Cryptocurrencies get an institutional backer.
26 . 11 . 18
By Ignatius Wilson
Fidelity, the American fund manager and financial services provider, is developing digital currency services including an exchange, it has been announced. Fidelity is one of the world’s largest investors and there have been rumours around developing these services for more than a year. It seems the push by CEO Abigail Johnson to get exposure to cryptocurrencies has finally taken a physical form.
Bitcoin, the market leader, is currently worth less than $5,000, dropping further off week, month and year lows.
However, many commentators claim Bitcoin will reach $20,000, or quadruple in price, by the end of next year. To do this, it needs institutional backing. This is just what Fidelity Investments is offering.
Strategically, Fidelity sees that cryptocurrency, and, importantly, its underpinning technology of blockchain, is not going anywhere. They want a piece of the action.
They can also see what those commentators were claiming: that cryptocurrency needs an institutional cornerstone, somewhere, acting as a vendor, broker, market maker, or even miner, to get it the respect it deserves. Fidelity currently does all of these things.
This can also be seen as a discussion about what makes something worthwhile to invest in. Is it fungible? And can I make profit from it? Fundamentally it means Bitcoin must be exchangeable for the market value of another good, like fiat money. If a government bans cryptocurrency this means it cannot be exchanged, and it is not fungible.
Secondly, Bitcoin is investable. What is written here is not and should not be taken as financial advice, but many investors have made money from cryptocurrencies. Fidelity will also see their role as a shock absorber, allowing them to write more reliable forecasts, albeit conservative ones, on these assets.
Fidelity will allow their customers to hold Bitcoin, Ethereum and other cryptocurrencies alongside fiat money, securities and other assets. Not only will this facilitate their transaction, it makes them look like real, grown-up assets.
Ironically, what made cryptocurrencies so innovative, like their opacity, distributed ledger and anonymity is now what is being ‘institutionalised’ in the mainstream, being moderated, legislated and legitimised.