Fidelity Investments' move into custody for cryptocurrencies has opened the door ever so slightly for institutional investment in the nascent asset class, but there are still issues of trust that will keep pension funds and other asset owners from crossing the threshold, industry analysts said.
"An institutional client told me, 'I don't mind investing the money in bitcoin. I just don't want to lose the money,'" Chris Hehmeyer, CEO of Chicago-based crypto trading desk Hehmeyer Trading and Investments, said at a Futures Industry Association conference Oct. 18 in Chicago. "It's all about safety and soundness. People don't trust this. Until they do, they'll hesitate to invest in it."
But asset owners are curious about crypto investing in the wake of Fidelity's Oct. 15 announcement, said Tom Jessop, head of Fidelity's corporate business development and digital asset services, its new crypto custody unit, at the FIA conference. "We're seeing interest from institutions we wouldn't expect, like pension funds and traditional asset managers," Mr. Jessop said, although he would not name the funds or managers that have expressed interest. "It's interesting to see the intellectual horsepower from institutions going into getting into digital assets."
Fidelity Digital Asset Services offers custody and trade execution services for cryptocurrencies for hedge funds, family offices and market intermediaries, but is also looking for asset owner clients as well, Mr. Jessop said.
While Fidelity's new business brings a big-name institutional business into an industry in which existing cryptocurrency custodians are not as well known, panelists at the FIA conference said asset owners and their money managers are looking for the giants in the institutional custody business to create crypto platforms. Those players — State Street Corp., Bank of New York Mellon Corp. and Northern Trust Corp. — have not commented on any plans to create such platforms.
"Traditional (institutional investors) are asking, 'How do I make sure the money isn't going to get lost?'" said Hu Liang, co-founder and CEO of San Francisco-based Omniex, an institutional cryptocurrency trading platform. "They're looking for a State Street, BONY (Bank of New York Mellon) to get into it."