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Fidelity bites on bitcoin

Boston Globe | Scott Kirsner | Aug 16, 2021

Fidelity Tom Jessop - Fidelity bites on bitcoinFidelity says that 90% of its biggest clients are interested in accessing Bitcoin and other cryptocurrencies. The firm is now planning to open up the digital asset space to retail investors.

In 2015, the Boston investment firm started to dabble in bitcoin “mining,” using high-powered computers to produce new digital coins — an activity that continues today. It now offers custodial services to large institutional investors who want a safe place to stash their bitcoin holdings. In March, Fidelity announced its intention to create an exchange-traded fund to give individual investors access to the volatile cryptocurrency. And this summer, Fidelity said it will add about 100 new jobs to its “digital assets” team, on top of a headcount of about 150.

Tom Jessop, president of the digital asset business unit at Fidelity, says the company is making a long-term bet on the emergence of a new kind of financial infrastructure. And he notes that Fideilty chief executive Abigail Johnson often participates in startup demonstrations and educational talks related to cryptocurrency — observing that it’s helpful to have support at the top, especially since his group is operating in uncharted (and mostly unregulated) terrain.

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Bitcoin is the key focus now. While the cryptocurrency world sees regular cycles of hype around newly created cryptocurrencies, Fidelity is focused for the moment on bitcoin, which was born in early 2009.

“We’re dealing with the more traditional investors, and the entry vehicle to this space is largely bitcoin,” she says. But she adds that the interest for ethereum, another type of cryptocurrency, “has been escalating in the last few months, but it’s not anything close to what we see in bitcoin.”

The pandemic has sparked new interest. Large institutional investors were learning about cryptocurrency before the pandemic, but may not have actually purchased any prior to last spring, Jessop says.

“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.”

More regulation is coming, and that’s OK. Congress is enacting new rules, as part of the infrastructure bill, around how tax reporting will work for cryptocurrency holdings. SEC chairman Gary Gensler said earlier in August that his agency needs more authority to oversee cryptocurrency exchanges and protect consumers who may use cryptocurrency as an alternative to traditional financial institutions.

“We’re supportive of regulation,” Jessop says. ”For this asset class to grow, and for investors to have trust in what we and others are doing, you need regulations commensurate with other asset classes. We’re not saying that it should be overregulated, but we think that it should be regulated consistent with other financial products that consumers and institutions purchase today.”

See:  Fidelity-backed crypto security startup Fireblocks launches ‘Secure Asset Transfer Network’

Fidelity is putting capital into cryptocurrency startups. Through a venture capital division called Devonshire Investors, Fidelity has invested in promising startups like ErisX, Talos, and Boston-based Coin Metrics, which collects and publishes data related to cryptocurrencies. Those kinds of investments, Jessop says, “keep us sharper on what’s actually happening, which is super-important given how fast things are moving.”

Supporting registered investment advisers will be key for Fidelity. Financial advisers who rely on Fidelity for trading and custody services want to see cryptocurrency options integrated into Fidelity’s existing portfolio management technology.

“Advisers want to keep assets on the platform,” says Jessop. “Otherwise, the client wires out X amount of dollars to fund their Coinbase account or their PayPal account,” purchasing cryptocurrency there instead.

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