Fidelity obtains its crypto ETF – albeit made in Canada – giving RIAs a way to buy ‘physical’ Bitcoin



After Fidelity was fired by the United States Securities and Exchange Commission, Fidelity Canada was luckier in turning to its own securities officer with a more enduring view of cryptocurrency as an asset. ‘investment.

Note from Brooke: “Satoshi Nakamoto” published an article describing a new software system he called Bitcoin. Nakamoto launched the bitcoin network on January 9, 2009. We still don’t know who or what Satoshi Nakamoto is, what was or are his motives, or if bitcoin is the future or a very strange and embarrassing chapter in finance. modern. With the latter possibility in mind, the SEC remains wary of blessing a “physical” bitcoin ETF. Much of the rest of the world – including the Canadian version of the SEC – believes the likelihood of Bitcoin to explode a dozen years beyond its founding rates up there with the sky falling. Fidelity Investments is well past the bitcoin fear phase Chicken Little and has asked the SEC to allow it to sell a physical ETF containing bitcoin. The SEC says “no”. It is a problem. Investors prefer to own bitcoin through an ETF for many reasons, including price, liquidity, and transparency. So when Fidelity Canada (FC) announces the launch of a bitcoin ETF that Fidelity Investments (FI) in Boston is still barred from doing, we looked at history through that lens – especially because U.S. investors and US investors alike. RIA can buy it quite easily and legally. FC’s assets, which amount to around AAU $ 200 billion, represent less than 2% of FI’s $ 11 trillion and over. Still, the two have an ultimate parent of US-based FMR LLC, which is owned by the US-based Johnson family. Meanwhile, writing about Canada is a bit like writing about Bitcoin itself. Many Americans are pretty unsure if, in a practical sense, it even exists – at least enough that they’re willing to have money there. So this story got thorny. Is it strictly a decision for Fidelity to develop this 2% portion of its business or to move the needle to the remaining 98%? Bottom line: US investors, including RIAs willing to sign a few more documents, can now own Fidelity-branded spot ETFs that have bitcoin. But smart US-based ETF and bitcoin analysts say the word “Canada” could be as off-putting as a keychain on a new Porsche – a superficial wound but a deal killer. Again, maybe not. Do you feel better off owning a Fidelity ETF for 40 basis points blessed in Canada – but cleared by the SEC for sale to US investors through a Canadian entity owned largely by Americans – or a mutual fund for 250 basis points blessed in the United States called Grayscale?

Fidelity Investments has pulled another rabbit out of its hat: a true “Fidelity” Bitcoin ETF designed for RIAs and retail investors. But a thicket of paperwork awaits anyone who dives into the rabbit hole.

Ric Edelman: “I don’t think a lot of people care where the fund is based.”

Under CEO Abby Johnson’s leadership, Fidelity edged out other major competitors in adopting 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.

So, the $ 11 trillion company AUA Boston revealed yesterday that Fidelity Canada (also owned by another parent FMR LLC, mainly owned by the Johnson family) has filed an application to sell its new Fidelity Advantage Bitcoin ETF (FBTC). .

It was launched today (December 3).

“ETFs are some of the most popular of all investment vehicles, and I don’t think many care about where the fund is based,” 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.

James Sayffart, Bloomberg
James Seyffart: “It will be almost impossible… to buy this ETF.

Most RIAs will find all the hoops associated with the ETF too much maple syrup to swallow, says Bitcoin expert and advocate Mike Alfred.

“I don’t think Fidelity’s product solves anything for RIAs,” 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 is moving forward [Toronto] Canada retains its character, says James Seyffart, ETF research analyst at Bloomberg Intelligence.

“Loyalty has been 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.”

But Seyffart added the caveat: “It will be next to impossible for the average American to buy this ETF. It will not be available to them.

Compensation hoops

Many RIAs that use Fidelity to hold assets are already using its international trading capabilities, Abbott said.

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, ”she says.

The process must be repeated for each customer account; no options are available for a single global account.

Loyalty advantage

Clients will be able to purchase the Fidelity Advantage Bitcoin ETF with Canadian or U.S. dollars, according to a November 22 filing.

Mike Alfred
Mike Alfred: I don’t think Fidelity’s product solves anything for RIAs. ‘

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.

Fidelity has a capital markets division that operates international trade See: Fidelity to provide Wall Street style access to international investment

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 that the SEC has continually rejected, even endorsing bitcoin ETFs that buy derivatives linked to trading movements. bitcoins.

Canadian, eh?

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.

“Fidelity 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,” said Tom Jessop, Head of Fidelity Digital Assets in a 2018 press release.

“The 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

Crowded market

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: “It 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.”

Here is a current look at the Crypto ETF race. (Source: James Seyffart, Twitter)



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