There is a vast amount of digitally-native start-up companies that are revolutionizing the investment and capital markets landscape as quickly as possible and doing a fantastic job. However, they have the innate advantage of not having a legacy business to incorporate change into – at the risk of some over-simplification, they can identify an opportunity, code a solution, deliver it to the market and see how the customer base reacts. Therefore, the firm that I believe is doing the heaviest organizational lift is one that is transforming themselves completely from within, in anticipation of keeping pace with the next version of the global economy – that company is Fidelity and more specifically, their Digital Assets division.
Most traditional financial organizations today take a look at blockchain, see that it’s an emerging technology, but then try and adapt it to something that already exists within the company. For example, an investment bank that is adept at creating Exchange Traded Notes might try and bring a bitcoin ETN to market. A bank that does a lot of business with American / Global Depository Receipts might try and create a “Digital Asset Receipt”. Any number of financial institutions are issuing bonds on blockchain protocols or examining ways to shorten settlement cycles of securities. This type of bolt-on strategy stays close to the traditional organization’s strengths, but does not incorporate anything close to the full potential that blockchain (and by definition, cryptocurrencies) has to offer.
Fidelity has chosen a different way of thinking: they have been very successful helping Baby Boomers and Generation X accumulate and manage their wealth over the last 30-40 years, but don’t necessarily believe that the same product offering is going to be valid for the next 30-40 years for Generation Y and Millennials as these generations mature. The emergence of digital assets and the prevalence of computers / smart phones as a single medium to facilitate both business and personal transactions necessitate a fresh start of how to approach things, one that is not encumbered by the existing business architecture. Fidelity has realized that digital currencies are a completely new asset class, one that hasn’t yet existed in human history. Therefore, they need to be treated as such, without the presumption that what Fidelity has done successfully for decades will carry through and automatically continue.
According to external sources of information and some of Fidelity’s own commentary, the company has spent about 4 years’ researching everything they could about digital currencies, from trading / transacting, mining and even giving employees the ability to pay for food in the company cafeteria. If it took Fidelity, a private company that doesn’t lack in resources, 4 years before they got comfortable bringing their first crypto product slowly to market, that obviously says something about the intricacy of the asset class and the attention to detail that it warranted. Even now, as of summer 2019, their initial crypto custody product is only available to a select number of institutional clients. Fidelity’s second digital asset product, the trading of bitcoin and ether for clients, hasn’t been rolled out yet.
Here’s the real question: if a household name like Fidelity, arguably the single, most-recognized name woven into America’s investing fabric, is pursuing the digital currency business, why aren’t other firms seeing the same opportunity at the same scale? Will it take a few more months where nobody sees anyone from Fidelity being taken away in handcuffs for them to wake up? And if Fidelity thought it was prudent to research crypto for 4 years before rolling any part of it out to the market, what is everyone else waiting for?