It was an awful week for bitcoin bulls. Bitcoin fell to $3,629 as of 5 p.m. UTC on December 6th, with technical signs pointing to further trouble ahead. But some big pockets have been moving in – not going long on bitcoin itself, specifically, but signaling support for the crypto economy infrastructure writ large.
Fidelity Investments, the Boston-based mutual fund hegemon, just inked a deal, contributing its capital along with Bitmain, ConsenSys, Nasdaq Ventures and Monex Group to provide $27.5 million in B series funding to Eris Exchange (Eris X), which is building a new platform for the trading of digital assets, cryptocurrencies, tokens and derivatives.
TD Ameritrade, CTC Group Investments, Digital Currency Group, DRW Venture Capital, Pantera Capital and Valor Equity Partners have also contributed funding in this round as well as in earlier rounds. But the attraction of a fairly conservative investment giant in Fidelity is certainly a feather in their cap.
ErisX has announced that the current round of funding will go towards trading platform development and making some key hires. Once the rollout is complete, ErisX will operate an intermediary-friendly, CFTC-regulated futures exchange (registered) and clearing organization (registration pending), as well as a spot market for digital assets. The plan is to combine both spot trading and futures trading of digital assets on the same platform – providing crypto asset enthusiasts with an easy, seamless and intuitive way to combine both direct long and short trading and hedging techniques.
“With increasing financial support from leading edge firms, ErisX stands to provide the most robust, secure and regulated digital asset offering available to both institutional and individual participants,” said Eris X CEO Thomas Chippas in a statement.
“Many of our customers have been seeking various hedging solutions and would be happy to see US regulatory compliant exchanges like ErisX provide spot and futures’ contracts in one platform,” said Jihan Wu, co-founder of Bitmain.
Initially, ErisX will be handling trading in Bitcoin, Bitcoin Cash, Litecoin and Ethereum, as well as futures contracts. The assets will be physically distributed.
Fidelity’s moved comes on the heels of a major strategic decision announced last October to create a new, separate corporation called Fidelity Digital Assets, which will take on the role of custodian for digital assets such as cryptocurrencies. The new Fidelity property will execute trades on a variety of crypto exchanges for institutional investors, family wealth management offices and the like.
With the announcement, Fidelity becomes the first marquee “Wall Street” – level name to formally provide custodial services for crypto assets.
Currently, Fidelity has more than $7 trillion under management, and provides clearing and investment services for more than 13,000 different advisory firms and institutions worldwide, as well as 27 million retail customers.
Fidelity seems to be taking on the role of early adopter of crypto-services among the Wall Street giants (yes, Fidelity is technically headquartered in Boston, not on Wall Street. But you get the idea.)
But Fidelity presumably wouldn’t be taking this step – and putting millions on the line – if it wasn’t responding to existing demand from its client base of old-line institutional investors, brokerages and family offices. Research from Greenwich Associates indicates that the vast majority of institutional financial executives – 72 percent – say that cryptocurrencies are here to stay.
Only 10 percent expect crypto assets to remain as a fringe asset class, according to Greenwich Associates’ study, and just 10 percent believe that regulators will move to eliminate the crypto market altogether.
“This is a recognition that there is institutional demand for these assets as a class,” said Tom Jessop, tagged to lead the new venture, Fidelity Digital Assets. “Family offices, hedge funds, other sophisticated investors, are starting to think seriously about this space.”
In short, Fidelity has recognized crypto as a full-fledged, legitimate asset class – and they want to be in the middle of it.
Fidelity Digital Assets will serve only institutional clients – at least initially. But Fidelity’s decision to back ErisX signals their willingness to at least be involved in crypto activity for the retail investor very soon. Fidelity brings a massive investment capability and pool of millions of potential retail investors to the table, many of which use Fidelity’s popular brokerage platform. TD Ameritrade also brings a smaller retail client base, but one even more focused on aggressive trading strategies.
There are several niche brokers involved in the Series A and B funding drives, of course – but the mass market potential of Fidelity Investments and TD Ameritrade have the potential to provide much improved liquidity to crypto markets. This may have the most beneficial effect on second- and third-tier digital assets that don’t currently enjoy much liquidity.
Financial theory suggests that as more buyers enter the system, prices should rise as asset owners have less of a liquidity premium hurdle to clear.