With more than 35 million customers, $21 billion in revenues and $3.8 trillion in discretionary managed assets, Fidelity Investments is one of the largest investment management companies in the world. It may need all its heft to break the losing streak of crypto-fund sponsors that have gone up against the United States Securities and Exchange Commission.
As reported, Fidelity filed with the SEC on March 24 a preliminary registration statement on behalf of its Wise Origin Bitcoin Trust — an exchange-traded fund that would track the performance of Bitcoin as measured by its Fidelity Bitcoin Index. This followed similar SEC filings this year from WisdomTree, CBOE/VanEck, NYDIG Asset Management, Valkyrie Digital Assets and SkyBridge Capital.
A Fidelity Bitcoin fund would be an event of some historic importance. According to Nik Bhatia, author of the book Layered Money: From Gold and Dollars to Bitcoin and Central Bank Digital Currencies and adjunct professor of finance and business economics at the University of Southern California, this would be bigger than Elon Musk buying $1.5 billion in Bitcoin (BTC) for Tesla’s corporate treasury, more significant than PayPal allowing its users to buy, sell and hold cryptocurrency, and greater than Coinbase’s upcoming initial public offering.
“It would bring the final stamp of legitimacy to Bitcoin,” Bhatia told Cointelegraph, and it could happen relatively soon. “I imagine that [CEO] Abby Johnson and Fidelity have filed, knowing they will get approved, and I now think it’s probably less than 12 months away.”
Nigel Green, founder and CEO of deVere Group — an independent financial advisory organization — told Cointelegraph, that if the SEC approves Fidelity’s BTC plans, it would mean “another major step into the mainstream for cryptocurrencies. It will also, inevitably, prompt more institutional investors into the already burgeoning cryptoverse.”
Not all are sure, though. “The Fidelity name is important, but it may not be big enough to overcome the other hurdles,” Georges Ugeux, adjunct lecturer in law at Columbia University Law School, told Cointelegraph. Among those hindrances are the crypto funds’ lack of diversification, illiquidity and, at least in the short term, the fact that the agency still doesn’t have a confirmed chairman.
Lennard Neo, head of research at Stack Funds — a crypto index fund provider — told Cointelegraph: “We have seen many ETFs being rejected by the SEC citing manipulation and market size as concerns.” Still, the cryptocurrency space has grown significantly over recent years and matured into an emerging new asset class. “If one keeps knocking on the door, it will eventually open.”
There are reasons, however, why approval of Bitcoin ETFs are unlikely in the immediate future, Michael Venuto, co-founder and chief investment officer of Toroso Investments, told Cointelegraph. “The SEC role is investor protection. Approving an ETF of Bitcoin could be seen as an endorsement that may run counter to more powerful forces within our government.” More clarity is still needed “at the federal, fiscal, tax and other regulatory levels” before the agency will approve a BTC fund, he said.
Concentration and liquidity concerns
Regulators are worried about, among other things, concentration risk — i.e., the possibility of “amplified losses” because holdings aren’t sufficiently diversified — a risk that may be particularly pronounced with a Bitcoin fund. In its S-1 filing, Fidelity itself acknowledged that:
“Unlike other funds that may invest in diversified assets, the Trust’s investment strategy is concentrated in a single asset within a single asset class. This concentration maximizes the degree of the Trust’s exposure to a variety of market risks associated with bitcoin and digital assets.”
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