After repeated rebuffs from the United States Securities and Exchange Commission, Fidelity turned to a new securities policeman with a more enduring view of cryptocurrency as an investment asset
Fidelity CEO Abby Johnson pulled another bunny out of her hat – a genuine blue Bitcoin ETF suitable for RIAs and retail investors. But a thicket of paperwork awaits anyone who dives into the rabbit hole.
Under Johnson’s leadership, Fidelity edged out other major competitors to adopt cryptocurrencies, starting in 2018 when it unveiled a five-year stealth plan to provide custody of cryptocurrencies. After five-year stealth project, Fidelity embarks on crypto-asset custody with stand-alone company
But time and time again, the earthy U.S. Securities and Exchange Commission (SEC) has rejected all applications for crypto exchange-traded funds (ETFs), including several from Fidelity.
Thus, the $ 11 trillion company AUA Boston revealed yesterday that it had bypassed the dragging US regulator and filed a request to sell its new Bitcoin Fidelity Advantage ETF (FBTC) through its affiliate. Canadian.
It was launched today (December 3).
âETFs are some of the most popular of all investment vehicles, and I don’t think many care about where the fund is based,â says Ric Edelman, founder of the Digital Assets Council of Financial Professionals who has recently left Edelman Financial Engines.
“It could help move the SEC forward.” See: Ric Edelman removes a major obstacle to his company’s future growth – himself – the last act in a 36-year career that will leave Edelman Financial Engines to fend for itself
Out of reach?
But RIAs who are interested in the ETF will need to remember what the mouse said — feed your head. Before diving in, it’s best to be aware of Canadian regulations, trade agreements, currency fluctuations, and international trading accounts.
Most RIAs will find all the hoops associated with the ETF too much maple syrup to swallow, says Bitcoin expert and advocate Mike Alfred.
âI don’t think Fidelity’s product solves anything for RIAs,â says Alfred, who, along with his brother, sold their business, Digital Assets Data, to NYDIG, a provider of investment solutions and bitcoin technology earlier this year.
The fact that Fidelity continues to move forward in Canada remains true to its character, says James Seyffart, ETF research analyst at Bloomberg Intelligence.
âFidelity was very involved in Bitcoin early on. It doesn’t surprise me at all that they are launching an ETF in Canada because we won’t have one here anytime soon.â
But Seyffart added the caveat: âIt will be next to impossible for the average American to buy this ETF. It will not be available to them.
However, Fidelity spokeswoman Nicole Abbott said the company sees a huge hungry cryptocurrency market eager to take the necessary steps to purchase Fidelity’s new product.
Many RIAs that use Fidelity to hold assets are already using its international trading capabilities, she explains.
Fidelity retail clients can also purchase the ETF if they are set up for international trade in their brokerage account.
The process of obtaining an international trade account, Abbott acknowledged, involves additional documents that include trade agreements.
“RIAs can enable international trade for their clients through Fidelity Wealthscape’s advisor platform, âshe says.
The process must be repeated for each customer account; no options are available for a single global account.
Clients will be able to purchase the Fidelity Advantage Bitcoin ETF with Canadian or U.S. dollars, according to a November 22 filing.
But there is another wrinkle.
It is preferable that US RIAs or retail investors who buy the ETF only use Canadian dollars. Otherwise, the investment will be subject to currency fluctuations, which defeat the purpose of the investment – to provide uncorrelated asset hedging.
In contrast, the typical US investor uses US dollars through global mutual funds or ETFs. Another alternative is American Depositary Receipts (ADRs). ADRs are certificates issued by a US bank that represent foreign stocks.
Abbott says Fidelity can help overcome the dollar hurdle through its capital markets division. See: Fidelity to Provide Wall Street Access to International Investments
True to its credo of providing low-cost investments, the Fidelity ETF has four distinct advantages over existing crypto fund choices for RIAs.
The most important is its price; just 40 basis points compared to Grayscale’s Bitcoin mutual fund, which stands at 250 basis points.
It’s a real ETF, not a mutual fund. And it’s offered by a brand that’s orders of magnitude compared to other existing crypto-fund providers.
It is designed to invest in ‘physical’ spot bitcoins, although it will also invest through derivatives, a model the SEC has continually rejected, even endorsing bitcoin ETFs that buy derivatives linked to trading movements. bitcoins.
With $ 4.2 trillion in assets under management, Fidelity is the fourth largest asset manager in the United States and the largest by far to launch a cryptocurrency ETF. Fidelity Canada manages approximately $ 200 billion in assets.
âFidelity started exploring blockchain and digital assets several years ago, and these efforts have been successful in helping us understand and advance our thinking on cryptocurrencies,â said Tom Jessop, Head of Fidelity Digital Assets in a 2018 press release.
âThe creation of Fidelity Digital Assets is the first step in a long-term vision to create a full-service, enterprise-grade platform for digital assets. “
Large institutional investors such as hedge funds and private equity funds are most likely to benefit from Fidelity’s solution, according to Seyffart.
“We think a lot of institutions and money have gone to Canada. But retail investors are forced to use what is on the US stock exchanges.”
Alfred will not take a bite out of Bitcoin ETFs regulated in Canada.
“It won’t change my life at all. I own my own bitcoin. I have grayscale. But it won’t change anything for the vast majority of Americans.” See: Grayscale tears up the hype over Bitcoin’s power to ‘democratize’ finance by showing that RIAs really want a dominant Wall Street middleman and are willing to pay hedge fund-like fees for ‘transparency’ and a wrapper SEC approved
The filing comes several months after Fidelity officials met with the SEC to seek approval of a similar ETF in the United States, according to Bloomberg,
Fidelity deposited a Bitcoin ETF in the United States in March.
In response to Fidelity’s decision to launch its bitcoin ETF in Canada, Bloomberg analyst Eric Balchunas tweeted: âIt should be embarrassing to the SEC that one of the biggest and most famous investment names in the United States- United be compelled to go up north to serve its customers. “
The Canadian crypto ETF market is increasingly crowded. Seven managers – Accelerate Financial Technologies, 3iQ, CI First Asset, Evolve ETF, Horizon ETF, Ninepoint Partners and Purpose Investments – already offer 23 funds, according to data from TrackInsight, a French company that tracks the ETF market.
Canada is also expected to lead the United States, Seyffart said. “It’s honestly pretty standard. They were the first to launch an ETF before we had one. They were the first to launch marijuana ETFs. They were the first to launch crypto.”