Tom Jessop, Fidelity Investments head of corporate business development and digital assets, said an internal survey of institutional investors showed there is “an extremely high percentage interested in this space.”
His comments were made during the Institutional Crypto Conference at Bloomberg Headquarters on Monday where Fidelity announced a new subsidiary with 100 employees to provide “institutional solutions for a new asset class.”
They will start off with bitcoin and ethereum, providing custody as well as the option of bitcoin/eth trading by tapping into a number of exchanges to get the best price.
Fidelity serves 13,000 small funds, broker-dealers and intermediaries, Jessop said, with the institutional investment market being the obvious first choice.
Others provide retail focused solutions, he said, but institutions interested in this space are not served to their standard. Core infrastructure can be repurposed however, but going institutional is a first good step, he said.
They are currently onboarding some clients, with Mike Novogratz of Galaxy Digital being an alpha customer. “Any big institutional player helps credentialize this space,” Novogratz said, so he was happy to be one of the first customers.
Novogratz suggested pension funds are planning to enter this space. Had a convo this morning, he said, still a few months away. Late first quarter early second quarter of 2019 by the time some funds allocate some percentage. Gotta figure what bucket, commodity, security, alternative.
He said now there are announcements here and there being made, saying hey we open for business. Institutional investors then have to run some water through pipes. First/second quarter until pensions say hey maybe we should put 50 basis points into cryptos, Novogratz said.
The adoption cycle has gone from early adopters to sophisticated family offices, who manage lots of assets, allocating significant amount of capital to this new asset class, Jessop said. After that, the adoption cycle starts moving towards more traditional funds. Recent news about some of the big endowments is quite good news, he said.
Yale University recently invested nearly half a billion into a crypto fund that is 75% based in ethereum and bitcoin according to Novogratz.
Enough bright minds going into this space for the last couple of years that the likelyhood this becomes something big and interesting and meaningful for capital markets, I think we’ve passed the point of that being in question, Jessop said.
He said the initial targeted customers for Fidelity Digital Assets are traditional investors who want to allocate some of their funds to cryptos. We’re seeing the composition of interest change more in favor in the traditional investors world, he said.
Jessop, who says he is a true believer in cryptos, said Fidelity started seeing a move towards institutional demand, so taking the opportunity to deliver the service.
He said Fidelity mined bitcoin in 2015 and employees there bought what are now some very expensive bagels in the cafeteria to get a feel for how it all works, with the current capabilities built months ago.
Jessop said digital assets can lower friction and in regards to an investment thesis, many institutional investors haven’t started looking at the implications of traditional assets issued digitally.
The fact this room is packed to capacity and other softer feedback is indicative of demand, Jessop said. In addition to their surveys of institutional investors which showed that an extremely high percentage is interested in this space.
They have secured insurance for the crypto assets. Spoken to a number of large carriers, Jessop said. Secured dedicated crypto-asset insurance, complemented by the standard enterprise corporate insurance Fidelity carries.
“This is the largest institutional foray into crypto to date, and the industry’s biggest news of the year,” Messari, a crypto research firm targeting investors, said.
Fidelity is the world’s fifth biggest asset management firm, with trillions under management. Now they’re going crypto, the first of its kind to do so.