WEALTH MANAGEMENT: Fidelity launches Crypto custody, has won this game before

Everyone knows: Fidelity has made its move into crypto custody. The firm has been toying with an offering into the space since starting to mine Bitcoin since 2015. The product itself is exactly what institutional investors, i.e., fund manufacturers, have been complaining about over the last year: (1) a custody platform, akin to Coinbase / Xapo / Bitgo / Kingdom Trust, and (2) an order routing system that creates best execution across exchanges, independent versions of which also exist (e.g., XTRD). But to package it and make it accessible for the traditional financial services industry is a massive leap for the asset class.

Here's what many people don't know. Fidelity is one of the top 4 investment advisor custodians in the United States -- including BNY Mellon Pershing, Schwab, and TD Ameritrade. Together, these firms control about $2 trillion in advisor assets, with another $1 trillion in independent RIA assets sitting on smaller players or self-clearing firms like LPL. These custodians know (1) how to service a long tail of small independent money managers, (2) throw annual conferences attended by thousands of people to look at investment products, (3) enable hundreds of wealth tech companies to sit on top of their core services, and (4) deliver performance reporting and other tools helping regular people access their assets. That is not something any of the crypto players come close to doing or understanding.

To moderate our excitement, we highlight that serving a manufacturer (i.e, a crypto fund) is not the same as serving a distributor (i.e., a financial advisor). Still, we believe the software is transferable to some extent, and the entire world of digital wealth management awaits open APIs here. Second, we think best execution will be a real boon to the space, unbundling what an exchange should do from what a broker should do. If regulators like the NY Attorney General continue to find bundling and conflicts of interest offensive, some US firms will have to be broken up into component parts and spun off. Not Fidelity -- which will benefit from being impartial. And further, with enough volume and a good routing system, perhaps arbitrage bots and crypto market manipulation may start to fade out of the ecosystem. Fidelity's entry -- though long time in the making -- is a clear win for crypto.

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Source: BloombergCNBC, Fidelity (RIAsCrypto)