Fidelity just made it easier for hedge funds and other pros to invest in crypto

[Hydrogen]

Financial services giant Fidelity is taking a huge step into cryptocurrency.

The 72-year-old firm announced the launch of a separate company, Fidelity Digital Asset Services, on Monday that will handle cryptocurrency custody and trade execution for institutional investors.

"Our goal is to make digitally native assets, such as bitcoin, more accessible to investors," Fidelity Investments Chairman and CEO Abigail Johnson said in a press release. "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, head of Fidelity Digital Assets, said the idea of commercializing a standalone crypto company began in the middle of last year.

For now, its services are available to institutions such as hedge funds, endowments and family offices but not to the retail investor.

"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 nothing if not big. It administers $7.2 trillion in customer assets, has 27 million customers, and spends $2.5 billion per year on technology, partially through incubators that house its artificial intelligence and blockchain projects. The new digital asset company was born out of Fidelity Center for Applied Technology, or FCAT as employees call it.

The new company will handle custody, or how to safely store digital assets. Crypto companies Coinbase, Gemini (run by the Winklevoss twins), BitGo, Ledger and ItBit are among those already working on similar solutions. Japanese bank Nomura also announced plans in May to offer crypto custody, and Goldman Sachs and Northern Trust are reportedly exploring custodial services. But until now, there's been a noticeable lack of a big U.S.-based incumbent like Fidelity officially entering the space.

Part of the risk in cryptocurrency investing, which experts say has largely barred institutions from embracing these digital assets, is how to prevent them from being hacked. As of the end of June, $1.6 billion in cryptocurrency had been stolen from clients, according to CoinDesk's 2018 State of Blockchain Report.

Cybersecurity a focus
Fidelity has a long history of dealing with enterprise security, as well as public and private key cryptography to make sure it isn't part of that statistic. Its custody solution will include vaulted "cold storage," which involves taking the cryptocurrency offline, and multilevel physical and cyber controls, among other security protocols that have been created leveraging Fidelity's security principles from other parts of the business.

"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," Jessop said. "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."

Despite a slump in prices and news of hacks and fraud, acceptance among institutions for cryptocurrency is growing.

Yale's well-known chief investment officer, David Swensen, who manages the school's $29.4 billion endowment, has invested in two funds dedicated to cryptocurrencies, sources told CNBC. Other endowments — for Harvard University, Stanford University, Dartmouth College, Massachusetts Institute of Technology and the University of North Carolina — have also reportedly made allocations in at least one cryptocurrency fund, The Information reported.

The move by Fidelity may encourage more to do so.

In addition to storing cryptocurrencies, Fidelity Digital Assets will use an existing internal crossing engine and smart order router for trade execution. This order router will allow Fidelity institutional customers to execute trades for bitcoin, ether and other assets at multiple market venues. While Jessop didn't say which ones, he said cryptocurrency exchanges have to comply with the same "Fidelity standard" applied in other parts of the business.

"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."

Fidelity's crypto ambitions
Jessop said the project is largely a result of Johnson's early interest. The CEO led the charge into cryptocurrency, one of the riskiest and most volatile asset classes of the past year, as early as 2014.

Fidelity has a few existing cryptocurrency projects: It started bitcoin "mining" at a location in New Hampshire when the digital asset's price was around $180, has a partnership with Coinbase that allows Fidelity customers to check their cryptocurrency balances on the Fidelity app, and in 2015, started facilitating charitable donations in bitcoin.

Johnson "is very interested in this and stays up on developments in the space in quite a significant way," said Jessop, who joined Fidelity in January from cryptocurrency start-up Chain and before that spent 17 years at Goldman Sachs.

The new standalone company, which has about 100 employees and will be headquartered in Boston, is in the process of onboarding its first clients now and will be in the market and "generally available" sometime in early 2019.

Cryptocurrency prices, meanwhile, are still struggling to recover. Bitcoin is down more than 50 percent this year and has yet to get back to its all-time high near $20,000.

Still, Jessop said neither Fidelity nor institutions it services are distracted by price. He compared the technology's long-term potential with moving financial services to the internet.

"No one said when some of these early-stage Internet companies in 2000 were going out of business, 'Gee, the Internet is toast,'" Jessop said. "We don't focus too much on the price. It's a foundational technology — people are trying to get exposure to the trend and expect volatility in the assets themselves."

https://www.cnbc.com/2018/10/15/fidelity-launches-trade-execution-and-custody-for-cryptocurrencies.html

....

There's a chance the recent decline in bitcoin's price we've witnessed is linked to this development. Hedge funds and whales could be pushing the price of bitcoin down to create an entry point for themselves to buy in. This could represent another indication bitcoin is hitting the prime time, although without the vast leaps in price valuation many of us expected. Perhaps we still might still see a price spike around black friday and christmas holidays?

Data points on their infrastructure utilizing cold storage reminded me of xapo storing bitcoin in nuclear bomb shelters--I wonder what ever happened to them. Seems like there hasn't been a reference made to them in some time.

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[davis196]

There's a chance the recent decline in bitcoin's price we've witnessed is linked to this development. Hedge funds and whales could be pushing the price of bitcoin down to create an entry point for themselves to buy in. This could represent another indication bitcoin is hitting the prime time, although without the vast leaps in price valuation many of us expected. Perhaps we still might still see a price spike around black friday and christmas holidays?

Data points on their infrastructure utilizing cold storage reminded me of xapo storing bitcoin in nuclear bomb shelters--I wonder what ever happened to them. Seems like there hasn't been a reference made to them in some time.

The recent decline in the bitcoin price is just few hundred dollars.If the "crypto whales manipulation" theory is right,the whales will try to push the price to a "price crash/panic" level at 4000 USD or maybe under 3K USD.
This has nothing to do with Fidelity and their crypto related projects.
By the way,storing bitcoins in nuclear bomb shelters is a stupid idea.Perhaps Xapo abandoned that project.

[Hydrogen]

The recent decline in the bitcoin price is just few hundred dollars.If the "crypto whales manipulation" theory is right,the whales will try to push the price to a "price crash/panic" level at 4000 USD or maybe under 3K USD. This has nothing to do with Fidelity and their crypto related projects.

According to studies I've seen, many hedge fund managers are lucky to achieve 5% return on investment.

This could be a misleading statistic. The difficulty level of trading in the green rises significantly when working with higher sums of capital. The higher volume making it more difficult to get in and out of trades. One of the trade offs is hedge fund managers having relatively large piles of cash at their disposal. A hedge fund with $20 million in capital could make $1 million off a 5% increase in price.

Hedge funds don't necessarily need big percentage shifts to make money the way that smaller traders do.

By the way,storing bitcoins in nuclear bomb shelters is a stupid idea.Perhaps Xapo abandoned that project.

Is it a dumb idea?  

Nuclear bomb shelters are fortified behind multiple feet thick layers of concrete and heavy steel doors. They're built to be secure against attacks in a way that can be effective when defending against things like attempts at theft. The idea is to save on those costs as former missile silos and other reinforcced structures are currently on real estate markets and available at wholesale prices.

[exstasie]

There's a chance the recent decline in bitcoin's price we've witnessed is linked to this development. Hedge funds and whales could be pushing the price of bitcoin down to create an entry point for themselves to buy in.

It's possible hedge funds are accumulating. Funding rate on Bitmex flipped positive into the dump with high open interest, so someone was buying the dip in a big way. On Bitfinex as well, lots of shorts closing and longs opening. Here's some interesting discussion on how the bigger players at Bitmex roll.

It's unlikely to do with the Fidelity development though.

This could represent another indication bitcoin is hitting the prime time, although without the vast leaps in price valuation many of us expected. Perhaps we still might still see a price spike around black friday and christmas holidays?

Hedge funds have been trading the Bitcoin markets for a few years already, so I don't see anything fundamentally new here. I think $6,000-$7,000 looks like a bullish accumulation range, but it's anyone's guess really.

Data points on their infrastructure utilizing cold storage reminded me of xapo storing bitcoin in nuclear bomb shelters--I wonder what ever happened to them. Seems like there hasn't been a reference made to them in some time.

Last thing I saw about them, from May: The Wealthy Are Hoarding $10 Billion of Bitcoin in Bunkers

Two Xapo clients said it houses roughly $10 billion of Bitcoin.

[TheGreatPython]

Financial services giant Fidelity is taking a huge step into cryptocurrency.

The 72-year-old firm announced the launch of a separate company, Fidelity Digital Asset Services, on Monday that will handle cryptocurrency custody and trade execution for institutional investors.

"Our goal is to make digitally native assets, such as bitcoin, more accessible to investors," Fidelity Investments Chairman and CEO Abigail Johnson said in a press release. "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, head of Fidelity Digital Assets, said the idea of commercializing a standalone crypto company began in the middle of last year.

For now, its services are available to institutions such as hedge funds, endowments and family offices but not to the retail investor.

"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 nothing if not big. It administers $7.2 trillion in customer assets, has 27 million customers, and spends $2.5 billion per year on technology, partially through incubators that house its artificial intelligence and blockchain projects. The new digital asset company was born out of Fidelity Center for Applied Technology, or FCAT as employees call it.

The new company will handle custody, or how to safely store digital assets. Crypto companies Coinbase, Gemini (run by the Winklevoss twins), BitGo, Ledger and ItBit are among those already working on similar solutions. Japanese bank Nomura also announced plans in May to offer crypto custody, and Goldman Sachs and Northern Trust are reportedly exploring custodial services. But until now, there's been a noticeable lack of a big U.S.-based incumbent like Fidelity officially entering the space.

Part of the risk in cryptocurrency investing, which experts say has largely barred institutions from embracing these digital assets, is how to prevent them from being hacked. As of the end of June, $1.6 billion in cryptocurrency had been stolen from clients, according to CoinDesk's 2018 State of Blockchain Report.

Cybersecurity a focus
Fidelity has a long history of dealing with enterprise security, as well as public and private key cryptography to make sure it isn't part of that statistic. Its custody solution will include vaulted "cold storage," which involves taking the cryptocurrency offline, and multilevel physical and cyber controls, among other security protocols that have been created leveraging Fidelity's security principles from other parts of the business.

"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," Jessop said. "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."

Despite a slump in prices and news of hacks and fraud, acceptance among institutions for cryptocurrency is growing.

Yale's well-known chief investment officer, David Swensen, who manages the school's $29.4 billion endowment, has invested in two funds dedicated to cryptocurrencies, sources told CNBC. Other endowments — for Harvard University, Stanford University, Dartmouth College, Massachusetts Institute of Technology and the University of North Carolina — have also reportedly made allocations in at least one cryptocurrency fund, The Information reported.

The move by Fidelity may encourage more to do so.

In addition to storing cryptocurrencies, Fidelity Digital Assets will use an existing internal crossing engine and smart order router for trade execution. This order router will allow Fidelity institutional customers to execute trades for bitcoin, ether and other assets at multiple market venues. While Jessop didn't say which ones, he said cryptocurrency exchanges have to comply with the same "Fidelity standard" applied in other parts of the business.

"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."

Fidelity's crypto ambitions
Jessop said the project is largely a result of Johnson's early interest. The CEO led the charge into cryptocurrency, one of the riskiest and most volatile asset classes of the past year, as early as 2014.

Fidelity has a few existing cryptocurrency projects: It started bitcoin "mining" at a location in New Hampshire when the digital asset's price was around $180, has a partnership with Coinbase that allows Fidelity customers to check their cryptocurrency balances on the Fidelity app, and in 2015, started facilitating charitable donations in bitcoin.

Johnson "is very interested in this and stays up on developments in the space in quite a significant way," said Jessop, who joined Fidelity in January from cryptocurrency start-up Chain and before that spent 17 years at Goldman Sachs.

The new standalone company, which has about 100 employees and will be headquartered in Boston, is in the process of onboarding its first clients now and will be in the market and "generally available" sometime in early 2019.

Cryptocurrency prices, meanwhile, are still struggling to recover. Bitcoin is down more than 50 percent this year and has yet to get back to its all-time high near $20,000.

Still, Jessop said neither Fidelity nor institutions it services are distracted by price. He compared the technology's long-term potential with moving financial services to the internet.

"No one said when some of these early-stage Internet companies in 2000 were going out of business, 'Gee, the Internet is toast,'" Jessop said. "We don't focus too much on the price. It's a foundational technology — people are trying to get exposure to the trend and expect volatility in the assets themselves."

https://www.cnbc.com/2018/10/15/fidelity-launches-trade-execution-and-custody-for-cryptocurrencies.html

....

There's a chance the recent decline in bitcoin's price we've witnessed is linked to this development. Hedge funds and whales could be pushing the price of bitcoin down to create an entry point for themselves to buy in. This could represent another indication bitcoin is hitting the prime time, although without the vast leaps in price valuation many of us expected. Perhaps we still might still see a price spike around black friday and christmas holidays?

Data points on their infrastructure utilizing cold storage reminded me of xapo storing bitcoin in nuclear bomb shelters--I wonder what ever happened to them. Seems like there hasn't been a reference made to them in some time.

I would not be surprised with your comment regarding the institutions trying to drive the price down for entry point and of course it is very obvious that they will want to make sure they are gaining a huge position in this space, and as a result of that, make sure that they are picking at a very good price or at least something reasonable.

We all know that institutions can definitely not be buying at the peaks, and for the fact that this space is more speculative in nature, decentralized, and no much regulation, trying to manipulate the value to their advantage by shaking out weak hands mostly, is something we will get to see.

[1Referee]

We all know that institutions can definitely not be buying at the peaks, and for the fact that this space is more speculative in nature, decentralized, and no much regulation, trying to manipulate the value to their advantage by shaking out weak hands mostly, is something we will get to see.

How do you know they can't be buying at the top? It's not very likely because they usually have more sense in them, but they may have been fomo'ing just as hard as regular joes.

Circle (which is backed by the most powerful financial institutions) acquired Poloniex for an insane $400 million, which is a clear miscalculation on their end.

Private futures contracts between institutions and miners makes the most sense with how both parties end up with the certainty that they get what they want, because we all know how crazy this market can be some times. It also demonstrates the proper usage of futures contracts, which can't be said about the lame ass casino shit being offered by CME & CBOE.

[The Sceptical Chymist]

We all know that institutions can definitely not be buying at the peaks

How do you know they can't be buying at the top?

He doesn't know that.  That's a statement that's patently untrue.  Big institutions, and investors of all sizes have bought investments (stocks, real estate, commodities, etc.) at peak values before.  Just because someone or some organization has money/influence/power doesn't mean they can predict the market or even influence it as much as you think they can.

I thought there was another thread about this already.  I recall writing that I would be concerned about things like university endowments and pension funds investing in crypto.  That might be a great thing for the price of bitcoin in the short term, but it could end up being hell on wheels for those universities and retirees down the line. 

As far as Fidelity offering this service to the big players, I think it's a great thing for crypto.  What I'm worried about is how much leverage those investors are going to use and what could happen if and when they decide to sell all at once. 

According to studies I've seen, many hedge fund managers are lucky to achieve 5% return on investment.

A lot of people would be very happy with that amount, especially those looking to protect significant wealth as opposed to creating said wealth.  However, hedge funders and mutual fund managers are judged by their performance relative to the whole market's performance, so sometimes 5% might be great, other times it would be awful.

[upsidedown75]

I mean the 7.2 trillion number is always thrown in there but in reality they won't probably put up even 100 million dollars into this. Considering bitcoin is something they literally said they are "experimenting" it is just another way to say they will dabble with it small and the bitcoin volume shows that we do not need a small investment we need them to get int heavily or at least be able to trade heavily.

Even if they get in couple couple billion dollars at once the best case scenario would be the price would go up for a while and either drop or stay because they are not trading it, they are holding it, which doesn't reflect on the price any longer than the initial purchase. Don't get me wrong it is amazing that a company at this size getting into bitcoin and other digital assets but it is not a world changing news for us.

[oicieffive]

There's a chance the recent decline in bitcoin's price we've witnessed is linked to this development. Hedge funds and whales could be pushing the price of bitcoin down to create an entry point for themselves to buy in.

It's possible hedge funds are accumulating. Funding rate on Bitmex flipped positive into the dump with high open interest, so someone was buying the dip in a big way. On Bitfinex as well, lots of shorts closing and longs opening. Here's some interesting discussion on how the bigger players at Bitmex roll.

It's unlikely to do with the Fidelity development though.

This could represent another indication bitcoin is hitting the prime time, although without the vast leaps in price valuation many of us expected. Perhaps we still might still see a price spike around black friday and christmas holidays?

Hedge funds have been trading the Bitcoin markets for a few years already, so I don't see anything fundamentally new here. I think $6,000-$7,000 looks like a bullish accumulation range, but it's anyone's guess really.

Data points on their infrastructure utilizing cold storage reminded me of xapo storing bitcoin in nuclear bomb shelters--I wonder what ever happened to them. Seems like there hasn't been a reference made to them in some time.

Last thing I saw about them, from May: The Wealthy Are Hoarding $10 Billion of Bitcoin in Bunkers

Two Xapo clients said it houses roughly $10 billion of Bitcoin.

I honestly believe these guys have been in this market already for a long time now and they are doing as much as they can to at least make sure they are taking enough position off as many retail weak hands as possible. I guess we just have to wait and see how things will get to pan out in the long run, and from the look of things, I am beginning to see this point we are now as an accumulative point for them.

Normally, it is understandable that no institution will be dumb enough to want to be investing in an over tapped market, and who knows, they drove it to that level to dump, get out weak hands, accumulate more at the dip to hold more positions, rinse and repeat on the way up again.

[Waradlain]

I mean the 7.2 trillion number is always thrown in there but in reality they won't probably put up even 100 million dollars into this. Considering bitcoin is something they literally said they are "experimenting" it is just another way to say they will dabble with it small and the bitcoin volume shows that we do not need a small investment we need them to get int heavily or at least be able to trade heavily.

Even if they get in couple couple billion dollars at once the best case scenario would be the price would go up for a while and either drop or stay because they are not trading it, they are holding it, which doesn't reflect on the price any longer than the initial purchase. Don't get me wrong it is amazing that a company at this size getting into bitcoin and other digital assets but it is not a world changing news for us.

I think the point here isn't exactly what amount will be invested but in that message "yes, we consider cryptocurrency as one of the directions for investment".
At the moment this is already a good sign.