After repeated rejections by the US Securities and Exchange Commission, Fidelity Canda had more luck turning to its own securities police with a more enduring perspective on cryptocurrency as an invertible asset.
Brooke's note: "Satoshi Nakamoto " published an article describing a new software system that he called bitcoin
Fidelity Investments has pulled another rabbit out of its hat: a true blue 'Fidelity' Bitcoin ETF tailored for RIAs and retail investors. But a tangle of red tape awaits anyone who plunges into the rabbit hole.
Under Johnson's leadership, Fidelity got ahead of other major competitors in adopting crypto currencies, beginning in 2018 when it introduced a stealth five-year project to provide crypto custody. After a five-year stealth project, Fidelity goes into custody of crypto assets with an independent company
But time and again, the gruesome U.S. Securities and Exchange Commission (SEC) has turned down all applications from a cryptocurrency exchange-traded fund (ETF), including several from Fidelity.
So the $ 11 billion firm AUA Boston revealed yesterday that Fidelity Canada (also owned by parent company FMR LLC, mostly owned by the Johnson family) filed to sell its new Fidelity Advantage Bitcoin (FBTC) ETF.
It was released today (December 3).
"ETFs are among the most favorite investment vehicles, and I don't think many care where the fund is located," says Ric Edelman, founder of the Digital Asset Financial Professionals Council, who recently left Edelman Financial Engines.
"This could help boost the SEC." Watch: Ric Edelman removes a major impediment to his company's future growth, himself, the latest act in a 36-year career that will leave Edelman Financial Engines to fend for itself.
Out of reach?
But RIAs who are interested in the ETF will have to remember what the mouse at the door said: feed your head. Before diving in, it's best to be aware of Canadian regulations, trade agreements, currency exchanges, and international trade accounts.
Most RIAs will find that all the rings associated with the ETF are too much maple syrup to swallow, says Mike Alfred, a bitcoin expert and advocate.
"I don't think the Fidelity product will solve anything for RIAs," says Alfred, who with his brother sold his firm, Digital Assets Data, to NYDIG, a bitcoin investment and technology solutions provider earlier this year.
The fact that Fidelity goes ahead in Canada remains in its character, says James Seyffart, an ETF research analyst at Bloomberg Intelligence.
"Fidelity has been very involved from very early on in bitcoin. I am not at all surprised that they are launching an ETF in Canada because we are not going to get one here anytime soon."
But Seyffart added this warning: "It will be virtually impossible for the average American to buy this ETF. It will not be available to them."
Clear hoops
Many RIAs that use Fidelity to guard assets already use their international trade capabilities, Abbott says.
Fidelity retail clients can also purchase the ETF if they are set up for international trading in their brokerage account.
The process for obtaining an international business account, Abbott acknowledged, involves additional paperwork that includes business agreements.
"RIAs can enable international trading for their clients through the Fidelity Wealthscape advisory platform, "he says.
The process must be repeated for each customer account; There is no option available for a one-size-fits-all general account.
Loyalty Advantage
Clients will be able to purchase the Fidelity Advantage Bitcoin ETF with Canadian or US dollars, according to a presentation on Nov.22.
But there is another wrinkle.
It is best for US ARIs or retail investors buying the ETF to use only Canadian dollars. Otherwise, the investment will be subject to currency fluctuations, which defeat the purpose of the investment - to provide uncorrelated asset coverage.
In contrast, the typical US investor uses US dollars through global mutual funds or ETFs. American Depository Receipts (ADRs) are another alternative. ADRs are certificates issued by a US bank representing shares in foreign stocks.
Fidelity has a capital markets division that makes international trade work See: Loyalty to provide Wall Street-style access to international investments
Following its credo of providing low-cost investments, the Fidelity ETF has four distinct advantages over existing crypto fund options for RIAs.
The biggest is your fee; just 40 basis points compared to Grayscale's Bitcoin mutual fund, which stands at 250 basis points.
It is a true ETF, not a mutual fund. And it is offered by a brand that is orders of magnitude above other existing crypto fund providers.
It is designed to invest in โphysicalโ spot bitcoins, although you will also invest through derivatives, a model that the SEC has continually rejected, even when approving bitcoin ETFs that buy derivatives related to the trading movements of bitcoins.
Canada, huh?
At $ 4.2 trillion in AUM, Fidelity is the fourth largest asset manager in the United States and the largest by far to launch a cryptocurrency ETF. Fidelity Canada has around $ 200 billion in assets under management.
"Fidelity began exploring blockchain and digital assets several years ago, and those efforts have been successful in helping us understand and advance our thinking about cryptocurrencies," said Tom Jessop, director of Fidelity Digital Assets at a 2018 release.
"The creation of Fidelity Digital Assets is the first step in a long-term vision to create a full-service, enterprise-grade platform for digital assets."
Large institutional investors, such as hedge funds and private equity funds, are the most likely to take advantage of Fidelity's end-around, Seyffart says.
"We think a lot of institutions and money went up to Canada. But retail investors are stuck using what's on the US stock market."
Alfred won't bite into Canadian regulated bitcoin ETFs.
"It won't change my life at all. I own my own bitcoin. I have some grayscale. But this just won't change anything for the vast majority of Americans." Watch: The grayscale destroys the hype about Bitcoin's power to 'democratize' finance by showing that ARIs really want a dominant Wall Street broker and are willing to pay hedge fund-like fees for 'transparency' and an SEC approved wrapper
Crowded market
The filing comes several months after Fidelity officials met with the SEC to urge approval of a similar ETF in the US. according to Bloomberg,
Fidelity applied for a Bitcoin ETF in the US in March.
In response to Fidelity's decision to launch its bitcoin ETF in Canada, Bloomberg analysts Eric Balchunas tweeted: "This should be embarrassing to the SEC that one of America's biggest and most historic names in investing is forced to to go north to serve their customers. "
The Canadian crypto ETF market is becoming increasingly crowded. Seven managers - Accelerate Financial Technologies, 3iQ, CI First Asset, Evolve ETF, Horizon ETF, Ninepoint Partners and Purpose Investments - already offer 23 funds, according to data from TrackInsight, a French firm that tracks the ETF market.
Canada is also expected to beat the United States, says Seyffart. "Honestly, it's been pretty standard. They were the first to launch an ETF before we had one. They were the first to launch marijuana ETFs. They were the first to launch crypto."
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