Fidelity Investments, one of the world’s largest financial services providers with more than $7.2 trillion in client assets, has announced the launch of a new company, Fidelity Digital Asset Services, which will offer enterprise-quality custody and trade execution services for cryptocurrencies to sophisticated institutional investors such as hedge funds, family offices and market intermediaries.
The launch culminates a more than four year programme by Fidelity that started with initial research conducted in February 2014. The firm says it believes that distributed ledger technologies can enable entirely new business models, lead to the creation of frictionless capital markets and improve existing financial market infrastructure. It adds it can envision a world where all types of assets are issued natively on a blockchain or represented in tokenised format.
“Our goal is to make digitally-native assets, such as bitcoin, more accessible to investors,” says Abigail Johnson, chairman and CEO of Fidelity Investments. “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.”
Tom Jessop, who joined Fidelity in January this year after a short spell as president of crypto ledger firm Chain, will head the new company. Jessop previous spent 17 years at Goldman Sachs, mostly in strategic investments. He says, “We started exploring blockchain and digital assets several years ago, and those efforts have been successful in helping us understand and advance our thinking around cryptocurrencies. The creation of Fidelity Digital Assets is the first step in a long-term vision to create a full-service enterprise-grade platform for digital assets.”
Fidelity says that one of the steps in realising this future for digital assets is to create a foundation of institutional-quality solutions that will continue to help advance the industry. “While there are many retail service providers in the digital assets space today, there is a gap in support for institutions,” it says. “This has created a paradox – while Greenwich Associates found that 70 percent of institutional finance executives believe cryptocurrencies will have a place in the future of the industry, many firms are waiting on the sidelines to enter this market. When Fidelity Digital Assets rolls out its initial offering, it will provide solutions that institutional clients have been asking for.
Fidelity recently conducted one of its global institutional investor surveys and says it found that 70 percent of institutional investors believed that new asset classes will likely emerge because of advancing technologies, such as blockchain. “With the rise of interest in digital currencies and various use cases, institutional investors – such as hedge funds, family offices and market intermediaries – look to enter the market for a number of reasons,” the firm says. “Whether it’s the rising popularity as a store of value or relative non-correlation to the broader market, the potential to power lower-cost global payments, or the emergence of protocols that could power new industries, institutional investors are interested in engaging with this new asset class.”
Fidelity says its Digital Assets business is building the foundation needed to further the market adoption by offering a secure, compliant, and institutional-grade omnibus storage solution for bitcoin, ether and other digital assets. This consists of vaulted cold storage, multi-level physical and cyber controls – security protocols that have been created leveraging Fidelity’s security principles and best practices combined with internal and external digital asset experts.
The firm will also leverage an internal crossing engine and smart order router for trade execution of digital assets. This smart order router will allow for execution at multiple market venues.
Fidelity also says that given the complexity of digital assets and the early stage of institutions’ involvement with these asset classes, the new business will emphasise client support in its offering. Clients will have access to a dedicated team of client service specialists, from onboarding throughout the entire relationship with the company.
“In our conversations with institutions, they tell us that in order to engage with digital assets in a meaningful way, they need a trusted platform provider to enter this space,” explains Jessop. “These institutions require a sophisticated level of service and security, equal to the experience they’re used to when trading stocks or bonds. With Fidelity Digital Assets, we’re building a scalable infrastructure for digital assets that meets the expectations of what it means to work with Fidelity, while leveraging unique capabilities of the blockchain to create a completely new offering.”