Fidelity Sojourns into Cryptocurrencies, Launches Trade Executions and Custody

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Photo Credit: Wall Street Journal

There has been a lot of happenings in the cryptocurrency industry to cheer investors up in the past couple of days, but one that has stood out from the pack is the recent decision of America’s biggest financial company, Fidelity to explore the world of cryptocurrency.

In an announcement on Monday, the financial giant announced the launch of a separate company- Fidelity Digital Asset Services, which will be responsible for handling cryptocurrency related issues while taking orders for trade executions

Speaking via a press release, the CEO and Chairman of Fidelity Investments stated that “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.”

Furthermore, the head of Fidelity Digital Asset Service, Tom Jessop said that the idea of commercializing a different cryptocurrency brand began a year ago. But at the moment, its services are only available to big institutions like hedge funds, endowment, and family offices with retail investors not yet admitted into the fray.

According to Tom Jessop, “We saw that there were certain things institutions needed that only a firm like Fidelity could provide,” Jessop told CNBC, adding that it already works with 13,000 institutional clients. “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.”

Fidelity is no doubt a very big financial service company and has earned the trust of its customers as the company controls well cover $7.2 trillion in customer assets from 27 million customers. That’s not all, the company also spends $2.5 billion per year on technology, partly through brands that controls the company’s artificial intelligence and blockchain projects. This new digital asset company launched by Fidelity was birthed at Fidelity Center for Applied Technology.

With this new development, the new company will be responsible for custody and how to securely store digital assets. Prior to now, big cryptocurrency company like Gemini, Coinbase Ledger, BitGo and ItBit had announced that they were working on similar solutions. Even Japanese bank, Nomura also announced in May that it would soon start offering crypto custody. But before now, there hasn’t really been a noticeable influx of big US companies into the crypto sphere, that’s what makes this move by Fidelity very important.

With the cryptocurrency space experiencing security breach and hack, it’s easy to see why many companies are skeptical about investing. As at June this year, a total of $1.6 billion dollars has been lost to hackers.

Fidelity cybersecurity a focus

As one of the biggest financial security brand, the company has a long history of dealing with enterprise security, with the company taking a proactive approach towards securely holding its customers public and private key cryptography. To this end, its cryptocurrency digital assets custodian solution includes vaulted storage as a means of securing the investment of its clients. Vaulted storage involves storing digital assets, this would be closely followed by the company’s other security protocol aimed at keeping its customers investments safe at all times.

Speaking on the development, Jessop stated that, “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.”

Regardless of the drop in the price of digital assets sidled by hacks and fraud, the digital asset industry is enjoying lots of acceptance from institutions. According to reports, David Swensen, Yale’s well-known chief investment officer, has recently invested in two funds solely dedicated to cryptocurrencies. Other institutions like Harvard, Stanford University, Massachusetts Institute of Technology and of course University of North Carolina have also made investment in cryptocurrencies. The icing on the cake is that the move by Fidelity will spur others to do the same.

While the company would help store digital assets for its customers, the company will leverage internal crossing engine and smart order router to handle trade execution. With this, customers can easily execute trades for their most preferred digital assets at different market venues.

Shading more light on the move, Jessop noted that, “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,” he said. “We are certainly only going to connect to those counterparties that we feel good about.”

The company’s crypto ambitions

According to Jessop, the company’s sojourn into the cryptocurrency industry is largely the brain child of the company’s CEO early interest. The CEO, had in 2014 made his intention about cryptocurrency known to the company.

Prior to now, the company has a number of cryptocurrency projects including a bitcoin mining company it established in New Hampshire when the price of Bitcoin was around $180. More so, the Company entered into a partnership with Coinbase which allowed fidelity customers to check their digital asset balances on Fidelity app. Again, the company has been known to facilitate charitable donations in bitcoin.

“Johnson “is very interested in this and stays up on developments in the space in quite a significant way, said the new head of Fidelity Digital Assets services, who only joined the company in January having worked for 17 with Goldman Sachs.

For now, the new digital assets company under fidelity will have its operational base in Boston and will house about 100 employee.