Will Fidelity’s New Institutional Crypto Products Boost Markets?

A major financial institution getting involved in cryptocurrencies is usually big news. With the prolonged US government shutdown hampering a number of long awaited crypto funds, large investment companies are seeking alternative ways to enter crypto markets.
Fidelity Crypto Custody Coming
According to Bloomberg Fidelity Investments is planning to launch its Bitcoin custody services in March. The mutual fund giant is hoping to ease the fears that institutional investors may have about the highly volatile and somewhat technical world of crypto trading. The delayed Bakkt and VanEk crypto funds have put the brakes on any hopes investors may have had about entering the space as early as February.
The firm initially announced an array of crypto based products for institutional investors back in October. Citing ‘three people familiar with the matter’ the report added that Bitcoin storage is likely to be the first offering shortly followed by a custody service. An official company statement yesterday added;
“We are currently serving a select set of eligible clients as we continue to build our initial solutions. Over the next several months, we will thoughtfully engage with and prioritize prospective clients based on needs, jurisdiction and other factors.”
The need for crypto custody arises from the risks involved of leaving investments with crypto exchanges. There were a number of high profile hacks during 2018, with Coincheck being the largest at over $500 million. These security breaches do not instill confidence in institutional investors who need to be safe in the knowledge that their crypto investments are securely stashed with a reputable finance firm. Fidelity, one of the world’s largest providers of retirement savings and mutual funds, aims to fill that niche by offering such a service.
It is not the first foray into crypto for Fidelity as CEO Abigail Johnson has been a Bitcoin proponent for several years. The firm’s Fidelity Digital Asset division aims to attract Wall Street whales to crypto markets by offering a safe haven for their assets via cryptographic key management. The company already has a huge reach working with over 13,000 financial institutions.
Fidelity could provide the first serious on-ramp for high rollers with the launch of its services in March. With markets on the floor, now would be a much more lucrative time to get in than in December 2017 when the first two Bitcoin hedge funds were launched by CME and CBOE. Those looking to invest now will be longing for such a product and Fidelity could be the catalyst to start markets moving upwards again.
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Institutions Still Bullish On Crypto: Grayscale Owns 1% of All Bitcoin

As Bitcoin continues its chaotic price action, ceaselessly falling and ascending through key levels, some paranoid traders have feared that institutional investors have been alienated from the crypto market. Yet, reports indicate that Grayscale’s growing war chest has continued to swell, while institutional players continue to express interest in crypto assets. This, of course, makes it more than palpable that institutions see immense value in cryptocurrencies, and potentially, that a market bottom is inbound.
Grayscale Owns $826 Million in Bitcoin
According to a research report released on December 3rd, from the offices of crypto analytics unit Diar, Grayscale Investments, a self-proclaimed “trusted authority on digital currency investing,” has accumulated thousands of BTC for its in-house Bitcoin Investment Trust (GBTC).
Since the start of 2018, Grayscale, owned by Barry Silbert brainchild Digital Currency Group (DCG), has seen its Bitcoin coffers swell by 30,600 BTC to 203,000 total, now accounting for more than 1% of the asset’s total circulating supply. 
As seen in the chart above (sourced from LongHash), the wallets pertaining to Grayscale’s GBTC, a vehicle that allows retail and investors to purchase custodied BTC on the U.S. OTC market, has seen month-over-month increases. Diar wrote on the matter:
“Record inflows however have resulted in record Bitcoin equivalent holdings with December notching up a little versus the start of the previous month.”
Although GBTC’s user base also consists of retail investors, the steady rise in BTC holdings indicates that capital continues to flow into this market through trusted third parties (ironically enough), a plausible positive sign.
Institutional Players Continue Crypto Foray
Grayscale isn’t the only DCG subsidiary to see a spike in investment interest. Genesis Trading, also owned by the New York-headquartered conglomerate, recently saw its CEO, Michael Moro, take to CNBC to note that his firm’s lending service has seen an “incredibly strong reception.”  This “incredibly strong reception” has seemingly taken the form of interest originating from “60+ institutional counterparties,” who have requested for cryptocurrency loans across “nearly a dozen digital assets” in the past six months. According to statistics from the firm itself, these loans amounted to a monetary value of $553 million, a jaw-dropping sum to put it lightly.
Moro added that while many of its institutional debtors have already paid their loans in full, there is still $130 million worth of active loans,  a figure that has only grown of the course of the lending service’s seven-month lifetime. This indicates that the crypto market downturn hasn’t deterred these industry participants one bit, contrary to popular belief.
This continual institutional interest hasn’t gone fully unnoticed, with a number of institutions and forward-thinking crypto innovators establishing products, services, and platforms, aimed at high net-worth individuals and Wall Street. Nasdaq, for instance, recently announced that it joined hands with VanEck to work on a Bitcoin and “crypto 2.0” futures contract, aimed at institutional and retail investors alike.
Related Reading: Why Are Novogratz, Fidelity, And Bakkt Banking On Institutional Crypto Investors?
Fidelity Investments, which sports the business of 13,000 institutional clients, even announced its own digital asset-centric subsidiary, slated to offer top-notch cryptocurrency custody and with trade execution.
Even Without Institutional Investment, Crypto Still Valuable
But even if institutional money doesn’t continue to flood in and the aforementioned platforms falter, as skeptics expect, Bitcoin and its altcoin brethren will still have big shoes to fill. As reported by NewsBTC last week, at BlockShow Asia 2018, Tom Lee, head of research at the crypto-friendly Fundstrat Global Advisors, claimed that Bitcoin is “bent, not broken.” The long-time cryptocurrency advocate, somewhat infamous for his irrational price predictions, added that Bitcoin’s $1.3 trillion in on-chain transaction value, reportedly 2.5 times that of PayPal, indicates that this innovation has “staying power.”
He added that there’s still “enviable profitability” in the cryptosphere, with BitMEX alone, who will likely generate $1.2 billion in fiscal 2018, making more than the Hong Kong Stock Exchange’s parent and Nasdaq. This profitability factor alone should entice investors to continue to invest in cryptocurrencies and related projects.
Jackson Palmer, CEO of Dogecoin, echoed the sentiment that cryptocurrencies have and will continue to maintain inherent value, even without support from Wall Street hotshots. In an op-ed posted to Diar, Palmer, a developer at Adobe, noted that the grassroots projects, namely the Lightning Network and Plasma framework, can help “cryptocurrencies fight back” and keep the heart of the decentralized revolution burning.
Related Reading: Dogecoin Creator: Bakkt, Fidelity, and Bitcoin ETF Are Bad for Cryptocurrency
Palmer wasn’t alone in his anti-centralization, pro-crypto statements, with Ethereum co-founder Vitalik Buterin, Marc Andreessen, one of the world’s foremost venture capitalists, and even Edward Snowden lauding cryptocurrencies for their ability to transcend traditional entities.
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Institutional Investors Continue Foray Into Crypto, Yet Prices Remain Low

Amid 2017’s roaring bull run, which saw the crypto market’s value swell from $20 billion to $800 billion, institutional players, such as hedge funds and endowments, were evidently hesitant to step foot in this industry. But now, analysis done by Morgan Stanley indicates that institutions have begun to accumulate crypto en-masse, presumably due to the fact that cryptocurrencies are still situated in the bargain bin.
“The Virus Is Spreading”: Institutional Money Pours Into Crypto
The widespread arrival of institutional investors has long been seen as the “holy grail” for the crypto industry’s maturation. And surprisingly, despite bearish market conditions, a report from Morgan Stanley has outlined the fact that this holy grail could be rapidly approaching.
Discussing a recently-released Morgan Stanley report, which was titled “Update: Bitcoin, Cryptocurrencies and Blockchain,” Alex Kruger, a world-renowned Argentinian market specialist, claimed that there have “been considerable institutional inflows since January,” alluding to the sentiment that today’s crypto asset values are ripe for the proverbial institutional picking. However, citing data revealed through the 50-page document from the legendary financial institution, which gave a deep-dive of the current state of crypto, Kruger added that it isn’t cut and dried.
The industry savant, who made a graph (seen below) to convey his thought process, explained that institutional money in cryptocurrencies, which reportedly tallies to $7 billion dollars, only makes up 2.8% of July’s collective market capitalization of all cryptos. It is important to note that this figure has declined since January 2017’s 3.8%, indicating that retail investors quickly outpaced their institutional counterparts in the past 18 months.
Regardless, institutional market penetration, as Kruger dubbed the statistic, is still up drastically when compared to January 2018’s dismal 1%, further supporting the theory that institutions have continued to pick it up where retail has dropped the ball, so to speak.

1/ Institutional money is coming they said. The virus is spreading they said … Data indicates there have been considerable institutional inflows since January, yet penetration is at pre-bubble levels. pic.twitter.com/YWT4ROmsxj
— Alex Krüger (@Crypto_Macro) November 4, 2018

Backing his analysis with figures, Kruger pointed out that while institutions’ crypto assets under management (AUM) only visibly increased by $1.25 billion between January and July 2018, prices fell through the floor during that time. Explaining the significance of this caveat, the researcher estimated that $5.9 billion actually entered this market via the pockets of Wall Street bigwigs, making it likely that institutions have thrown upwards of $10 billion at crypto assets in recent years.
To put the jaw-dropping sum into some much-needed perspective, Kruger explained that $5.9 billion is comparable to 237 days of block rewards issued by the “largest coins,” which report amounted to $24.8 million per day as of July 1st.
However, despite the influx of institutional capital, which would presumably catalyze a bull run, the market has stayed quiet, with bears and bulls remaining caught in a near-endless standoff. This could indicate that institutions are only buying enough crypto to keep this market afloat, as retail interest has all but dried up, save for the diehard “HODLers” and long-term players.
OTC Desks, Not Crypto Exchanges
More optimistically, however, the non-action of this market could indicate that institutions have been siphoning their capital into crypto through over-the-counter (OTC) desks, not via traditional order book-style platforms that can be decimated by multi-million-dollar trades.
As reported by NewsBTC, according to Bobby Cho, the global head of trading at Cumberland, DRW’s cryptocurrency trading division, hedge funds continue to issue a multitude of over-the-counter Bitcoin transactions, which are often over $100,000 per transaction. Cho explained what this fact meant, stating:
“What that’s showing you is the professionalization that’s happening across the board in this space. The Wild West days of crypto are really turning the corner.”
Although this is all well and good on its own, Cho wasn’t the only industry insider to be spectating such transactions. Boston-based Circle corroborated this claim, with CEO Jeremy Allaire telling Bloomberg that Circle Invest has seen “triple-digit growth” in the number of individuals enrolling into its OTC business.
So for now, it seems that bull-watchers will have to sit on their hands until retail buying pressure picks up.
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Institutional Interest in Crypto During Bearish Times is Bullish

An oversold market makes the best time to enter. And experts believe it is happening with crypto industry as it retains a yearly bearish bias.
The significant dip seen in 2018, followed by consecutive strong rebounds from a specific bottom area has upped medium-term bullish sentiments in the crypto market. Bitcoin, the cryptocurrency with the highest dominance, for instance, has reversed its downtrend on multiple occasions upon testing a $250-wide area below $6,000 as strong support. The price action has led bulls to conclude that it would be impractical for bears to crash Bitcoin below the $6,000-range, citing miners’ breakeven ROI, and the influx of institutional funds around the oversold bottom.
Big Names Entering Crypto Space
The growing number of crypto hedge fund launches this year has testified that there is a demand for crypto gateways among institutional investors. Significant monies have entered the $211 billion space by spreading some portion of their investment portfolio to digital currencies like Bitcoin, Ripple, EOS, and Ethereum.
The endowments of several high-profile institutions, including Harvard University, MIT, Stanford University, Yale University, Dartmouth College, and the University of North Carolina have spread their risks into at least one cryptocurrency fund.

Commentators often seem surprised when companies make moves, invest, or launch products during crypto bear markets. They then act confused when bull markets return. "Where did this come from?" they ask. Perhaps this is why they are commentators, rather than business people.
— Erik Voorhees (@ErikVoorhees) October 16, 2018

Other investors are entering the space with over-the-counter markets or so. Michael Novogratz, a one-time hedge fund billionaire, converted 30-percent of his wealth to crypto assets and announced a $500 million crypto-fund. Dan Morehead of Pantera Capital-fame invested in 43 cryptocurrency-related startups and is currently one of the largest institutional owners of digital assets. The list is too long.
Garry Tan, a prominent seed investor, stated that investors believe that Bitcoin is bottoming out and noted a “buying-the-dip” sentiment among prominent investors, majorly citing David Swensen, Yale’s Warren Buffet, who recently invested an undisclosed sum into two crypto-funds.

Super confused at the fud about institutional investors coming into crypto funds.
Is it a big deal? Yes.
Is it a negligible amount? No. It’s as much as a given endowment might put into a core venture capital investment. That’s the kind of return they expect.
— Garry BUIDL Tan (@garrytan) October 7, 2018

Strong Fundamentals
There is also a significant amount of money waiting at the door on speculation that the US Securities and Exchange Commission will give the green light to some Bitcoin ETFs by mid-2019. More so, if the SEC appoints a new legal definition to crypto-assets, then institutional investors in the US could be assured of receiving watchdog protections, no different than forex and gold futures.
Prominent industry leaders are already meeting lawmakers and regulators to come up with a concrete crypto law that could decide the fate of the industry in the US. Once Bitcoin is regulated as a security or any other asset, then institutional money will tail the high-net individuals and hedge funds already in the space. It could result in a strong rally, coupled with factors that investors will be buying Bitcoin low against the projected values ranging between $14,000 to even a million dollars.
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BitGo CEO: Bitcoin Needs Fresh Capital, Wall Street is Coming in

In a development that flew under the radar of most, an American blockchain startup has just received the go-ahead from a U.S. state regulator to establish a digital asset custody product. The firm’s CEO then took to CNBC to convey details about this product and what it means for this budding industry.
The BitGo Crypto Custody Product Might Have Been The Signal Institutions Wanted
On Thursday morning, CNBC revealed that BitGo, a California-based cryptocurrency infrastructure firm, had received formal approval from South Dakota regulators to establish a custody solution. Later that day, Mike Belshe, the CEO of BitGo, took some time to sit down with CNBC’s Fast Money panel to discuss this development and the current institutional space surrounding crypto assets in general.

Is Wall Street ruining #bitcoin? @BitGo's @mikebelshe talks their complicated relationship. pic.twitter.com/npLqjuT0Xk
— CNBC's Fast Money (@CNBCFastMoney) September 13, 2018

Opening the segment, CNBC host Mellisa Lee queried the BitGo executive about if there is interest for institutional-focused crypto-related products. Responding, Belshe stated:
“Well, it has been ongoing for the past couple of years now, as traditional finance has started to get engaged with cryptocurrency as the market has grown and shown that it has real promise. For the future, the interest will continue to grow, so it’s everywhere.”
The cryptocurrency proponent went on to add that BitGo’s custody offering will likely see its initial business come from hedge funds, family office and wealth management firms, who “are all looking for [custody] solutions.” Interestingly enough, the CEO noted that this industry would have been “much farther along” if there were reliable institutional products two years ago, as such services would have sped up the maturation of this space.
Likely referencing his experience as the head of a digital asset investment fund, BKCM CEO Brian Kelly, asked the BitGo CEO about his upcoming custody offering, specifically regarding the speed of withdrawals requested. Turning the question on its head, Belshe stated:
“So BitGo has been servicing wallets for hundreds of exchanges globally for the last five years, as one of the oldest players in the space. So we can marry combinations of hot storage and cold storage. [But] a cold storage is key to be slow actually, you do not want to move a billion dollars overnight. So if anybody’s telling you to move it very quickly, you got to wonder what are they doing behind the scenes to keep [their crypto holdings] safe. “
The industry veteran brings up an interesting point about custody services and cold storage solutions, as the rapid withdrawal of in-custody crypto assets may indicate that the security measures enlisted by the custodian are lackluster and full of holes, rather than secure. Belshe then pointed out that a lack of well-established custodians has been a barrier for institutions to get in, as these firms are regulatory-bound to enlist the use of a proper custodial solution, stating that these services “have to exist.”
The host wrapped up CNBC’s coverage of the crypto market by directing an age-old question at Kelly, asking the cryptocurrency trader “if Bitcoin needs Wall Street more than Wall Street needs Bitcoin.” The BKCM CEO, who has become a well-known, yet somewhat infamous CNBC contributor to the cryptocurrency community, somewhat echoed Belshe’s statements, noting:
“What Bitcoin needs is fresh capital coming in, so we haven’t seen a lot of new buyers coming in. So to the extent that Wall Street represents that, yes, Bitcoin needs that, and I can tell you anecdotally that the institutional herd is starting to move their feet a little bit, but they have been taking much longer than I expected… This [custody product] is making me much more optimistic, and this [may be] the solution [that institutional investors have been waiting for].”
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