Fidelity still hasn’t announced a launch date for the cryptocurrency trading platform it unveiled last week, but interested investors can put their names on a list now for early access.
Fidelity’s announcement comes at a dangerous time for the crypto industry.
Brett Hondow/Dreamstime
Called Fidelity Crypto, the platform will offer fee-free trades of Bitcoin and Ethereum, the two most popular cryptocurrencies, and a very modest minimum investment of $1.
For financial advisors who do not offer crypto to clients, they may suggest Fidelity as a way to gain exposure to digital assets. After all, Fidelity is a large, stable financial services firm with decades of history.
But the announcement comes at a dangerous time for the crypto industry. Many digital coins have fallen in value this year. For example, Bitcoin has lost 62%, and Ether has fallen 64%.
And the implosion this week of the FTX crypto exchange has highlighted the risks of doing business with even well-known crypto players. There is concern that users will not be able to withdraw their money, and investors included
Black stone
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Sequoia Capital and Tiger Global could see their stakes in the business wiped out.
But Fidelity has been in the crypto industry since 2014 and shows no signs of slowing down. Over the next three to six months, the firm plans to hire 100 employees for its Digital Assets division, bringing its headcount to approximately 500 employees. The business unit was founded in 2018 and offers custody and trading services for crypto investments.
An email sent by Fidelity to promote early access to its crypto platform notes that Bitcoin supporters believe that the hard cap on the number of Bitcoins that can be mined provides “price stability and can help protect it from inflation.” However, Bitcoin’s price has been anything but stable, and its performance this year amid rising consumer prices has challenged the notion that it is an inflation hedge.
As for Ethereum, the email says it’s a platform for creators “to build crypto apps (often referred to as ‘dApps’) using the code.”
Ironically, recent upheavals in the crypto market could be positive for Fidelity Crypto. “As a consultant with a younger customer base, approx. 50% [of my clients] currently hold crypto,” said Kevin D. Lum, a financial advisor at Foundry Financial. “I always advise them to stick to reputable exchanges. But with the FTX mess – that advice becomes even more important, and Fidelity is about as reputable as they come.”
Caution required. Being conservative with an allocation to crypto is still important. If anything, a client does not need to own much to benefit from the bullish moves. “I believe an investment in digital assets may be the right move for some clients if their risk tolerance is high enough and the percentage of the allocation fits their long-term goals,” said Vaughn Kellerman, a CFP with HCM Wealth Advisors who holds a Digital Certification Asset Council of Financial Professionals with a focus on Blockchain and Digital Assets. “That being said, I only recommend Bitcoin to a client as I believe that anything else out there is just too risky without more regulation or is a scam that will be wiped out.”
The fourth annual Fidelity Digital Assets Institutional Investor Digital Assets Study shows continued interest in crypto from institutions, despite the violent turbulence. About 74% of respondents say they expect to buy digital assets in the future. There has also been increasing interest from high net worth investors.
Fidelity’s efforts in the crypto space, along with other top firms such as BlackRock and Schwab, will help strengthen the credibility of crypto. This should be another long-term driver of growth. “Fidelity entering the crypto brokerage market will only improve access to cryptocurrency investing for people everywhere,” said Blaine Thiederman, a CFP and founder of Progress Wealth Management.
Tom Taulli is a freelance writer, author and former broker. He is also the author of the book, Personal financial guidance for technical professionals.
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