RIABiz

News, Vision & Voice for the Advisory Community

RIABiz

Fidelity Investments applies its proven Peter Jubber to its unproven bitcoin unit and its launch of Fidelity Digital Funds signals it's all in on blockchain currency

By launching Fidelity Digital Funds under an 18-year seasoned exec, the Boston giant is signalling no let-up by putting something scarcer than capital into the crypto-pot -- its seasoned talent

Wednesday, September 9, 2020 – 2:20 AM by Oisin Breen
Peter Jubber: Every incumbent should be spending time and money on this topic to understand it, at least to understand the threat.

Brooke's Note: Think of Coldplay's song "Yellow" and subsitute the word "Zero" and you'd have a way to intone the song of big RIA custodians. Low margins reflect a place in time for the oligopoly where competitive advantages are measured in millimeters. That's what makes the Fidelity crypto Hail Mary (Hail Abby) covered in this article so fascinating. Chances are that the Bitcoin play will yield red ink for a long time, perhaps forever.  But, like poker, it's a test for rivals as the stakes go up. Will they call Fidelity's hand now that Abby Johnson played her Jubber?

In a sign that its Bitcoin wager is for real, Fidelity Investments is betting the time and talent of Peter Jubber on the launch of Fidelity Digital Funds.

Experts are now asking whether rivals can ante in competitively -- even if they want to.

"Fidelity is building an almost insurmountable lead in this space relative to the other traditional brokerage majors," says Mike Alfred, co-founder and CEO of Digital Assets Data, via email.

Steve Gresham
​Steve Gresham: He combines respect for the specialists and industry technicians with a consumer’s 'so what?' realism and a savvy manager’s pragmatism.

Alfred's Denver firm is an effort to do for cryptocurrency research and analysis what his better-known startup, Brightscope, did for the 401(k) market. See: Mike Alfred also exits BrightScope to follow brother Ryan into cryptocurrency sphere.

"[Fidelity] has opened up a wide knowledge and momentum gap ... [in] one of the biggest new markets to come along in decades," he says.

Yet super-geek crypto evangelists wonder if even Fidelity's plunge into blockchain coins isn't a little tentative.

Moreover, despite Fidelity's early crypto-currency lead over traditional rivals, it faces significant competition from the raft of specialized firms that sprang up around Bitcoin and other currencies, like Ethereum.

"The only knock on Fidelity is their focus on Bitcoin-only. They talk about adding Ethereum, but have yet to add that ... or any [other]," says a source who asked not to be identified.

Betting talent

Seven years after secretly laying the groundwork for its crypto-businesses, the Boston giant announced the launch, Aug. 26, of its crypto-asset management unit.

Saifedean Ammous
Fidelity channels some of professor Saifedean Ammous' bullish view on Bitcoin.

A month earlier, July 10, Fidelity stepped up its ability to mine Bitcoin by acquiring a 10% stake in Toronto, Canada-based Bitcoin miner Hut 8.

Then, on Jul. 14, Fidelity's crypto-custodian, Fidelity Digital Assets landed a significant sub-custody deal with Kingdom Trust. See: Fidelity bags $13 billion AUM digital assets win to its custody, as federal regulators attempt to move Bitcoin custody from 'weirdo websites' to mainstream banks.

These moves add further crypto-capacities to Fidelity's two-year old Bitcoin custody arm.

Now, Fidelity has its first crypto-fund, the Bitcoin-only, Wise Origin Bitcoin Index Fund. But as the name suggests, Fidelity Digital Fund's product-list could mushroom to include multiple funds. See:  Five-year stealth project sees Fidelity go big-time into crypto-custody.

Abby Johnson
Fidelity CEO Abby Johnson has created a safe environment at Fidelity to hazard a play on something as improbable as Bitcoin.

Indeed, sources state passive and actively managed funds holding multiple crypto-currencies will follow, likely once the SEC allows Wise Origin to adopt a more liquid, registered-fund structure.

Fidelity Digital Assets will custody the new fund, which has a minimum investment of $100,000, according to SEC filings. Just one bitcoin is worth $10,096.20 at today's exchange rate. 

The new offering is considered "private," meaning Fidelity can't solicit capital from retail investors or the general public. The designation means less onerous regulatory oversight and less potential liability if digital assets were to suddenly collapse. Some large RIAs are expected to take part in the fund's initial sale.

Fidelity declined to reveal precisely when it began work on developing its crypto fund, or when it decided to launch a new crypto-subsidiary, but a source states the moves have been "in the works for some time".

But what jumps out at a micro level is that Fidelity is betting a real human talent like Jubber on what many RIAs and investors still see as a vaporous vision of the financial future. 

The Jubber effect

Jubber is an 18-year Fidelity veteran whose credits include helping his company catch up in the exchange-traded fund business. 

He spent five years as Fidelity head for asset management strategy and business development. Prior to his most recent appointment, he also spent three years as Fidelity head of strategy and planning and three years as head of Fidelity Consulting.

Jubber lauded blockchain-based technology in a 2017 podcast. Research into the field was essential in order for any asset manager to stay relevant, he said. 

Ric Edelman: Many will regard Fidelity’s involvement as a 'stamp of approval' by the mainstream financial services industry.

Crypto-currency believers see 'mining' the Internet for value mediums competing increasingly with sovereign governments issuing currencies.

But Jubber, a known crypto enthusiast who spent time working at IBM, could clear the air of unreality surrounding Fidelity's Bitcoin ambitions, according to Steve Gresham, managing principal of Execution Project, via email.

Mike Alfred
Mike Alfred: Fidelity is building an almost insurmountable lead.

Gresham spent nine years at Fidelity, between 2008 and 2017, most recently as head of its private client group.

"Peter is a natural for this role because he combines respect for the specialists and industry technicians with a consumer’s 'so what?' realism and a savvy manager’s pragmatism."

"He gets what he needs from different people and synthesizes the result," Gresham adds.

Jubber worked alongside Gresham in 2009 to develop Fidelity's initially slow-off-the-mark ETF business, beginning with filings for active ETFs and a distribution deal with iShares.

Today, Fidelity manages $20.38 billion in ETF assets, according to the firm. BlackRock-owned iShares ($1.8 trillion), Vanguard ($1.3 trillion), and State Street ($788 million) dominate the ETF market, according to ETFdb.com data.

Don't doubt the strategic significance of this Jubber appointment and roll-out of the asset allocation unit, says Ric Edelman, founder of Edelman Financial Engines, via email.

"This is potentially huge," because Fidelity may be big enough to create a self-fulfilling prophecy, he adds. 

"Many will regard Fidelity’s involvement as a 'stamp of approval' by the mainstream financial services industry."

Still the common wisdom is that any economic or investor shift to crypto dominance is way, way downstream.

In it to win it

Fidelity, however, is all-in on crypto-currency, says Edelman whose firm manages about $180 billion.

Nicole Abbott
Nicole Abbott: Fidelity has made a long-term commitment.

"Fidelity is applying all of its knowledge and capabilities to the digital asset space ... [and CEO Abby] Johnson wouldn't be engaging so heavily in bitcoin if she wasn’t convinced that its price isn’t wildly undervalued."

Indeed, in a July report by Fidelity Digital Assets, the firm's crypto-custodian, the company backed an analysis penned by economics professor Saifedean Ammous that suggests Bitcoin could surge over 100-fold in value to $1 million.

As of Sept. 3, Bitcoin trades at $10,847, and its total market capitalization stands at $209.6 billion -- up from $8.92 billion in 2013. In the last month Bitcoin's value climbed more than 12%.

The overall crypto-currency market is worth $358 billion, as of Sept. 3 -- a 17% jump in the last month.

Fidelity declined, however, to answer specific questions related to its new fund, citing regulatory reasons, but the firm intends to grow its lead, according to spokeswoman Nicole Abbot.

"Fidelity has made a long-term commitment to the future of blockchain technology and making digitally-native assets, such as Bitcoin, more accessible," she says, via email.

"We were among the first institutions to commit [to] R&D … [and this] has led to several key innovations that underlie [what] we’re now delivering to the market."

Believers

Vanguard, BlackRock and BNY Mellon Pershing's parent bank also have blockchain-centered strategies in the works, although BlackRock remains unperturbed by the idea of crypto-currency as an asset class -- a position CEO Larry Fink outlined in 2018. See: Vanguard Group seeks 'new business model,' it says, to explain blockchain pilot program.

Larry Fink
BlackRock CEO Larry Fink believes in blockchain but doesn't see how bitcoin explodes absent government backing.

"We are a huge believer in blockchain ... [and] I wouldn't say never [on crypto-currencies]. When it's legitimate, yes, ... [but] it will ultimately have to be backed by a government," Fink told his audience at the New York Times Dealbook Conference two years ago.

Schwab and TD Ameritrade have also taken tentative crypto steps.

Clients of both firms can trade select crypto-futures. TD has invested in the crypto-custodian ErisX, and Schwab shares a board member with Coinbase. See: Schwab dismisses crypto currencies as 'speculative' and too insignificant for its RIA platform as rivals stake out turf for the coming boom... or is that bust?

"We always look to implement products our clients have demand for. When it comes to cryptocurrencies, we take a deliberate approach with a focus on education," says TD Ameritrade spokeswoman Margaret Farrell, via email.

Rapidly growing firms like Robinhood and Square also provide retail investors a means to trade and custody crypto-currencies.

Blue Ocean

The leading players in the crypto-custody market include San Francisco's Coinbase, Palo Alto, Calif.-based BitGo, New York City’s Gemini Trust Co. and newcomers like San Francisco’s Anchorage and New York City's Curv.

Gemini recently announced the launch of a crypto-TAMP for RIAs in partnership with San Francisco-based Blockchange.

Gemini also plans to go toe-to-toe with Fidelity Digital Assets in the RIA crypto-custody market by offering a wider breadth of custodied coins.

But when it comes to crypto asset management, the current incumbent is New York-based Grayscale, which manages 10 funds worth a cumulative $6.2 billion, as of Sept. 2, 2020.

Its largest, the Grayscale Bitcoin Trust, holds over $5 billion. Only one Grayscale fund manages more than one currency, the $47.6 million AUM Grayscale Digital Large Cap Fund.

Grayscale, like Coindesk and Genesis, is owned by New York venture capital firm, Digital Currency Group, which has a stake in over 100 crypto start-ups, including Alfred's Digital Assets Data.

Meanwhile, back in the real world of traditional investment firms, Alfred is watching and wondering if mainstream investing brands with sizzling specialization track records will get into the game. 

"I would [for example] have expected both Franklin Templeton and T. Rowe Price to be more active, by now, given how active both firms are in pre-IPO tech investing."

Of the traditional top domestic asset managers, broker-dealers and custodians, only Fidelity has both a crypto-custodian and a crypto-asset manager.

Schwab and Franklin Templeton have yet to respond to a request for comment, and Pershing declined to do so. 

T.Rowe spokesman Bill Benintende confirmed his firm has "no near- or immediate-term plans to introduce crypto asset management."


Related Moves

With no-holds-barred perks, Fidelity Investments hit bullseye on its 'monstrous,' single-quarter, 9,000-employee hiring spree and keeps recruiting on overdrive

The $11-trillion-plus giant will also likely achieve its overarching task to net 7,000 employees but growth means the hiring machine needs to keep churning.

January 11, 2022 – 2:04 AM

Abby Johnson hires Canadian whiz and possible successor to head up, monetize and automate Fidelity retail to close early digital deficits with Schwab, Robinhood and Vanguard-- and maybe win institutionally embedded 401(k) millionaires

With the $11.2 -trillion Boston giant hiring 9,000 by year end after opening 5 million new retail accounts in six months, Joanna Rotenberg will be asked to rationalize, unify, digitize and monetize low- or no-revenue millennial accounts.

September 21, 2021 – 2:38 AM

Fidelity Investments pulls out stops on perks to raise headcount by 7,000 -- by hiring 9,000 -- to shrug off labor shortages, escalating wages and call center attrition

The 53,000-employee Boston firm is offering Google-type benefits and Merrill Lynch-style training--no financial experience necessary-- to reach 60,000 staffers by Christmas to meet crushing demand for service and still advance mega-projects like crypto and youth accounts

September 4, 2021 – 12:57 AM

Wealthfront cedes to four years of investors clamoring for crypto by taking on expensive third-party vendor that Betterment rules out

The Redwood City, Calif., robo-advisor turned a hard 'no' into a soft 'yes' by dealing with Grayscale and its 200 basis-point-plus fees, which its robo rival in NYC -- also without a crypto path -- finds ludicrous.

August 14, 2021 – 2:20 AM

See more related moves


Brian Murphy

Brian Murphy

September 9, 2020 — 6:08 AM
Blockchain technologies will become a pillar of all financial transactions - over time. Fidelity is taking the bull by the horns and focusing its initial efforts on getting the Bitcoin use-case down cold, before extending to other cryptos and that's the right way to do it. Think Amazon and books. The imaginative out there will be those who understand the protocols well-enough to cobble together exciting new use cases for crypto (and blockchain more generally), that solve real-world problems and explicitly lower costs. Look no further than tontines as an open opportunity. Rules/laws will get changed to accommodate truly better products.
Jackie Anthony Sunseri

Jackie Anthony Sunseri

December 1, 2020 — 12:48 AM
Jackie Anthony Sunseri 1188 Court St. Elko, Nevada 89801 Sun Valley Cattle Ranch. How can we buy feed and cattle with bitcoins?
Brian Murphy

Brian Murphy

December 1, 2020 — 3:21 AM
Go to CME homepage...open an account. Let's assume you have 5 bitcoins you'd like to use to buy cattle. Enter into 1 short BTC futures contract (selling BTC) for February delivery. Next enter into 2 long contracts for live cattle, February delivery. You've just locked in your purchase of cattle for February delivery using bitcoin - simple, huh?
Thomas Arvanites

Thomas Arvanites

December 17, 2020 — 4:38 PM
How can I invest in Bitcoin fund and what is minimum investment?
Brian Murphy

Brian Murphy

December 17, 2020 — 8:16 PM
@Thomas - you can either open up an account with a digital asset custodian, like Coinbase, Robinhood or Square's Cash App and purchase digital currencies directly (BTC, ETH, LTC, and lots of others) or invest in a publicly traded entity that holds digital currencies directly. If you open an account on a brokerage or use the Cash App you should be able to make purchases in as small of increments as you'd like...easily $25 or less. If you are attempting to invest on behalf of others, the proxy assets are probably your best bets at present - although they all trade at premiums to the value of the coins they hold. Two securities that trade on the exchanges that do this are GBTC (Grayscale Bitcoin Trust) and MSTR (Microstrategy). Research each before committing as these premiums could easily change into discounts without notice...implying a large capital loss just due to fluctuations around the intrinsic value of the entity itself. The above is not meant to be investment advice. I'm simply laying out the options I know of for those who have an interest. Do your own due diligence.

Submit your comments:

Register on Gravatar.com for your photo to be included.
(It’s fast and free, and your photo will also show on all of your existing comments.)

RIABiz Directory

The Industry Sourcebook for RIAs

   |    LISTING


RIABiz Directory sponsored by:

Directory Sponsor Logo