Fidelity Launches Institutional Crypto Platform – ‘Fidelity Digital Asset Services’ – Crypto Custody & Trading
Investment giant Fidelity has revealed its cryptocurrency-based solution teased earlier this year. The company's new subsidiary, Fidelity Digital Asset Services, will provide custodial services and execute trades for institutional investors, hedge funds and family offices.
Investment giant Fidelity has revealed its cryptocurrency-based solution teased earlier this year.
The company’s new subsidiary, Fidelity Digital Asset Services, will provide custodial services and execute trades for institutional investors, hedge funds and family offices.
According to a CNBC report, the firm will handle the custody of cryptocurrencies such as Bitcoin and execute trades on a variety of exchanges on behalf of its clients.
Fidelity currently manages trillions of dollars worth of clients assets and boasts 13,000 institutional clients.
In a press release, Fidelity Investments CEO Abigail Johnson explained:
“Our goal is to make digitally native assets, such as bitcoin, more accessible to investors […] we expect to continue investing and experimenting, over the long-term, with ways to make this emerging asset class easier for our clients to understand and use.”
With a giant name like Fidelity offering such services, it’s a matter of time before big money starts pouring into the industry.
Head of Fidelity Digital Asset Services explained:
“We saw that there were certain things institutions needed that only a firm like Fidelity could provide […] We’ve got some technology that we’ve repurposed from other parts of Fidelity — we can leverage all of the resources of a big organization.”
Custody and security: breaking the largest barrier to institutional investments
One of the biggest factors that has slowed institutional investment in the industry is the unique custodial needs for digital assets.
For those that are new to the industry, cryptocurrencies are not stored like traditional assets but rather through the use of cryptographic keys. Should these keys be compromised, the assets can be stolen without any recourse, most commonly known as a hack. In 2018 alone, over $1.5 billion worth of cryptocurrency has been hacked (stolen) to date.
Fidelity has tremendous experience in managing sensitive information and cybersecurity, making the learning curve for cryptocurrencies less steep for the firm. The head of the new division explained:
“You might look at the crypto world and say, ‘Wow, is this a new thing?’ but we’ve been managing key materials for a long time […] We took our learnings in how to run enterprise security, then through our exploration of bitcoin and some of the people we’ve hired, quickly developed some of the crypto native expertise and federated the two of those things.”
Strict KYC and onboarding process for partner exchanges
Fidelity said that it will be very careful with the exchanges and partners it works with for trade execution and order processing. Jessop explained:
“We have a pretty extensive onboarding procedure for these types of counterparties, which involves diligence on their financial strength as well as their regulatory procedures like ‘know your customer’ and anti-money laundering […] We are certainly only going to connect to those counterparties that we feel good about.”
Fidelity invests heavily in technology
Fidelity is no stranger to investing in new and emerging technologies such as blockchain and artificial intelligence. The company reportedly spends over $2 billion annually on technology, directly and indirectly through incubators.
According to CNBC, Fidelity Digital Asset Services came about from its Fidelity Center for Applied Technology (FCAT).
Further, the company’s CEO has a remarkable interest in Bitcoin and the industry and reportedly keeps up to date with every major development. It is neither the first or last cryptocurrency-related product the firm plans to launch.
Bakkt, ErisX, and others already facing competition
The news of the Fidelity Digital Asset Services comes shortly after the announcement of several such institutional-grade crypto solutions, such as Bakkt and ErisX, which was recently backed by TD Ameritrade.
These major developments on the institutional side are unquestionably incredibly important to the industry and will likely see more involvement by big players.