Fidelity’s Foray into Cryptocurrency an Important Bridging Exercise for Bitcoin and Banks

  • Darryn Pollock
    ⭐ Features

    Financial services giant Fidelity is taking a huge step into cryptocurrency and in doing so could be building a big bridge to adoption

Fidelity’s Foray into Cryptocurrency an Important Bridging Exercise for Bitcoin and Banks
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Fidelity, the financial services giant that administers more than $7.2 trillion in client assets, announced a new and separate company called Fidelity Digital Asset Services yesterday in what must be considered a major move.

In terms of adoption, the likes of Bitcoin and other major cryptocurrencies have hit a bit of a lull as the excitement of massive price spikes have abated, and there are still big barriers to entry for institutionalized investors.

But, this latest move by Fidelity is an important one as they state themselves it is about trying to entice these institutionalized investors into this new market and new asset class. Fidelity is also going after big money with this product because of a lack of regulatory clarity for the every-day investors which is another important aspect to consider.

Still, it is an unsurprising move as CEO Abigail Johnson has always been a Bitcoin believer and really it was only a matter of time before this financial giant crossed the threshold into cryptocurrencies.

What has Fidelity created?

The new company, Fidelity Digital Asset Services, will firstly handle the custody of the cryptocurrency assets of its clients. This is much the same as how companies like Coinbase and Gemini hold onto users’ cryptocurrencies.

It will also execute trades on multiple exchanges for investors such as hedge funds and family offices, but these clients will be high level and sophisticated investors for the time being as for a retail product there are still too many regulatory hurdles to get through.

In addition to storing cryptocurrencies, Fidelity Digital Assets will use an existing internal crossing engine and smart order router for trade execution. This order router will allow Fidelity institutional customers to execute trades for Bitcoin, Ether and other assets at multiple market venues.

A step towards bridging the gap

While this type of crossover from traditional financial services into the cryptocurrency space is not totally unheard of, Fidelity represents the first true Wall Street incumbent to make such a service available for traditional investors.

This is vital in Bitcoin and other major cryptocurrencies’ move to mainstream adoption as the belief is the barrier to entry for big money investors getting into cryptocurrencies is the unknown. There is a lot of money waiting to join this nascent market, but these investors are unsure of the space and how to negotiate it.

So, with a company like Fidelity offering services and a trusted name, there is a much easier path for these institutional investors to join. Many are still holding out for a Bitcoin-backed ETF to open the floodgates of new money into space, but projects like this from Fidelity are another avenue.

Driven by a believer

Part of the reason that this product has come to fruition in this way is that of the CEO of Fidelity Abigail Johnson and her belief in Bitcoin stemming back to 2014.

Fidelity has a few existing cryptocurrency projects: It started bitcoin mining in New Hampshire when the digital asset's price was around $180. It has a partnership with Coinbase that allows Fidelity customers to check their cryptocurrency balances on the Fidelity app, and in 2015, started facilitating charitable donations in Bitcoin.

“Johnson is very interested in this and stays up on developments in the space in quite a significant way,” said Tom Jessop, head of Fidelity Digital Assets.

The news has also been received well across cryptocurrency Twitter who are mostly astounded that a company that works with so much money is entering the cryptocurrency market in such a way.

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Question of the Day: Can Stablecoins Accelerate Cryptocurrency Adoption?

  • Yuri Molchan
    ⭐ Features

    Stablecoins show hardly any volatility compared to Bitcoin and altcoins, many are hoping that they will be able to bridge new crypto economy and regular fiat money

Question of the Day: Can Stablecoins Accelerate Cryptocurrency Adoption?
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Bitcoin, the father cryptocurrency, emerged in hope that it will remove all intermediaries in electronic commerce that cut off their share of payments. BTC was perceived as a P2P way to replace fiat cash in an electronic format, which would enable one party to pay another without any financial institution or payment platform which would demand its share of a transaction as a reward for its services.

What is wrong with Bitcoin

For quite a while Bitcoin was performing the way the crypto community expected. But the situation changed later – BTC rate became weaker, thus bringing down its financial and economic reliability, when it gets to be used as a regular means of payment.

You cannot have a currency that would cost like a British castle today, a gram of gold – tomorrow and a pack of French fries the day after.

At that point practical fintech minds came up with an idea of creating something which would become a breakthrough in the universe of crypto – a so-called stablecoin.

Will stablecoins solve the volatility problem?

Technically, stablecoins are protected from the volatility roller-coaster that Bitcoin and other cryptos love to ride. They are programmed to keep their prices stable and investors now are largely attracted to this new type of digital assets.

Stablecoin does not show any volatility in its monetary value, since it has a fixed connection to an asset it is pegged to. The major goal of using stablecoins is taking the best from decentralized crypto coins and combining it with a constant value. Thanks to it, stablecoins can be used as a reliable means of trade.

Asset-pegged stablecoins

Asset-backed ones get their value from an asset as can be understood from the name. An asset provides the necessary value to a coin, as well as the necessary legitimacy.

A great example of an asset-pegged stablecoin is Tether (USDT). In spite of a series of scandals at the end of last year, it remains the most popular stablecoin in the crypto market.

Recently, it has partnered with the Tron Foundation to launch a Tron-based stablecoin.

Other examples are TrueUSD (TUSD), USD Coin (USDC), the Gemini Dollar (GUSD), and the Paxos Standard (PAX). They are all pegged to the USD.

Crypto-backed stablecoins

Some digital coins work in a similar way to fiat-backed ones, however, they are pegged to collateral crypto. That means that crypto assets that ensure the value of such stablecoins are stored in a wallet similar to escrow.

A good example of a crypto-pegged token is Maker, which is ranked 16 on CMC.

Algorithmic stablecoins

Even though, stablecoin can be interesting at first thought but the way they are built goes against the principle of decentralization that crypto coins have as a foundation. Thus, many crypto fans and evangelists are positive that stablecoins must be linked towards not a centralized asset but a computer algorithm which takes value from a balance between supply and demand.

Basis is now considered the most promising algorithmic stablecoin of all.

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Can stablecoin ensure smooth future for the crypto industry?

The primary goal of all crypto assets was and remains to come up with virtual asset that would be liquid enough and not vulnerable to market volatility. From this point of view, stablecoins are a dream of all crypto fans and evangelists of a decentralized economy.

Apart from the potential to conduct crypto transactions smoothly, experts believe it can bridge the two worlds – fiat and crypto, bringing them a mutually beneficial coexistence. However, that may take time.

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