29th October 2022 > > Fidelity.

tl;dr

Fidelity’s annual institutional investor survey gives us good cheer.

Market Snap

Market Wrap

If I had finished my scribblings just a few minutes earlier, I would have been reporting BTC at $21k.

Curious Cryptos’ Commentary – Fidelity

Fidelity is an AM (Asset Manager) with close to $4 TRILLION of AUM (assets under management).

Though shy of Blackrock’s $10 TRILLION, this safely puts them in the top three or so of AMs.

And if those numbers make no sense, for our brains are not hardwired to visualise much beyond the hundreds if that, I always find this graphic a little startling:

http://www.pagetutor.com/trillion/index.html

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The point is that Fidelity is a key player in the investment world and is not to be taken lightly.

The company was an early adopter of cryptos, which just goes to show how enlightened is their management hierarchy. They set up their own BTC mining operation – when BTC was valued in the 100s of dollars – just to learn more about what was then a nascent and emerging asset class.

Since 2018, Fidelity have been conducting an annual survey of institutional investors with respect to cryptos. The initial report – to be followed by more in-depth analyses of the survey results – is to be found here:

https://www.fidelitydigitalassets.com/sites/default/files/documents/2022_Institutional_Investor_Digital_Assets_Study.pdf

Cynics will jump to the assumption that because Fidelity is such a keen supporter of cryptos that the commentary is not to be trusted. Well, we all have our own prejudices, so I suggest you go and focus on yours first.

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Let’s look at the negatives to begin with, as the CCC tries to be as balanced as possible, unlike some other media outlets I could mention.

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With respect to “Obstacles to Investing in Digital Assets”, price volatility crops up every year.

This concern is amplified when risk assets generally are having a tough time. It is unsurprising that pension funds are less keen than before to be invested, whilst family funds are dramatically increasing their appetite for cryptos. Though figures are impossible to come by (family funds, though large in terms of AUM, are completely private), with little or no regulatory requirements in terms of the scope of their investments, family funds are often the lead indicator of where other high-risk investors (hedge funds, PE, etc.) follow.

Worries about custody rank very highly, which is old news to readers of the CCC. This is a problem which is close to being solved, on an industrial scale, in the very near future.

The regulatory classification of cryptos also ranks highly, which suggests to me that some investment managers have not done their homework.

The largest crypto, BTC, has been declared a commodity, and that decision will not change.

Though the SEC (Securities and Exchange Commission) is trying to row back on its public proclamation that ETH is a commodity, they are most unlikely to be successful in that endeavour.

The US and the EU have made tremendous progress in 2022 regarding the regulatory landscape around cryptos.

I cannot see this concern about the lack of regulatory classification lasting for much longer.

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Let’s look at one of the positives.

81% of institutional investors see cryptos as having a role in their investment portfolios.

McKinsey estimates that financial institutions hold $500 TRILLION of assets. The market cap of BTC and ETH is around $600 billion.

If just 1% of investment funds is moved into cryptos (which will be dominated by BTC and ETH), that implies the market cap of BTC, and ETH combined will increase nearly 10 times. ETH is now effectively deflationary, and 90% of the BTC that will ever exist has already been mined.

I personally think that one can make a very strong case that cryptos will make up significantly more than just 1% of global investments. If you believe that is a strong possibility – likely to incur in the next three to five years – then a 10x multiple on the price is a massive underestimate.

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Tom Jessop, Fidelity Digital Assets President, concluded:

“We believe that digital assets fundamentals remain strong and that the institutionalization of the market over the past several years has positioned it to weather recent events.”

Way to go, Tom.