Fidelity to Expand Institutional Crypto Business to Europe

The firm said Tuesday the new business will be provided through Fidelity Digital Asset Services (FDAS), its New York state-chartered limited liability trust company. Launched in 2018, FDAS already offers custody and trade execution services services to U.S.-based institutional investors.

Fidelity Investments, one of the world’s largest asset managers, is setting up a new entity to serve European institutional investors in digital assets.

It will now also provide European digital assets investors such as hedge funds, family offices and market intermediaries with these services, Fidelity said in press release shared with CoinDesk.

The firm has appointed Chris Tyrer as the head of FDAS in Europe. Tyrer previously worked as a managing director at Barclays Investment Bank. leading its digital asset project. He’s also served as global head of commodities trading for the bank following a long career in the traditional financial markets. In the new role. Tyrer will lead client service activity in the region.

The firm recently made significant progress in the U.S. FDAS bagged a New York Trust Charter to custody bitcoin for institutions in November and said at the time it would onboard its first client by the end of 2019.

Tom Jessop, president of Fidelity Digital Assets, said the firm has seen «significant interest and engagement» from institutional investors since its U.S. launch a year ago.

“We’re also encouraged by continued corporate and venture investment in market infrastructure companies as well as the entry of traditional exchanges into the digital assets ecosystem,» Jessop said. «These and other market indicators, alongside interest expressed from U.K. and European client prospects, indicate a market with increasing potential which gives us the confidence to expand the digital assets business geographically.”

The Central Bank Business Model Is Under Attack

A year ago, I predicted 2019 would be the year of regulation in the crypto sector, building upon the increased scrutiny we saw in 2018 after the 2017 ICO boom and bust.

2019 didn’t disappoint: From Switzerland to Korea to France to Lithuania came proposals to regulate crypto assets. Towards the end of the year China, which had banned ICOs and cryptocurrencies in 2017 but promoted blockchain technology, quickly cracked down on unregulated exchanges. Meanwhile, the U.S. Securities and Exchange Commission fined or settled with ICOs that had not registered as securities.

Against this backdrop, Facebook announced Libra, which spurred a greater global reaction than anything we’ve seen in the sector to date. The G7 established a working group on Libra and other stablecoins. France and Germany discussed a Libra ban.

The introduction of Libra took the concept of a “sovereign” digital currency mainstream. Although different from a central bank-issued digital currency (CBDC), Libra, if launched as originally conceived, is positioned to become a major alternative payment mechanism to traditional fiat, perhaps more so than cryptocurrencies such as bitcoin. Facebook has for many years attempted to enter the payments space. By corralling its current properties (including WhatsApp and Instagram), billions of global users as well as its announced consortium partners, Facebook would be able to reach scale in payments and create new revenue streams without officially becoming a bank.

Thanks to Facebook, the central banks suddenly took notice of the threat a privately backed digital currency would make to their business model.  Central banks use monetary policy to manage their economies via inflation control and credit and, increasingly, cross-border trade. If an independent currency were to gain more use than central bank fiat, central banks’ ability to use monetary policy as a tool would be greatly diminished.

After the Libra announcement, China accelerated development of its own CBDC, even announcing major local partners such as WeChat. The deputy director of the People’s Bank of China said its motivation for launching a digital currency is ”to protect our monetary sovereignty…” Other countries and regions, including the other BRIC nations (Brazil, Russia and India) followed with their own announcements.

The countries’ interest in digital currencies is fueled by two factors. First, they provide central banks with the ability to closely track the currency (cash flows are much harder to track). Second, central banks can cut their reliance on dominant currencies including the US dollar. Alternatives are especially attractive to emerging and developing countries. Since the 2008 recession many countries, including Switzerland, have chafed under the challenges that increased US compliance, coupled with the dollar being used as the global reserve currency, has presented to the banking industry. If countries were to issue digital currencies, they could theoretically settle transactions directly without another (intermediary) currency involved. For instance, I am watching India closely. It has banned banks from banking crypto-related companies but has been public about exploring a digital rupee.

Digital currencies are not always cryptocurrencies. This distinction is important. A digital currency is simply a currency issued by an entity in digital form. In the case of CBDCs, that bank is a central bank. Cryptocurrencies such as bitcoin, on the other hand, are not issued by a central authority and rely on a network of decentralized miners to issue the currency and verify transactions.

While implementation and proliferation of CBDCs and other digital currencies may ease cross-border transactions and make consumers’ lives easier, they will also facilitate more tracking of transactions and tighter controls. Ironically, the increased global demand for decentralized bitcoin, as well as the interest in decentralized finance that gained steam in 2019, may have woken up central banks to the fact that they are under threat from new technologies, just as Netflix disrupted Blockbuster and Amazon disrupted Barnes and Noble. Next year will be one to watch on this front.

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