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Fidelity--late to its own Ethereum party--hires 110 engineers to hurry up launch; it may have avoided both had it not made a 'strange strategic decision,' analyst says

The Boston company pledged to add the second digital token to its crypto custody service by year-end 2021, but 'complexity' stalled the project, even though a third-party solution was available.

Thursday, June 30, 2022 – 8:40 PM by Oisin Breen
no description available
Abby Johnson: 'We are not pulling back.'

Fidelity Investments -- now six months "late" adding Ethereum to its crypto custody and trading services -- is using a Fidelity-sized response to solve a very un-Fidelity-like tardiness.

Tom Jessop
Tom Jessop: We measure success over years and decades.

The Boston broker-dealer recently announced hiring 110 software engineers to its digital assets division, at least in part, to keep the deliverable from slipping further from its pledged year-end 2021 launch date.

Perhaps in a sign that Fidelity will complete its Ethereum engineering tasks sooner than later, Fidelity is also adding 100* call-center staff to its four-year-old crypto subsidiary, Fidelity Digital Assets (FDA).

Fidelity declined to specify what caused the delay, but it concedes that it got bogged down in the complexity of the challenge.

"This is a complex endeavor as Ethereum is inherently different from Bitcoin, which we currently support," says a Fidelity spokeswoman, via email. See: Fidelity pledges Ethereum support.

Differences include the fact that no more than 21 million bitcoins can circulate. The number of Ethereum coins in circulation already exceeds 120 million with no cap on the amount that it can mint long-term.

Ethereum coins were founded in 2015 by entrepreneurs wanting to build a foundation for other blockchain applications -- notably smart contracts. Ethereum is converting its protocol to radically reduce greenhouse emissions from its mining. Nobody is sure who Bitcoin's founder is or exactly where he may be, hence the system seems to be take it or leave it.

Fidelity is giving itself a six-month extension to launch the service but no later than the start of 2023.  See: Fidelity pledges Ethereum support.

"Ethereum support will be available this year," says the company spokeswoman.

Play, no plug

To one crypto market researcher, Fidelity appears to have deliberately moved the goal posts on itself.

Lex Sokolin
Lex Sokolin: [It's] a strange strategic decision

"[It's] a strange strategic decision" to build an in-house version of what can be rented externally, says Lex Sokolin, global fintech co-head at New York City blockchain software company ConsenSys.

"It’s unclear to me why it would be hard to support Ethereum given the amazing infrastructure available today. Perhaps they are building node infrastructure [that facilitates Ethereum trading] from scratch," he says, via email.

Similar services are offered by dirt-cheap plug-and-play outsourcers like Ethereum-APIs Infura or Alchemy.

Fidelity isn't averse to some shared crypto infrastructure. It disclosed yesterday (June 29) it's joining forces with Charles Schwab Corp., Virtu Financial and others to build a crypto market maker to address fears about a gap in liquidity. See: Schwab and Fidelity co-invest in a cryptocurrency mega-startup.

Fidelity declined to respond to Sokolin's view on its Ethereum approach.

Sokolin's employer Consensys owns Infura, while Alchemy is backed by a slew of VCs, including Andreessen Horowitz and Coatue.

Contrarian perspective

Fidelity's new hires will take FDA's overall headcount to at least 400 -- a bolstering of ranks the firm needs to handle an expected upsurge in business from its addition of a crypto option to its 401(k) accounts, according to a company spokeswoman. See: Fidelity pioneers profit center by adding Bitcoin to plan menus.

Ric Edelman
Ric Edelman: A massive number of coins and token [will] become defunct

"[The] hires are to support existing clients, expected client growth and other needs as the business continues to scale; for example, the recently announced ... [401(k) move] will require customer service hires we did not need prior," the spokeswoman confirms.

The total market capitalization of crypto currencies stands at $896 billion as of Jun. 29, down 70% from a $3 trillion in a Nov. 2021 capitalization.

"Despite the crypto market pullback, we are not pulling back," said Fidelity CEO Abby Johnson in a June. 24 LinkedIn post

"Fidelity’s position is clear — we have a contrarian perspective and have the financial strength and long-term patience to persist when others hesitate," she says.

Rising interest

Fidelity may not need to be all that patient. The institutional segment of the market that it largely serves is quickly adopting crypto, says Ric Edelman, the former founder of Edelman Financial Engines, who now runs his own crypto firm, Digital Asset Council. 

"Among many institutional investors and firms that serve them, the level of interest in crypto is rising -- and rapidly ... which would explain why [they] are expanding their staff," he says.

Indeed, Fidelity Digital Assets, now serves 400 clients -- up from 100 in June 2021, and around 25 in 2020. They include RIAs, hedge funds and asset managers, Terence Dempsey, the subsidiary's head of product told the Wall Street Journal (WSJ) in late May.  See: Fidelity Investments unveils 'Sherlock' crypto dashboard.

The number of investors in Fidelity's Wise Origin Bitcoin ETF also grew over eight-fold from 83 to 689, while its assets under management (AUM) climbed 23% to $126.5 million, as of May, according to SEC filings. See: Fidelity launches Fidelity Digital Funds

The rercently launched Fidelity Crypto Industry and Digital Payments ETF (FDIG) has pulled in $10.7 million in managed assets since its late April launch.

Future Focus

Yet past success is no guarantee of future success, Sokolin reminds.

"All crypto is falling because of the macro environment, institutional deleveraging, and liquidation cascades," says Sokolin. 

"No asset is safe. Bitcoin and Ethereum just happen to be the best assets in a sector undergoing an over correction."

Yet Fidelity won't read much into its crypto-business scorecard until 2032, according to Tom Jessop, Fidelity's head of digital assets, in ETF Trends

“We’re trying not to focus on downturns. We measure success over years and decades," he says .

* Overall Fidelity plans 12,000 hires by the end of the third quarter, including 1,700 technology staff. See: Fidelity's strategy to own the financial advice business by owning 'a crazy lot of people' is heading for 28,000 hires in two years.

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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

Fidelity Investments is paying 2,000 employees to hasten their corporate exits, including high-profile RIA overseer, Sanjiv Mirchandani, as part of its shift to a digital future

The Boston giant offered voluntary buyout packages and the 4% of staff who accepted will leave by June 30 to give other staff room to grow careers and make room for hires.

June 24, 2021 – 5:39 PM

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