Fidelity is one of the biggest institutional asset management firm in the world and at the same time one of the big guys who embrace bitcoin and blockchain technology since the early beginning. What is Fidelity’s involvement in the crypto industry? How did they get there and what does this mean for the crypto community? In today’s article, we will seek answers to these questions.
What is Fidelity?
Fidelity Investments in an international financial service provider, based in Boston, USA. They are one of the largest asset managers in the financial sector managing over 7 trillion dollars. They manage mutual funds, provide investment advice and retirement services, securities execution and life insurance. And also, recently has been an increasing variety of products and service appeared on the product scale which are related to cryptocurrency.
Fidelity and crypto, the beginning
Abigail P. (Abby) Johnson became chairman of Fidelity Investments, in addition to being named chief executive officer in 2014. She is the third generation to lead the privately owned company and shows a massive interest in the emerging asset class of cryptocurrencies.
Johnson completed an MBA at Harvard Business School and joined Fidelity Investments in 1988. Fidelity Investments was by the founded her grandfather Edward Johnson II in 1946, so the field was not completely new to her. She started as an analyst and portfolio manager then she was promoted to an executive role in Fidelity Management and Research (FMR) in 1997 and has since held various senior executive posts across the company. She was named president in 2012 and in addition to her existing potions, she became the CEO of Fidelity in 2014.
With the appointment of Johnson, Fidelity’s interest in cryptocurrencies significantly increased. Although a dedicated subsidiary, Fidelity Digitial Assets has just launched in 2018 a lot of preparation was involved in opening this new branch.
Fidelity began to research and development efforts towards cryptocurrencies in 2013. Their aim was to respond to the needs of the most sophisticated investors in this emerging asset class with innovative solutions.
After the initial research of cryptocurrencies and blockchain technology, they have set up a blockchain incubator, tested the proof of concept and started developing its staffs internally.
Fidelity brings bitcoin mainstream
During the bull run of 2013, when bitcoin price first hit $1000, Fidelity had partnered with SecondMarket’s Bitcoin Investment Trust to allow its clients on a case by case basis to save for their retirement by putting the cryptocurrency in self-directed IRAs. Bitcoin Investment Trust back then has $62.6 million in assets under management and was only invested in Bitcoin. This marks an innovative step in bringing wide acceptance of cryptos to financial clients.
Fidelity’s early exploration of blockchain and digital assets has continued after the breakdown of bitcoin price in 2014.
In an interview in 2017, they have revealed that Fidelity had started mining bitcoin in 2015.
One of the executives said in an interview the real purpose of the mining was to study the growing cryptocurrency market. They were looking at bitcoin mining as an experiment to learn how the network works, how consensus works, how difficulty levels work. Fidelity CEO Abby Johnson also revealed that the investment firm didn’t just study cryptocurrency through mining. It was also making tons of money while doing so. Using its own computers to they have mined bitcoin and ethereum in 2015 when the prices of bitcoin were below $300 and ethereum was traded at just $8. The prices had skyrocketed in 2017 which surely resulted in significant profits for the firm.
Fidelity developed their own technological solutions related to bitcoin
Fidelity started to test their first wallet and storage solution with employees in 2016. During this time they had seen a steady evolution of institutional demand for custody and trading services, and Fidelity was one institutional player who realized the opportunity in the asset class after the 2013 bull run.
Fidelity Charitable, the public charity department of Fidelity Investments, raised $7m in bitcoin donations in 2015. The organization launched the bitcoin donation option in November 2015. They have enabled their client to contribute in bitcoin through the payment processor system of Coinbase which handle bitcoin-to-dollar conversions. The funds have been donated to the charities selected by the board. Using the third-party payment process also let them examine technology’s another aspect.
During 2016 Fidelity have submitted their own patent application to the US Patent and Trademark Office for “Crypto Voting and Social Aggregating, Fractionally Efficient Transfer Guidance, Conditional Triggered Transaction, Datastructures, Apparatuses, Methods, and Systems”. The application outlines the structure of Fidelity’s ‘crypto-voting apparatus’, the components of which include voter authentication, vote processing, a crypto user interface (UI), a blockchain oracle and a smart contract to direct all computational actions.
Fidelity’s come-out on bitcoin
Up until 2017 Fidelity rarely hit the news with their crypto project. They were working behind the scenes to deliver such products and services to their clients which are indeed in a need.
Since 2017 however they started to take the lead on cryptocurrency asset management and started to communicate their services related to crypto more widespread.
On Consensus 2017 crypto event Abigail Johnson spoke at length about the company’s commitment to cryptocurrency as reported in Quartz and The Financial Times. Johnson said on the conference that the company had made several venture investments in bitcoin-related businesses and that the company was looking at applications of blockchain technologies alongside several leading universities. This is when it was revealed that they had also set up a small mining operation inside the asset manager headquarter.
Recent news about Fidelity’s involvement in crypto including trading and storing bitcoins for its clients
Fidelity Digital Assets have been launched in 2018 October to provide a custody service to store bitcoin, and to offer buying and selling of bitcoin for institutional customers. This definitely put Fidelity a step ahead of its top competitors that have mostly stayed on the sidelines of the cryptocurrency market so far. The firm also said in October that there are plans of over-the-counter trade execution and order routing for bitcoin early this year.
During the spring of 2019, they have split partnership with their long-term partner, Coinbase to find their own ways in the industry. Fidelity has been working closely on various projects with Coinbase over the years. Beyond being their payment processor for bitcoin donations back in 2015, in 2017 Coinbase helped Fidelity to develop a system where clients were able to track their bitcoin and cryptocurrency investments along with the traditional assets.
They were fighting now against each other to acquire crypto custody firm Xapo.
Beyond the deal with Xapo, Fidelity managed to raise funds for Fireblocks through its subsidy in a Series A funding. Fireblocks is cryptocurrency security startup helps institutions safely transfer coins between different wallets and exchanges. The startup already had a group of high-profile customers including Genesis Global Trading, owned by Barry Silbert’s Digital Currency Group, and Michael Novogratz’s Galaxy Digital.
And what does all of this means for the crypto community?
As you can see from the above, Fidelity has been dealing with cryptocurrencies for a while at various aspects of the technology, including trading, storing and mining cryptos.
In addition to that, Fidelity, being one of a large institutional investment player on the market has access to both capital and clients.
Introducing more money into the cryptocurrency industry can foster technical development while at the same time bringing more clients on board of the bitcoin wagon increases the acceptance of cryptocurrencies world-wide.
And finally, they also show a good example for other market participants by delivering a more and more crypto related project which can finally let cryptos penetrate into the financial system as a valid asset class. With the help of institutional money, bitcoin can throw off the black tag of ‘criminal money’ once for all.