Fidelity Investments — now six months “late” adding Ethereum to its crypto custody and trading services — is using a Fidelity-sized response to solve a very un-Fidelity-like tardiness.
The Boston broker-dealer recently announced hiring 110 software engineers to its digital assets division, at least in part, to keep the deliverable from slipping further from its pledged year-end 2021 launch date.
Perhaps in a sign that Fidelity will complete its Ethereum engineering tasks sooner than later, Fidelity is also adding 100* call-center staff to its four-year-old crypto subsidiary, Fidelity Digital Assets (FDA).
Fidelity declined to specify what caused the delay, but it concedes that it got bogged down in the complexity of the challenge.
“This is a complex endeavor as Ethereum is inherently different from Bitcoin, which we currently support,” says a Fidelity spokeswoman, via email. See: Fidelity pledges Ethereum support.
Differences include the fact that no more than 21 million bitcoins can circulate. The number of Ethereum coins in circulation already exceeds 120 million with no cap on the amount that it can mint long-term.
Ethereum coins were founded in 2015 by entrepreneurs wanting to build a foundation for other blockchain applications — notably smart contracts. Ethereum is converting its protocol to radically reduce greenhouse emissions from its mining. Nobody is sure who Bitcoin’s founder is or exactly where he may be, hence the system seems to be take it or leave it.
Fidelity is giving itself a six-month extension to launch the service but no later than the start of 2023. See: Fidelity pledges Ethereum support.
“Ethereum support will be available this year,” says the company spokeswoman.
Play, no plug
To one crypto market researcher, Fidelity appears to have deliberately moved the goal posts on itself.
“[It’s] a strange strategic decision” to build an in-house version of what can be rented externally, says Lex Sokolin, global fintech co-head at New York City blockchain software company ConsenSys.
“It’s unclear to me why it would be hard to support Ethereum given the amazing infrastructure available today. Perhaps they are building node infrastructure [that facilitates Ethereum trading] from scratch,” he says, via email.
Similar services are offered by dirt-cheap plug-and-play outsourcers like Ethereum-APIs Infura or Alchemy.
Fidelity isn’t averse to some shared crypto infrastructure. It disclosed yesterday (June 29) it’s joining forces with Charles Schwab Corp., Virtu Financial and others to build a crypto market maker to address fears about a gap in liquidity. See: Schwab and Fidelity co-invest in a cryptocurrency mega-startup.
Fidelity declined to respond to Sokolin’s view on its Ethereum approach.
Sokolin’s employer Consensys owns Infura, while Alchemy is backed by a slew of VCs, including Andreessen Horowitz and Coatue.
Contrarian perspective
Fidelity’s new hires will take FDA’s overall headcount to at least 400 — a bolstering of ranks the firm needs to handle an expected upsurge in business from its addition of a crypto option to its 401(k) accounts, according to a company spokeswoman. See: Fidelity pioneers profit center by adding Bitcoin to plan menus.
“[The] hires are to support existing clients, expected client growth and other needs as the business continues to scale; for example, the recently announced … [401(k) move] will require customer service hires we did not need prior,” the spokeswoman confirms.
The total market capitalization of crypto currencies stands at $896 billion as of Jun. 29, down 70% from a $3 trillion in a Nov. 2021 capitalization.
“Despite the crypto market pullback, we are not pulling back,” said Fidelity CEO Abby Johnson in a June. 24 LinkedIn post.
“Fidelity’s position is clear — we have a contrarian perspective and have the financial strength and long-term patience to persist when others hesitate,” she says.
Rising interest
Fidelity may not need to be all that patient. The institutional segment of the market that it largely serves is quickly adopting crypto, says Ric Edelman, the former founder of Edelman Financial Engines, who now runs his own crypto firm, Digital Asset Council.
“Among many institutional investors and firms that serve them, the level of interest in crypto is rising — and rapidly … which would explain why [they] are expanding their staff,” he says.
Indeed, Fidelity Digital Assets, now serves 400 clients — up from 100 in June 2021, and around 25 in 2020. They include RIAs, hedge funds and asset managers, Terence Dempsey, the subsidiary’s head of product told the Wall Street Journal (WSJ) in late May. See: Fidelity Investments unveils ‘Sherlock’ crypto dashboard.
The number of investors in Fidelity’s Wise Origin Bitcoin ETF also grew over eight-fold from 83 to 689, while its assets under management (AUM) climbed 23% to $126.5 million, as of May, according to SEC filings. See: Fidelity launches Fidelity Digital Funds
The rercently launched Fidelity Crypto Industry and Digital Payments ETF (FDIG) has pulled in $10.7 million in managed assets since its late April launch.
Future Focus
Yet past success is no guarantee of future success, Sokolin reminds.
“All crypto is falling because of the macro environment, institutional deleveraging, and liquidation cascades,” says Sokolin.
“No asset is safe. Bitcoin and Ethereum just happen to be the best assets in a sector undergoing an over correction.”
Yet Fidelity won’t read much into its crypto-business scorecard until 2032, according to Tom Jessop, Fidelity’s head of digital assets, in ETF Trends
“We’re trying not to focus on downturns. We measure success over years and decades,” he says .
* Overall Fidelity plans 12,000 hires by the end of the third quarter, including 1,700 technology staff. See: Fidelity’s strategy to own the financial advice business by owning ‘a crazy lot of people’ is heading for 28,000 hires in two years.