Matt Walsh, will no doubt be looking to reap the benefit of Bhutoria’s experience at Fidelity in bridging blockchain and crypto with institutional finance.
* Castle Island announced in February that it raised $50 million from investors, including high-net-worth individuals and family offices, for its second fund.
* The first fund raised $30 million in June 2018 and invested in 20 startups, including BlockFi and River Financial.
Fidelity Planning To Open Up Bitcoin Purchase To Retail Investors
The company’s crypto ambitions have been Fueled by a growing demand from clients to access crypto investment opportunities. A similar trend is being observed across major institutional funds and banks in the United States and globally.
As Cointelegraph recently reported, U.S. bank JPMorgan is now offering clients access to six crypto-dedicated funds. After their initial criticisms of digital assets, firms like BlackRock, Goldman Sachs and Citibank have also expressed a more positive outlook on Bitcoin. Meanwhile, a recent survey from London-based crypto fund Nickel Digital Asset Management revealed that the majority of wealth managers expected to increase their exposure to crypto in the coming years.
Fidelity’s plan to corner the cryptocurrency market appears to be more ambitious than previously imagined, as the asset manager looks to provide more institutional pathways to digital assets.
In a recent interview with the Boston Globe, Christine Sandler, head of sales and marketing for Fidelity Digital Assets, said that institutional interest in crypto is growing. For most investors, the primary entry into crypto has been Bitcoin (BTC) and, to a lesser extent, Ether (ETH).
Tom Jessop, who heads Fidelity Digital Assets, said the pandemic was a major motivator for investors to finally get into crypto:
“What really got people off the fence was the pandemic, because you’ve got this scarce asset class — there will only ever be 21 million bitcoin created — and an environment where our currency is being debased, and there’s a ton of money printing.”
It’s no secret that most institutional investors are carefully participating in the crypto market for the first time this year. Institutional interest mostly remains in purchasing Ethereum or Bitcoin directly. Fidelity Investment seems to be one step ahead, aiming to be among the first to offer the infrastructure necessary for investors to directly access the crypto market.
It was in March of this year that Fidelity submitted the S-1 document to the Securities and Exchange Commission (SEC formally seeking the approval of their own Bitcoin ETF named Wise Origin Bitcoin Trust. At the end of July, Fidelity acquired a 7.4% stake in North American crypto miner Marathon Digital Holdings, which was worth $20 million.
Fidelity has also created its own specialized venture capital division called Devonshire Investors, investing in cryptocurrency startups like ErisX, Talos and Coin Metrics.
Fidelity: ‘Countries That Secure Some Bitcoin Today Will Be Better Off Than Their Peers’
Even if a country doesn’t agree with the fundamentals of bitcoin, they will be forced to acquire some as a form of insurance, Fidelity wrote in a recent report.
While 2020 and 2021 are considered the years of bitcoin’s institutional adoption, in a new report Fidelity Digital Assets wrote that 2022 might be the era of adoption of bitcoin by sovereigns.
* The report contrasted China’s crackdown on bitcoin throughout 2021 to El Salvador taking the “opposite approach” by adopting the digital asset as legal tender in-country.
* “We think the two developments observed this year couldn’t be more opposed. Time will certainly tell which path is more successful,” Fidelity wrote.
* Even though many countries around the world are taking a strict approach to regulating crypto, Fidelity doesn’t believe that outright bans are on the table.
* “An outright ban will be difficult to achieve at best, and if successful, will lead to a significant loss of wealth and opportunity,” reads the report.
* Instead, as more countries adopt bitcoin, other countries will be forced to as well even if they don’t believe in the investment thesis or adoption of bitcoin.
* “We also think there is very high stakes game theory at play here, whereby if bitcoin adoption increases, the countries that secure some bitcoin today will be better off competitively than their peers,” said the report. “In other words, a small cost can be paid today as a hedge compared to a potentially much larger cost year in the future.”
* At an institutional level, a Fidelity Digital Assets Institutional Investor Survey found that 71% of U.S. and European institutional investors surveyed intend to allocate to digital assets in the future.
* The price of bitcoin is down approximately 10% since the beginning of 2022, according to CoinGecko, and is currently trading at $42,853.
Majority of JPMorgan Clients Expect Bitcoin To Trade At $60K Or More By Year-End
45% of the banking giant’s clients see bitcoin trading at or under $40,000.
JPMorgan said that according to a survey, majority of its clients expect bitcoin to trade at $60,000 or more by the end of this year.
* The Wall Street giant said in a note published last week that 55% of the clients surveyed see bitcoin reaching the $60,000 barrier.
* According to the survey, 41% of the bank’s clients see bitcoin trading at $60,000 at year-end, 9% see it crossing $80,000, and 5% see it trading above $100,000.
* On the other hand, 20% think it would trade around $40,000, 23% expect the digital currency to be trading at $20,000, while only 2% of the bank’s clients were of the view that the bitcoin would trade at $10,000 or less by the end of 2022.
* Rival investment bank Goldman Sachs wrote in a report earlier this month that Bitcoin’s price could increase to over $100,000 if the digital currency’s share of the ‘store of value’ market were to rise to 50% over the next five years.
* Bitcoin was trading about $42,781 as of publication time.
Fidelity: Bitcoin Is A ‘Superior Form Of Money’
Fidelity argued Bitcoin should be considered separately from the rest of the digital asset market as no other altcoin comes close to its properties.
Fidelity, the multinational brokerage giant, released a paper on Bitcoin (BTC) titled Bitcoin First. The financial services provider calls for BTC to be treated separately from the rest of the digital assets.
The paper argued that BTC is fundamentally different from the hundreds of other digital assets trading in the market and no other digital asset is likely to overtake the top cryptocurrency “as a monetary good.”
Fidelity’s paper called Bitcoin a superior form of money rather than just a tech. It is the most ”secure, decentralized form of asset and any “improvement” will necessarily face tradeoffs.” The paper read:
“Bitcoin clearly possesses a lot of good qualities of money, combining the scarcity and durability of gold with the ease of use, storage and transportability of fiat.”
The global financial service provider believes BTC possesses all qualities of being a sound form of money as it doesn’t have an organization running it and it doesn’t pay a dividend or have cash flows. The scarcity and decentralized nature of Bitcoin only add to its properties of being a perfect monetary tool.
“We won’t be so bold as to predict there will only ever be one money, but we do believe that one monetary good will come to dominate the digital asset ecosystem due to the very powerful effects of networks.”
Fidelity sees BTC as an entry point for traditional investors into the digital asset market and suggested that investors should incorporate two separate frameworks for investing in digital assets: One should be focused around Bitcoin as a monetary good (asset class) and the second should be focused on rest of digital assets that exhibit venture capital-like properties.
Satoshi Nakamoto, the pseudonymous creator of Bitcoin also intended it to be a sound form of money and BTC proponents have argued the same for a decade. However, the fact that a global financial service provider sees BTC as a superior form of money could be a sign of greater adoption ahead.
Fidelity To Allow Retirement Savers To Put Bitcoin In 401(k) Accounts
Investment giant’s move could send cryptocurrency investing further into mainstream if employers decide to offer option.
Fidelity Investments plans to allow investors to put a bitcoin account in their 401(k)s, the first major retirement-plan provider to do so.
Employees won’t be able to start adding cryptocurrencies to their nest eggs right away, but later this year, the 23,000 companies that use Fidelity to administer their retirement plans will have the option to put bitcoin on the menu.
The endorsement of the nation’s largest retirement-plan provider suggests crypto investing is moving further into the mainstream, but it remains to be seen whether employers will embrace it for their workers.
Fidelity’s move comes a month after the Labor Department expressed concerns about including cryptocurrencies in retirement plans. It is also an uneasy time for the stock market, with the S&P 500 down almost 10% this year in part due to rising interest rates. Bitcoin is notoriously volatile and has lost more than 40% of its value since its November high.
“There is a need for a diverse set of products and investment solutions for our investors,” said Dave Gray, head of workplace retirement offerings and platforms at the Boston-based company.
“We fully expect that cryptocurrency is going to shape the way future generations think about investing for the near term and long term.”
Under the plan, Fidelity would let savers allocate as much as 20% of their nest eggs to bitcoin, though that threshold could be lowered by plan sponsors.
Mr. Gray said it would be limited to bitcoin initially, but he expects other digital assets to be made available in the future.
Crypto investing has been virtually nonexistent in 401(k) plans to date. One small company that caters to smaller 401(k) plans is allowing workers in some of the plans it administers to invest up to 5% of their 401(k) contributions in bitcoin and some other cryptocurrencies.
Fidelity’s embrace of bitcoin could prompt wider acceptance among employers.
“We have seen growing and organic interest from clients,” especially those with younger employees, Mr. Gray said, adding that “a number are in the evaluation process” from a wide spectrum of industries.
The company administers plans with more than 20 million participants and $2.7 trillion in assets-under-administration.
Fidelity also has a growing presence in the cryptocurrency business, including a trading and custody platform it launched in 2018 that caters to hedge funds and other sophisticated investors.
Fidelity’s move comes at a time of heightened interest in digital currencies. Fidelity estimates that about 80 million U.S. individual investors own or have invested in digital currencies.
Some institutional investors, including some U.S. university endowments, have reportedly invested in cryptocurrencies or funds that buy them, or took stakes in companies in the fast-growing industry.
Yet significant obstacles could block bitcoin’s wide adoption on 401(k) menus. The U.S. Labor Department, which regulates company-sponsored retirement plans, published guidance on March 10 cautioning employers to “exercise extreme care before they consider adding a cryptocurrency option to a 401(k) plan’s investment menu,” a department news release says.
Employers offering cryptocurrencies should expect regulators’ questions “about how they can square their actions with their duties of prudence and loyalty” under U.S. pension law, the department said.
Ali Khawar, acting assistant secretary of the Labor Department’s Employee Benefits Security Administration, wrote that “at this early stage in the history of cryptocurrencies,” the department “has serious concerns about plans’ decisions to expose participants to direct investments in cryptocurrencies or related products, such as NFTs, coins, and crypto assets.”
Fidelity, along with various trade groups that represent the financial-services industry, wrote letters calling on the Labor Department to withdraw the guidance, according to Mr. Gray and industry lawyers.
Some predict employers will steer clear of cryptocurrency in 401(k) plans.
Michael Kreps, a principal at Groom Law Group, who specializes in pension law, said the Labor Department’s guidance has likely had a chilling effect on “any conversations that were happening” with employers regarding adding cryptocurrency investments to 401(k) menus.
A continuing trend of 401(k) fee litigation also creates “a huge incentive for employers not to take risks with the 401(k),” he said.
Lew Minsky, president of the Defined Contribution Institutional Investment Association, a research and advocacy organization for investment managers, consultants and others in the 401(k) industry, said he isn’t aware of any plans by his organization’s members to make cryptocurrency available. “There is too much volatility,” he said.
Companies have shown little interest in letting their employees rely on cryptocurrency for their retirement security. About 2% of the 63 employers in a recent Plan Sponsor Council of America poll said they would consider adding cryptocurrency to their 401(k) menu.
Proponents of adding a small dose of cryptocurrency to a portfolio say that it can raise expected returns without increasing overall risk. Some believe crypto can serve as a hedge against inflation.
Mr. Gray said workers at companies that sign up for the new offering can elect to transfer up to 20% of their account balances into a digital assets account that holds bitcoin and uses Fidelity’s institutional trading and custody platform.
Employees can also invest up to 20% of each payroll contribution in bitcoin, though employers can impose lower caps.
Participants who invest in bitcoin will encounter pop-up boxes with educational information on crypto when they log into their online accounts. When the balance in bitcoin holdings exceeds 20% of a portfolio’s value, the employee wouldn’t be able to transfer additional sums to the account from other investments in the 401(k) plan; the employee can continue to make payroll contributions.
About 5% or less of the bitcoin account will be held in a short-term money-market fund to provide liquidity to facilitate daily transactions. Mr. Gray said the fees on the account will be between 0.75% and 0.9%, depending on the client, not counting trading costs.
Fidelity declined to say whether it has plans to incorporate digital assets into its target-date funds. Those funds serve as default investments for employees who are automatically enrolled in 401(k) plans and attract the lion’s share of new contributions.
ForUsAll Inc., a 401(k) provider, announced last year a deal with the institutional arm of Coinbase Global Inc., a leading cryptocurrency exchange, that will allow workers in plans it administers to invest up to 5% of their 401(k) contributions in bitcoin, ether, litecoin and others via a self-directed digital asset window.
Founded in 2012, ForUsAll provides automated 401(k) administration, menus of low-cost mutual funds and access to human advisers.
Fidelity’s interest in cryptocurrencies began nearly a decade ago, when Abigail Johnson, now chairman and chief executive, began to hold weekly internal meetings to discuss digital assets and blockchain technology.
The firm started mining bitcoin in 2015. Later, it added a link on retail customers’ accounts to Coinbase, the crypto exchange, to track their holdings. In 2020, it opened its own crypto fund for wealthy customers.
Labor Department Criticizes Fidelity’s Plan To Put Bitcoin On 401(k) Menu
‘We have grave concerns with what Fidelity has done,’ says acting assistant secretary Ali Khawar.
Labor Department officials believe Fidelity Investments’s plan to allow investors to put bitcoin in their 401(k) accounts risks the retirement security of Americans, a senior administrator said.
“We have grave concerns with what Fidelity has done,” Ali Khawar, acting assistant secretary of the Employee Benefits Security Administration, said in an interview with The Wall Street Journal.
Mr. Khawar’s group works inside the Labor Department to regulate company-sponsored retirement plans. In the interview, he said he views cryptocurrency as speculative. There is “a lot of hype around ‘You have to get in now because you will be left behind otherwise,’” he said.
Mr. Khawar said he received a heads up from Fidelity the day before the company disclosed its plan to give the 23,000 companies that use its 401(k) services the option to put bitcoin on the menu.
In the April 26 disclosure, Fidelity said that starting later this year, workers could allocate as much as 20% of their nest eggs to bitcoin. That threshold could be reduced by employers.
“For the average American, the need for retirement savings in their old age is significant,” Mr. Khawar said. “We are not talking about millionaires and billionaires that have a ton of other assets to draw down.”
Companies, individuals and some local governments have recently begun embracing digital currencies for transactions, daily business and some trading.
But there remain some skeptics in the business community, especially given the volatility in prices and given that the federal government hasn’t yet outlined a large regulatory framework.
Last month, the Biden administration directed agencies across the federal government to produce reports on digital currencies and consider new regulations.
In response to the Labor Department’s comments, Fidelity said its bitcoin offering “represents the firm’s continued commitment to evolving and broadening its digital assets offerings amidst steadily growing demand for digital assets across investor segments, and we believe that this technology and digital assets will represent a large part of the financial industry’s future.”
Dave Gray, head of workplace retirement offerings and platforms at Fidelity, said earlier this week the offering would be limited to bitcoin initially. He expects other digital assets to be made available in the future.
The move by Fidelity, which administers 401(k)-style accounts for more than 20 million participants, came weeks after the Labor Department published guidance on March 10 highlighting serious concerns about cryptocurrencies in 401(k) plans.
The agency cited factors including the market’s volatility and the lack of broadly accepted valuation methodologies investors can rely on to evaluate cryptocurrency prices. Since November, bitcoin has lost about 40% of its value.
Employers offering cryptocurrencies should expect regulators’ questions “about how they can square their actions with their duties of prudence and loyalty” under U.S. pension law, the department said in its guidance.
In Fidelity’s plan outlined this week, the firm said it planned to cap transfers and new contributions to its bitcoin offering at 20% of 401(k) account balances and payroll contributions.
Mr. Khawar said he and his colleagues have scheduled a conversation with Fidelity to discuss some of the concerns that were highlighted in the March 10 guidance. Among the department’s specific concerns was the 20% figure, according to a senior department official.
Mr. Khawar said the Labor Department has similar concerns with an offering from ForUsAll Inc., a 401(k) provider that announced last year a deal with the institutional arm of cryptocurrency exchange Coinbase Global Inc.
That deal will allow workers in plans it administers to invest up to 5% of their 401(k) contributions in bitcoin, ether, litecoin and others via a self-directed digital-asset window.
ForUsAll said it protects investors by offering education and guardrails that cap digital-currency allocations at 5%.
“At a time when foundations, endowments and now pension plans are investing in cryptocurrency, blocking access puts everyday Americans at a structural disadvantage, deepening an already wide retirement gap,” the company said in a statement.
Mr. Khawar said the Labor Department isn’t banning cryptocurrency in 401(k)s. He said if employers think they can make a case for the asset and have addressed the agency’s concerns, “that is their decision.”
Another risk the Labor Department outlined with regard to cryptocurrency investing is the uncertainty surrounding its regulation. Mr. Khawar said he believes cryptocurrency has intriguing use cases, but that it needs “maturing” before people can put their retirement savings into it, including the development of consumer protections.
In response to industry arguments that the Labor Department’s March 10 guidance is overly aggressive, since it weighs in on the merits of a particular asset class, Mr. Khawar said, “We didn’t think we could view ourselves as a responsible regulator and say nothing. Should we have waited until people lost most of their retirement savings until opining on it?”
“I don’t view this guidance as a forever and ever thing,” he said. “It is focused on this stage of development.”
Bitcoin In Your 401(k): Is That A Good Idea?
Fidelity plans to give employers the option of adding the cryptocurrency to retirement plans later this year. Here are some questions to consider before investing.
Should You Put Bitcoin In Your 401(k)?
That is a question many investors are asking in the wake of an announcement Tuesday by money management giant Fidelity Investments, which plans to give 23,000 employers the option to add bitcoin to their 401(k) menus later this year.
Millions of Americans use 401(k)s to save for retirement. Bitcoin, created in 2009, is a virtual form of currency that can be used to make payments over the internet without banks or foreign exchange. It is one of thousands of new digital assets collectively known as cryptocurrencies.
The endorsement of bitcoin by the nation’s largest 401(k) provider “is going to create a huge sea change in corporate America and 401(k) management,” said Ric Edelman, a financial adviser and investor in digital startups.
The development is already roiling the investment world. Labor Department official Ali Khawar said in an interview Thursday with The Wall Street Journal that “we have grave concerns with what Fidelity has done.”
Mr. Khawar, acting assistant secretary of the Employee Benefits Security Administration, said he views cryptocurrency as speculative. The Labor Department regulates company-sponsored retirement plans.
The new warning follows earlier guidance the Labor Department issued March 10 highlighting “serious concerns” about cryptocurrencies in 401(k) plans. It cited factors such as the market’s volatility and the potential for regulatory changes that could impact the value of digital holdings. Since November, bitcoin has lost about 40% of its value.
Fidelity, in response to Mr. Khawar’s comments, said its move “represents the firm’s continued commitment to evolving and broadening its digital assets offerings amidst steadily growing demand for digital assets” and that it believes “this technology and digital assets will represent a large part of the financial industry’s future.”
Whether cryptocurrencies belong in your 401(k)—or anywhere else in your portfolio—depends on your tolerance for risk, ability to absorb losses, and knowledge of the digital assets industry, financial advisers say.
Most recommend sticking to a small allocation, of 1% to 5%. For tax reasons, many favor putting it in a brokerage account, rather than a 401(k) account that defers taxes until the money is withdrawn.
“Absent more detail on an investor’s personal circumstances, we are not at all convinced that the 401(k) is where crypto belongs,” said Boris Khentov, senior vice president of product strategy and sustainable investing at Betterment, which plans to introduce a cryptocurrency investment for its individual investors later this year.
Here’s What To Consider Before Making Such A Bet:
Should I Invest In Crypto?
It depends on your capacity to absorb losses and your tolerance for owning an investment that lacks the academically substantiated valuation models that investors rely on when evaluating stock and bond prices.
Ted Benna, who is sometimes called the father of the 401(k), warns against reducing allocations to stocks and bonds to make room for an investment that is highly volatile, with prices driven mainly by speculation about its future adoption and use.
“My advice to retirement savers is to invest in traditional stocks and bonds using pretax savings and to invest the tax savings into higher-risk investments such as bitcoin and lottery tickets,” he said.
Some cryptocurrency proponents argue that digital currencies can help protect investors from inflation and enhance a portfolio’s long-term returns, by rising when other investments fall.
But such claims are hard to evaluate, given the asset class’s short track-record, said Mr. Khentov.
Crypto is “something new” that merits caution, he said, adding that Betterment believes “a modest bet of something like 5% feels reasonable and prudent.”
That doesn’t mean everyone should jump in.
Geoffrey Brown, CEO of the National Association of Personal Financial Advisors, a network of 4,400 fee-only advisers, said a small exposure to cryptocurrencies may be appropriate for those who understand the technology and can afford to lose what they invest.
“A lot of younger people are enticed by media reports and put money into crypto as a panacea for their future,” he said, adding that greater regulation is needed “to protect consumers from potential harm” due to overexposure.
For those approaching retirement, cryptocurrencies’ sharp price swings can be difficult to handle, he added.
Investors who want to add crypto to a portfolio should “have a plan and a strong conviction” in crypto’s merits as a long-term investment, said Eric Maldonado, an adviser in San Luis Obispo, Calif. “It’s going to be a wild ride and you don’t want to be moving in and out of it” when prices swing.
Yale University economist Aleh Tsyvinski, co-author of a 2018 study that concluded that institutional investors should put about 1% to 5% of their portfolios into digital currencies, said individual investors comfortable with alternative investments, such as gold and private equity, should consider adding crypto, too.
“If you have 5% in alternatives, why not allocate 10% of that to crypto?” he said.
So How Do I Invest In Crypto?
To buy cryptocurrency outside of a Fidelity 401(k) plan, you can open an account at a cryptocurrency exchange such as Coinbase Global Inc. or a trading platform such as Robinhood Markets Inc.
Many big brokerage firms, including Fidelity and Charles Schwab Corp., don’t allow individual investors to buy or sell cryptocurrency in taxable accounts or individual retirement accounts.
But clients can purchase exchange-traded funds that invest in digital asset companies or trusts from companies including Grayscale Investments LLC that invest in the cryptocurrencies themselves. Grayscale Bitcoin Trust charges a 2% annual fee and can trade at a premium or discount to the value of the bitcoin it holds.
IRA investors can buy crypto via niche IRA providers that specialize in alternative investments. Be aware of the fees these custodians charge and stick with companies regulated by federal or state banking authorities, said Mr. Edelman.
In the 401(k) arena, Fidelity’s rivals, including T. Rowe Price Group Inc., Alight Solutions LLC, and Vanguard Group, say they have no plans to offer cryptocurrencies to the 401(k) plans they administer.
“Since cryptocurrencies are highly speculative in their current state, Vanguard believes their long-term investment case is weak,” the company said.
Retirement Or Brokerage Account: Which Is The Better Home For Bitcoin?
If you believe an investment has the potential for big gains, the best place to hold it is in a Roth IRA or Roth 401(k), said Jon Pasqua, an adviser in Manhattan. Investors contribute after-tax money to Roth accounts, but gains accrue tax-free.
Money can be withdrawn tax-free too, provided a Roth owner is 59½ or older and the account has been open at least five years.
(With a traditional IRA or 401(k), account holders generally get to subtract their contributions from their income, reducing taxes. They pay ordinary income tax on the money when they withdraw it.)
There are also strong arguments for putting cryptocurrency in a taxable account, Mr. Pasqua said. Provided you hold the investment for longer than a year, you will pay the long-term capital-gains tax rate of up to 23.8% when you sell at a profit.
If you suffer losses you can offset taxable gains on other investments with the capital losses.
In contrast, with a traditional IRA or 401(k), you will pay income tax of up to 37% on withdrawals and cannot offset gains with losses.
Another benefit of the taxable account is you can access your money sooner, if needed. With an IRA or 401(k), investors are often liable for a 10% penalty on distributions before age 59 ½. Many 401(k) plans restrict withdrawals before age 59 ½ unless a participant takes out a loan or suffers a financial hardship.
Why I Don’t Want Bitcoin In My 401(k)
At long last, the company managing my 401(k) plan will allow me to bet up to 20% of my retirement funds on a digital Ponzi scheme that generates no income and has no practical use.
Fidelity Investments, the biggest manager of 401(k) plans in the country, has announced that it will soon allow bitcoin among the investible assets, alongside stocks, bonds, real-estate investment trusts and the like. This is probably terrific news for bitcoin. But whether it is equally good news for 401(k) plans remains to be seen.
Why is this good for bitcoin? Simple. It gives this very, very, very long string of 1s and 0s a further patina of financial respectability. If a company as renowned as Fidelity is going to allow it in retirement plans, it must be OK, right? And, naturally, this move will greatly increase the market for bitcoin, whose only use seems to be to sell it to other people.
Fidelity handles the retirement accounts of 23,000 companies. Its clients have over $11 trillion in their accounts. That’s about 14 times the alleged value of all the bitcoin in the world.
I asked Fidelity why they were making this move. The short answer: Because the customers want it. Fidelity manages 401(k) and other defined-contribution plans on behalf of employers. And a growing number of them have been asking for access to bitcoin — and other “cryptocurrencies” as part of the plan.
The company added: “Fidelity encourages participants to maintain an asset mix within their 401(k) that aligns with their retirement horizon and risk tolerance. Like any other asset within their 401(k), individuals should make sure that any investment in bitcoin is part of their overall asset allocation strategy that maps to their long-term retirement savings goals.”
Fidelity says it will work with employers to produce “educational materials” in order to “help employees learn more about digital assets so that they can make informed investment decisions.”
I can’t wait to read them. Maybe one of them will finally explain to me what bitcoin is for. I’ve been waiting for years for someone to do this.
It doesn’t pay interest or dividends. It doesn’t earn income. And it doesn’t have any particular purpose. It’s not better than cash, Apple Pay, Venmo, credit cards, debit cards and so on for buying stuff. It’s not more useful than my bank for transferring money, domestically or internationally.
It’s not even as good for money laundering as gold. OK, so I can see it might be useful to get your money out of a war zone or, say, Russia in an emergency. But is that a $800 billion utility?
Meanwhile, in a global climate emergency, it is an unmitigated environmental disaster. The bitcoin network uses more electricity than Poland, for no good purpose whatsoever. Ending this cryptocurrency mania would be the simplest, quickest win for the green economy.
I love it when the same people on social media “like” Greta Thunberg’s latest comments, and share the latest alarming news about climate change, and then. boast about all the cryptocurrencies they’re trading.
The sole purpose of bitcoin is making money — real money, in things like dollars — by trading it. bitcoin enthusiasts generally dismiss old skeptics like me by pointing out how much it has risen in price: From nothing 13 years ago, and about $100 a decade ago, to around $40,000 today. And of course they’re right. It has.
Never mind the obvious point that even the enthusiasts are measuring the value of bitcoin in terms of supposed “fiat” currencies like dollars.
The real problem is that this is simply a Ponzi scheme. That doesn’t mean the price can’t keep going up. It could do so indefinitely. But it’s still just a Ponzi scheme. All the gains for existing investors come at the expense of new investors. The new money comes in, the old money cashes out. bitcoin itself does nothing.
Bitcoin has been going for just over 13 years. So what? Bernie Madoff kept his scheme going for at least 17. Call us in another 4 years.
Most other investments have value because they produce income. Stocks have value because they pay out dividends (or in some cases could if they wanted to). Those dividends come from profits, which in turn come from creating value — turning raw materials into a working car or an iPhone, a meal or whatever.
(One of the key issues with the U.S. stock market these days is that prices may have risen much further than the companies’ sustainable earnings.)
A company that generated no income, and was never going to, would have no intrinsic value. Imagine becoming a landlord, and buying a house that no one could live in and which could never, ever generate a nickel of rent. What would you pay for it? Why?
Meanwhile bonds, too, have value but only because they pay coupons, which again come out of earnings (or taxes).
Gold has the same theoretical problem as bitcoin. Its long, long history as money, and the vast user base of people willing to accept it as money, provides at least some functionality. It’s golden — pun intended — for money laundering.
There’s a long list of criminals breaking rocks who would still be free if they’d used gold instead of banks for their crimes. Bitcoin doesn’t even offer the same protections. The ledger is public. The U.S. Justice Department can track your bitcoins down.
As we’ve seen this year, commodities you can actually use — like oil and gas — have intrinsic value. When someone can explain to me the intrinsic value of bitcoin I’ll be thrilled.
Sen. Warren Asks Fidelity To Address The Risks To Put Bitcoin In 401(k)s
U.S. Senators requested Fidelity to explain how the firm is planning to address the risks of adding Bitcoin into retirement accounts by May 18.
The United States government is growing increasingly concerned about Bitcoin (BTC) in retirement savings, with two senators flagging some issues in Fidelity Investments’ plans to include Bitcoin (BTC) in 401(k) accounts.
Senators Elizabeth Warren of Massachusetts and Tina Smith of Minnesota expressed concerns over Fidelity’s decision to add BTC to its 401(k) investment plan in a letter to Fidelity CEO Abigail Johnson.
Dated May 4, the letter suggests that Fidelity’s latest Bitcoin plan has a potential conflict of interest, noting that Fidelity has been deeply involved in crypto since it began experimenting with BTC and Ether (ETH) mining operations and integrating Coinbase accounts back in 2017.
On April 26, Fidelity announced plans to allow retirement savers to allocate up to 20% of their portfolio in BTC, citing high client demand. Senators Warren and Smith, however, argued that there was not enough client demand for this opportunity, stating:
“Despite a lack of demand for this option — only 2% of employers expressed interest in adding cryptocurrency to their 401(k) menu — Fidelity has decided to move full speed ahead with supporting Bitcoin investments.”
The letter also mentioned “significant risks of fraud, theft and loss” associated with crypto assets. The senators referred to a statement by the Department of Labor (DOL), which warned in March that any significant crypto investments within company-sponsored retirement accounts may attract legal attention.
The authority also pointed out risks related to cryptocurrencies’ “extreme volatility and high speculation,” custodial and recordkeeping concerns, and others.
“In short, investing in cryptocurrencies is a risky and speculative gamble, and we are concerned that Fidelity would take these risks with millions of Americans’ retirement savings,” the senators wrote in the letter.
To better understand Fidelity’s decision to adopt BTC for 401(k)s, the senators requested the firm to provide answers on how they are planning to address risks laid out by the DOL by May 18, 2022.
They also asked for more information about Bitcoin investment fees and the amount of money generated from Fidelity’s crypto mining operations.
Senator’s Financial Freedom Act Would Ensure Bitcoin Can Be In Your 401(k)
The bill is a response from the Alabama Senator to Senator Warren and the Department of Labor’s bid to block Bitcoin investments in self-directed 401(k) investment plans.
Republican Senator Tommy Tuberville from Alabama has unveiled a new bill he calls the Financial Freedom Act to allow Americans to add cryptocurrency to their 401(k) retirement savings plan unencumbered by regulatory guidance.
The new bill is Tuberville’s response to the United States Department of Labor’s (DOL) push to potentially keep crypto out of 401(k) investment plans due to its perceived potential for risk to investors. As Cointelegraph previously reported, the DOL said employees who choose to invest in crypto through their 401(k) could attract legal attention.
In An Op-Ed For CNBC On Thursday, Senator Tuberville Stated:
“The Federal Government has no business interfering with the ability of American workers to invest their 401(k) plan savings as they see fit.”
He said the DOL’s March 10 policy change against the use of brokerage windows by employees to self-direct their income investments is “inconsistent with longstanding practice.”
NEW BILL ALERT: I just introduced the #FinancialFreedomAct, allowing retirement savers to invest their 401(k) funds as they see fit.
The government should not be in the business of telling retirement savers how they can invest their money.https://t.co/6LGtpxquOW
— Coach Tommy Tuberville (@SenTuberville) May 5, 2022
Brokerage windows let 401(k) investors take control of what investments their account invests in rather than accepting what their employer’s broker chooses for them. The Senator continued:
“The agency’s new guidance ends this tradition of economic empowerment in favor of Big-Brother government control. Additionally, the Labor Department’s overreaching guidance seeks to place a massive new regulatory burden on 401(k) plan fiduciaries by requiring them to assess the suitability of investments offered through a brokerage window and to restrict investment options.”
Investment managing firm Fidelity Investments said on April 26 that it would begin allowing customers to include Bitcoin (BTC) in their 401(k) accounts. This caused Democratic Senators Elizabeth Warren and Tim Smith to argue in a letter to Fidelity CEO Abigail Johnson that there may be a conflict of interest since the firm has been working with crypto products since 2017. They also mentioned that crypto investments bear “significant risks of fraud, theft and loss.”
Senator Warren is a vocal opponent of crypto investments, referring to the industry last year as the “new shadow bank.”
While the DOL’s new guidance does not name Fidelity specifically, it notes that its abuses of monetary law through cryptocurrency could lead to the shut down of trading platforms, which ultimately hurts investors.
Senator Tuberville promised that the Financial Freedom Act would prohibit the DOL from limiting what types of investments a self-directed 401(k) retirement plan can invest in. He stated succinctly at the end of his op-ed that “The Labor Department should not be able to limit the range or type of investments retirement savers can select.”
“Whether or not you believe in the long-term economic prospects of cryptocurrency, the choice of what you invest your retirement savings in should be yours — not that of the government.”
So far, no other senators have yet to voice public support for the brand new bill. It would need to gain a majority of votes in the Senate to be passed along to the House of Representatives for further review.
Democrats currently hold a majority in the Senate, which makes the passage of the legislation a steep and uphill battle. However, Tuberville has made his point loud and clear.
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