a top 3 asset manager enters crypto. aggressively.
|Oct 15, 2018||Public post|
Fidelity’s Crypto Bulls - Unqualified Opinions #15
(4 minute read)
Fido is officially in.
After years of internal experiments, a teaser of a Coinbase integration last year, and perhaps some social pressure from fast-moving Wall Street competitors, the asset management giant unveiled its plans to launch a crypto custody and institutional brokerage business. Fidelity Digital Assets will launch in 2019, headed by former Goldman Sachs MD and Chain President Tom Jessop.
They’ll offer three primary services initially:
An enterprise custody solution and “vault" for bitcoin, ether and other digital assets, which should be immediately competitive with BitGo, Coinbase, and Xapo. (I expect late-to-the-party rival Wall Street institutions to FOMO into some juicy M&A next year.)
A trade execution service that routes orders at the lowest available prices. Sounds simple/obvious, but this has been a major hold up to brokers working with crypto given the market’s fragmented liquidity. Fidelity’s new services will leverage an internal engine that pulls from multiple third-party liquidity providers, and fills orders on a "best execution" basis.
White glove client services for institutions new to the game. It’s Fidelity. My money is on them getting customer service right where others come up short.
This is the largest institutional foray into crypto to date, and the industry’s biggest news of the year. To put things in perspective vs. other announcements this year:
Fidelity is the third largest asset manager in the world. They’re private, but they have an identical growth and earnings profile to Blackrock (a ~$70 billion company), making Fido the largest firm to enter the space in a meaningful way.
More importantly, they have immense reach. The largest of any U.S. asset manager - with nearly 70 million retail accounts, including 27 million brokerage accounts. Coinbase has over 20mm crypto accounts themselves, but according to the Washington Post, less than 1% of the AUM (lots of minnows and their $5 buys are included in Coinbase’s figure). Fidelity seamlessly opens crypto to a new, wealthier demographic of buyers.
This announcement makes TD Ameritrade's investment in ErisX earlier this month look like small ball. TD is about a third of the size of Fidelity with 11 million brokerage customers, (and a ~$28 billion market cap). It’s less directly involved in the business (via an investment which also includes DRW, Virtu, and others vs. through a brand new business line / subsidiary). And Fidelity Digital Assets will boast over 100 employees right out of the gates.
Then there’s Nasdaq, a $13 billion company, which was rumored to be diving deep into the crypto exchange game earlier this year (their first step was to launch crypto-centric analytics products by next month...no updates on those whispers since), but ICE seems to have beaten them to the punch with the impending launch of its Bakkt subsidiary. The question for Nasdaq may no longer be whether they should buy Coinbase, but rather whether they should eventually sell to Coinbase, which is nearly as large at this point.
The only announcement that seems on par with this whopper, seems to be ICE’s August announcement that it would enter the crypto space via a new company called Bakkt. ICE (a $42 billion company) could introduce - essentially overnight - regulated futures market infrastructure for physically delivered bitcoin. Compliance and market surveillance capabilities that might finally usher in the mythical bitcoin ETF. (Oh, and Bakkt just poached Coinbase’s institutional lead, Adam White, as COO.)
Since 2013, it’s become sort of a joke to me, anytime I hear “[current year + 1] will be the year Wall Street enters crypto.”
But if you look at the blistering pace of announcements from just the past few months, I’m starting to think this time it may actually be true.
Best of the Rest - What We Missed
Every weekend, we dig through the past week’s posts from crypto’s other great sources of content to see what we missed. Here’s us curating the curators.
The Nouriel in All of Us - Chris Burniske
This week’s Senate Banking Committee hearing with Coin Center’s Peter van Valkenburgh and NYU’s Nouriel Roubini (“Dr. Doom”) led to intense reactions on crypto twitter. Chris Burniske discusses the “rhetoric of intolerance” we were guilty of in Token Economy: “if someone doesn’t agree with a tribe’s ideas, too quickly do things escalate to personal insults and expletives….intolerant rhetoric also kills off the diversity of ideas, as the disagreers defect over time, slowly debilitating a group’s ability to assess its own weaknesses.” We were so busy shouting ad hominem attacks, we lost the opportunity to address a criticism of substance. USV’s Albert Wenger echoed this sentiment in a blog post, and urged everyone to read Roubini’s testimony, since long-term success in crypto requires overcoming these exact objections. (Source)
The renaissance of cryptography - Oleg Andreev
Oleg Andrew declared a “new era” we are entering: the renaissance of cryptography. In Oleg’s view, we’re living in a time where we have “fantastic tools, amazing people, and strong demand for high-quality cryptographic products with direct financial incentives”. Cryptographic building blocks are getting safer and faster, programming languages are getting better, and ambitious ideas that were previously stuck in academic papers are getting implemented. What a time to be alive-- and what a post to kick off your Monday. (Source - NLW’s Long Reads Sunday.)
Fireside Chat: Naval Ravikant + Nassim Taleb
Whhhhhhhaaaat? How did we miss this one? While crypto was all about SF Blockchain Week, organizers in LA, snuck in a crypto conference of their own with an epic pair of headliners. Enjoy 1:24 of pure wisdom in the form of a firechat chat with from Naval Ravikant and Nassim Taleb (both Messari favorites) to start your week.
Did I miss something?
Send me the link, your twitter handle and your best imitation compression algorithm write up. If I like it, I’ll include your bit next issue (with attribution).
ICYMI, KWu’s latest and greatest Messari podcast #9 is an interview with Tony Sheng on his writing process. Last week, KWu was on the ground at Crypto Springs taking names and doing interviews in #8.
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