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Exclusive: Can Onchain Custodian Fill Fidelity's Gap in Crypto Custody?

Exclusive interview with Alexandre Kech: Part 2

While wall street giant Fidelity tapped into the crypto custodial space, can Onchain Custodian survive under the fierce competition? Alexandre Kech, CEO of Onchain Custodian, believes that they can fill Fidelity’s gap in the crypto custodial market! He also explains how the surging demand in BTC futures and crypto collateral can present substantial business opportunities for crypto custodians.

Onchain Custodian has been researching and experimenting on the security of private keys. According to your research, how can Onchain Custodian provide a more efficient and secure custodian solution?

The objective of this research and development on different solutions for storing private keys is to effectively evolve the platform as technology evolves as well. We always want our platform to be the most secure, flexible, and agile. R&D activities help us to decide how our next version should look like. There will, for sure, be a version three, four, or five in the future.

In terms of competitive positioning, traditional Wall Street giants are also tapping into the custodial market for crypto, such as Fidelity. How does Onchain Custodian compare with them? Does Onchain Custodian target different customers compared to Fidelity, or are you direct competitors?

I don’t think we are direct competitors at this stage. I would be immodest to think that we can compete with Fidelity. I think we are targeting a different customer base. Fidelity and other traditional players will build the types of services to support who they have as customers today – traditional asset managers and hedge funds, who are not comfortable to invest in certain types of crypto assets and want to have a traditional player helping them with custody.

We are targeting customers familiar with the crypto world because they are crypto players themselves, such as exchanges.

In the long run, there will be some collaborations between traditional custodians and crypto custodians like us. In the future, we will collaborate and build solutions together to serve different types of customers.

Recently, the interest of Bitcoin futures has hit an all-time high in the Chicago Mercantile Exchange (CME) in June. What opportunities are present for Onchain Custodian in this regard?

Those types of futures products are based on an underlying asset that is not traded, whereas futures contracts are traded. Financial products backed by crypto are probably how the market will develop in the future. There will an increase in derivative products based on cryptocurrencies or based on a basket of tokens traded on exchanges or OTC. Those derivatives will have to be efficiently backed by those cryptos, and the way to back those crypto futures products is to have proper custody of those assets. I think it is just a natural evolution of the crypto space to start with the asset itself and then evolve to derivative products around those assets.

Regarding your partnership with BabelFinance, a company offering loans collateralized by the Bitcoin deposit – what are the challenges in providing custodian solutions for this platform?

This collaboration with BabelFinance is to enable the ability to loan USDT for their customers. For example, in exchange for collateral in Bitcoin that we, Onchain Custodian will take custody over. It brings transparency to their customers with the fact that their collateral is effectively held by a third-party custodian, and BabelFinance does not have access to that collateral unless they agree to it or there is the default at one point. What we can bring here is transparency and neutrality in the process again.

With this BabelFinance and Onchain Custodian collaboration, we will also be able to offer our customers the ability to access financial products around crypto via BabelFinance. For example, they will be able to earn interests out of lending crypto to BabelFinance or to borrow crypto if they need so to cover a short position that they have in exchange.

In Singapore, which trust licenses have Onchain Custodian secured and what are the challenges involved? Does Onchain Custodian already have a trust license in other jurisdictions?

In Singapore, there is no need for a license on digital assets such as crypto and utility tokens because it is a non-regulated asset at this stage. That is why we chose Singapore as it has open-minded regulations; they will not regulate if they do not have the need to do so.

However, as we also want to play a role in the security token space, we are currently preparing for a CMS license or capital markets service license for custody in Singapore. It is required for security tokens as it is the evolution of our business—crypto, utility tokens, and then security tokens. There is also a new regulation in Singapore around payments that includes crypto as a means of payment that will come at the end of the year. Depending on what we facilitate as transactions, we could fall under that regulation, so we might need to also apply for that license as well.

My current question mark is whether, with my status in Singapore, we are allowed to operate and take custody of assets from a Hong Kong fund or a Thai fund, for example. That is something we all need to figure out. Custody of cryptocurrencies is still at its early stage.

New York State Trust License – Fidelity’s Step Towards Mass Crypto Adoption?

Fidelity’s cryptocurrency investment arm, Fidelity Digital Assets (FDAS) has filed for a trust license in the state of New York according to several sources. An approved application with the New York Department of Financial Services (NYFDS) will mean that FDAS will be able to offer custodial services for digital assets in the state of New York. FDAS was launched in October 2018, with the aim of providing institutional solutions for the digital asset class.

Earlier this year in May, Bloomberg reported that Fidelity will be offering more than just custodial services such as crypto trading. The crypto arm of one of the largest asset managers in the world will now be able to compete with rivals such as Coinbase, Gemini, Paxos and other large players in the crypto custodial market.

Arthur Long, a lawyer from Gibson Dunn mentioned that a trust license is “more expansive” than the BitLicense of the state of New York which is a license for crypto firms, according to The Block. By obtaining a trust license, the firm will be allowed to execute a wider range of services in the financial services industry.

What does this mean for crypto investors?

The International Crypto Exchange (ICE)’s cryptocurrency trading platform, Bakkt is also waiting for approval from the NYDFS and will also be competing with FDAS. Institutions are willing to take the step to go through substantial processes to allow regulators to get a more in-depth understanding of crypto businesses.

Image via bitcoinexchangeguide.com

US Investment Giant Charles Schwab Not Interested in Direct Trade of Crypto

Charles Schwab the US-based brokerage giant, which manages over $3.2 trillion in assets, are dismissing cryptocurrencies for the time being. This decision comes in spite of their competitors ‘Fidelity’ rushing to embrace this new market.

According to Rob Farmer, Schwab’s managing director for communications, the firm is not looking to offer direct trading services of cryptocurrencies “at this time.” Farmer further advised, “Investors should view these currencies as a purely speculative instrument.”

The investment powerhouse’s decision to dismiss cryptocurrencies has been met with much criticism. Tim Welsh of the California based consultancy group Nexus believes Schwab’s decision is based on an unwillingness to disturb the status quo. He spoke out claiming that, “Unless Schwab’s biggest advisors demand that they do something, they will continue to sleep-walk through innovation.”

Lex Sokolin — global co-head for financial technology at blockchain software firm ConsenSys — has a far less critical view of the firm’s slow-burning strategy. He believes that ultimately, established investment giants “have the long-term advantage right now, because they can acquire for cheap.”

Image via Flickr

Fidelity Digital Assets Custody Ready for Bitcoin Derivatives Yield Fund

Wave Financial, based in Los Angeles, launched the Wave BTC Income & Growth Digital Fund, racing to become the first crypto derivatives-based yield fund in the market.

Benjamin Tsai, managing partner of Wave Financial, mentioned that Fidelity Digital Assets is now available to provide custody for their fund after several months of due diligence.

Tsai said:

“I think what was missing in the crypto market is a lot of very solid traditional types of products, but with crypto assets.”

The Wave fund plans to distribute a dividend of 1.5 percent net asset value of the Bitcoin held in the fund, which results in 18% of the annual yield.

There has been a lack of investors confirming the subscription of the fund although the fund has already been open for subscriptions.

Tsai added:

“We have a number of investors that have expressed interest, and we are working to get them the actual private placement memorandum and subscription agreement.”

The Bitcoin income fund currently charges 100 basis points for fixed management.

Image via Shutterstock

Fidelity Launches Cryptocurrency Custody Business

This article is contributed by our content partner, Nexchange NOW.

Watch out Coinbase, Fido has you in its sights.

In a rare interview with Fidelity Investments CEO Abigaile Johnson, the Financial Times revealed that the Boston-based asset management giant is “now engaged in a full rollout” of its cryptocurrency custody and trading service.

The service, called Fidelity Digital Assets, was originally available to a limited number of clients on a trial basis but is now open to all qualified investors. Johnson called the launch “a boon to what is a fragmented and complicated industry.”

“[The cryptocurrency industry] is not going away. As long as the value is there, people will look to preserve that value,” Johnson said.

“There are people out there with significant amounts of wealth in cryptocurrencies, probably bitcoin, and they’re looking for somebody to hold those coins for them because in the event of their passing.”

Fidelity Digital Assets’ launch pits the company against several other platforms, most notable of which is San Francisco-based Coinbase. Johnson, however, sees her trillion-dollar company’s large client base and network as obvious advantages against them.

Coinbase, Johnson said, “is still a company that most people had never heard of, and they don’t have the existing relationships with the independent advisers.”

Image via Nexchange NOWOriginal Article: http://www.nexchangenow.com/news/fintech/71196/fidelity-launches-cryptocurrency-custody-business/

Fidelity’s Crypto Arm Given the Green Light by the New York State Department of Financial Services

Fidelity Digital Assets Service (FDAS), the cryptocurrency arm of Fidelity Investments has been granted a license by the New York State Department of Financial Services (NYDFS), allowing the company to offer cryptocurrency trading and custody services.

According to the press release on Nov. 19, the NYDFS authorized FDAS to act as a limited liability trust company to offer crypto services for institutional investors as well as individuals to buy, sell and transfer Bitcoin.

The FDAS stated in a blog post: “We have experienced a high-interest level from these firms and anticipate that their increased involvement in this industry would enable more activities and development across the spectrum.”

Tom Jessop, the President of FDAS commented in an interview that the demand for digital currencies has been shifting since the launch of the company. He said: “We are seeing strong demand and greater diversity of client types. There are more traditional investors. When we started it was crypto funds and hedge funds.”

Jessop also mentioned that FDAS may start looking into offering its services for other types of cryptocurrencies and to expand overseas.

Michael O’Reilly, the COO for FDAS said that the custody and trade execution services that the company provides are “essential building blocks” for the mass adoption of digital assets, especially for institutional investors.

Image via Shutterstock

Fidelity: 60% of Institutional Investors Believe that Digital Assets Have a Place in their Portfolio

Fidelity Digital Assets surveyed 774 institutional investors across the United States and Europe, and 80 percent of those who were surveyed found something appealing about digital assets.

The research was conducted from November 2019 to early March 2020 and is the second consecutive year that Fidelity Digital Assets has conducted this survey for US institutional investors and the first for European investors.

60 percent of the institutional investors surveyed believe that digital assets have a place in their investment portfolio.

Over a quarter of institutional investors surveyed by Fidelity Digital Assets are holding Bitcoin, while 11 percent have exposure to Ethereum.

36 percent of respondents, including 27 percent from the US and 45 percent from Europe say that they are currently investing in digital assets.

91 percent of respondents who are open to exposure to cryptocurrencies in a portfolio expect to have at least 0.5 percent of their portfolio allocated to digital assets. Investors in the US has seen a 9 percent increase this year (88%) compared to 79% in 2019.

Tom Jessop, the president of Fidelity Digital Assets commented, “These results confirm a trend we are seeing in the market towards greater interest in and acceptance of digital assets as a new investable asset class. This is evident in the evolving composition of our client pipeline, which spans from crypto native funds to pensions.”

The trend of cryptocurrency and digital asset adoption is expected to increase next year.

The Great Monetary Inflation

Billionaire hedge fund manager Paul Tudor Jones was reportedly looking to buy Bitcoin to hedge against inflation as central banks across the world are printing money to relieve economies affected by the coronavirus pandemic.

Jones is one of Wall Street’s most seasoned and successful hedge fund managers, CEO and founder of Tudor Investment Corp, a hedge fund that managed $8.4 billion assets under management as of March 30, based on data from the Securities and Exchange Commission.

Jones compared Bitcoin to gold by saying that the digital currency reminds him of the role that gold played in the 1970s. Jones was well known for his correct prediction of the 1987 market crash and shorted Japanese equities several years later before Japan’s economy crashed.

Jones said in an investor letter, called The Great Monetary Inflation, “The best profit-maximizing strategy is to own the fastest horse. If I am forced to forecast, my bet is it will be Bitcoin.”

Bitcoin’s Scarcity Feature Makes the Crypto an Aspirational Store of Value for Investors, says Fidelity Digital Assets

Fidelity Digital Assets, the crypto arm of investment firm Fidelity Investments found in its new report that many investors consider Bitcoin to be an “aspirational store of value”. The firm believes that the largest cryptocurrency has the properties of a store of value but has yet to be widely adopted.

Fidelity Digital Assets was launched in 2018 and has since set up Bitcoin custody and trading services for institutional clients.

In Fidelity’s most recent report, scarcity was mentioned as one of the key characteristics in reference to a good store of value for protecting against the depreciation of value in the longer term. With Bitcoin’s finite supply, it makes the cryptocurrency an aspirational store of value.

Low interest rates and global monetary and fiscal stimulus may have fueled the rate of awareness and adoption of cryptocurrencies. The United States recently offered its second stimulus check for COVID-19 economic relief. Treasury Secretary Steven Mnuchin has announced that the second stimulus payment is set to be administered in August.

With the excess money printing due to stimulus checks being paid out by US government, Gemini CEO Tyler Winklevoss advocated in a recent public tweet that Bitcoin is the way to go, and should definitely be invested in. He explained that with the US Federal Reserve’s plan of mass printing money, the “stage for Bitcoin’s next bull run is set.”

Fidelity argued that Bitcoin’s most novel innovations its unforgeable digital scarcity:

“Investors believe this property is foundational in understanding and appreciating Bitcoin. Before Bitcoin, multiple investors made important contributions in the quest to achieve digital scarcity, but were unsuccessful in enforcing it.”

60% of institutional investors said they could invest in crypto

Fidelity Digital Assets surveyed 774 institutional investors across the United States and Europe, and 80 percent of those who were surveyed found something appealing about digital assets.

60 percent of the institutional investors surveyed believe that digital assets have a place in their investment portfolio.

Over a quarter of institutional investors surveyed by Fidelity Digital Assets are holding Bitcoin, while 11 percent have exposure to Ethereum.

36 percent of respondents, including 27 percent from the US and 45 percent from Europe say that they are currently investing in digital assets.

Hong Kong SFC Agrees in Principle to License Fidelity Backed OSL Crypto Firm

Hong Kong’s Securities and Futures Commission (SFC) has agreed in principle to license the cryptocurrency firm OSL Digital Securities.

Hong Kong’s financial markets regulator, the SFC has agreed in principle to issue a license to OSL Digital Securities. The cryptocurrency firm is part of the Fidelity-backed BC group and was one of the first to apply for a digital asset license from the Hong Kong Securities and Futures Commission.

OSL said in November 2019, that it had applied to opt into the SFC’s regulations as announced by the regulator on Nov. 6.

SFC Opt-In Regulations

The Hong Kong Securities and Futures Commission announced the new opt-in regulations for crypto exchanges last November 2019. Financial regulators worldwide have been debating for a while just how and if they should regulate cryptocurrency or virtual assets firms.

The announcement was made by Ashley Alder, Chief Executive of the Hong Kong SFC in his speech at the Hong Kong FinTech Week 2019. Following his speech, the SFC also published a new regulatory approach to “virtual asset trading platforms,” on its website.

The approach was announced as technology-neutral—Alder said that the Hong Kong regulator had been contending with the growing list of issues, including the application of existing regulations in the “context of increased automation and the adoption of artificial intelligence and machine learning.”

The new standards set by the SFC for opt-in regulation—seek to address regulatory concerns regarding custody, know-your-client (KYC) requirements, anti-money laundering (AML), and counter-financing of terrorism (CFT) and others for trading crypto.

Licenses could be granted to the crypto exchanges that choose to include “security virtual assets or tokens for trading,” where investors will be able to differentiate between regulated platforms from those that are unregulated.

Although the SFC is open to supervising crypto exchanges, it has made clear that “the virtual assets traded on the platforms are not subject to the authorization or prospectus registration provisions that apply to traditional offerings of “securities” or “collective investment schemes.”

OSL Digital Securities are among a slew of other digital asset firms that welcome regulation as they wish to service the mainstream financial markets. So far no other crypto asset firm has been granted approval from the HK SFC.

According to Reuters, BC Group CEO Hugh Madden said that one benefit of being licensed was that regulated institutions would be able to reduce their risk by being able to engage with other regulated entities.

Fidelity Files for Bitcoin Fund After Validating Model Predicting BTC Price at $1 Million

Peter Jubber, the president and director of digital funds at Fidelity filed for a new fund dedicated to Bitcoin with the United States Securities and Exchange Commission (SEC).

The Boston-based investment giant disclosed in the filing to the SEC that it will begin to offer the Wise Origin Bitcoin Index Fund through a new unit—Fidelity Digital Funds. The Bitcoin fund will be available for qualified purchasers through registered investment advisers, family offices, and other institutions, according to Bloomberg.

Fidelity’s crypto business arm, Fidelity Digital Assets will provide custody services for the fund, and the minimum investment is $100,000.

The fund has not raised any capital from investors, as shown in the filing. Bitcoin is currently above the $11,000 threshold but has struggled multiple times to stay above the $12,000 line.

Fidelity has paved the way for institutional investors to get involved with cryptocurrencies, as it previously conducted a survey on what institutional investors thought of digital assets. The research was conducted from November 2019 to early March 2020 and is the second consecutive year that Fidelity Digital Assets has conducted this survey for US institutional investors and the first for European investors. 60 percent of the institutional investors surveyed believe that digital assets have a place in their investment portfolio.

As revealed later on in an exclusive interview with Blockchain.News, Christine Sandler, the Head of Sales and Marketing said that 90 percent of the survey respondents were traditional investors.

Sandler said, “Traditional institutional investors want to see other traditional institutions as service providers in the space. We found that as a traditional institution providing those services, we found that to be particularly encouraging. We’ve also seen the value of our brand attributes resonate in the marketplace, customer focus, strong operational processes, and focus on risk management.”

Recently Fidelity Digital Assets also validated a stock-to-flow valuation model created by Plan B, which predicts Bitcoin’s price at $1 million. The company examined ways that could attract investors to Bitcoin as an investment and noted that Bitcoin is increasingly integrated into traditional investment portfolios.

The firm believes that Bitcoin as a store of value is an innate and important feature of the cryptocurrency, as its scarcity was built into the protocol from the start. With the recent report with anticipation of Bitcoin being valued at $1 million and the filing of the fund, institutional investment in Bitcoin could see massive growth this year.