Investors are taking note of financial services firm Fidelity Investments’ move into the cryptocurrency space by offering custody and trading services to institutional clients.
Mike Novogratz, founder/CEO of Galaxy Digital, a crypto investment bank, points out that institutional clients are more convinced to invest in the crypto space with custody solutions.
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“They’re coming out with a world-class custody solution aimed at institutions and this is just a box that gets checked,” he says in a Bloomberg interview.
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Novogratz says having a trusted custody provider with insurance allows investors to make the bets they want to make in cryptocurrencies without the fear that their assets will be lost in a hack.Boston-based Fidelity Investments, which manages US$7.2 trillion in assets, announced in a press release that the services will be offered to sophisticated institutional investors such as hedge funds, family offices and market intermediaries.
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“Our goal is to make digitally-native assets, such as bitcoin, more accessible to investors,” Fidelity Investments chairman and CEO Abigail P Johnson says in the press release dated Oct 15.
“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,” she adds.
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The firm has set up a separate unit called Fidelity Digital Assets that is already acquiring clients including Galaxy Digital. The services will start early next year.
Fidelity Investments is not the only one that is working on custody solutions, as many others see storing cryptocurrency assets securely as a major issue holding back institutional clients from investing.
Fidelity Digital Assets head Tom Jessop tells CNBC that Fidelity Investments has been working on commercialising a company offering crypto services since mid-2017.
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Fidelity Investments is no stranger to the crypto space as the firm has been mining bitcoins when prices were around US$180. There is also a partnership with crypto exchange Coinbase allowing Fidelity Investments customers to check their balances on an app owned by the financial services firm and since 2015 has facilitated charitable donations in bitcoin.
The firm has 13,000 institutional clients and a customer base of 27 million. Fidelity Investments spends US$2.5bil per year on technology, with part of the funding going through incubators housing its artificial intelligence and blockchain projects.
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“We saw that there were certain things institutions needed that only a firm like Fidelity could provide,” Jessop says in the CNBC interview.
“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,” he says.
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Fidelity Investments has the brand and the clout to get things moving in the crypto world, and investors will be watching closely for others to make similar offerings, which not only gives choice but also accelerate the adoption of cryptocurrencies.
Other traditional financial services providers who are also working on custody solutions include Nomura while Goldman Sachs, which has put its crypto trading plans on hold, is considering a custody service for crypto funds.
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Besides traditional financial services players, crypto exchanges Coinbase and Gemini are also working on custody solutions. Others include Ledger, the Paris-based manufacturer of hardware wallets and BitGo, a wallet service provider.
According to various reports, cryptocurrencies worth well over US$1bil has been stolen through hacks in the first-half of 2018.
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