With over 35 million clients, $ 21 billion in revenue and $ 3.8 trillion in discretionary assets under management, Fidelity Investments is one of the largest investment management companies in the world. He may need all his weight to break the chain of losses for cryptocurrency fund sponsors who have collided with the US Securities and Exchange Commission.
Fidelity reportedly sent an initial registration statement to the SEC on March 24 on behalf of the Wise Origin Bitcoin Trust, an exchange-traded fund that tracks bitcoin performance according to the Fidelity Bitcoin Index. This follows similar requests from the SEC this year from WisdomTree, CBOE / VanEck, NYDIG Asset Management, Valkyrie Digital Assets and SkyBridge Capital.
The Fidelity Bitcoin Fund will be a historic event. According to Nick Bhatia, author of Layered Money: From Gold and Dollars to Bitcoin and the Central Bank’s Digital Currencies, and an Assistant Professor of Finance and Business Administration at the University of Southern California, this will be more than Elon Musk’s $ 1.5 billion purchase of bitcoin . (BTC) for Tesla Treasury. More important than PayPal, which allows users to buy, sell and store cryptocurrencies, and more than Coinbase’s next IPO.
“This will give Bitcoin absolute legitimacy,” Bhatia told the Cointelegraph, and it could happen relatively soon. “My guess is that [CEO] Abe Johnson and Fidelity applied and knew they would get approval, and now I think it could be less than 12 months left.
Nigel Greene, founder and CEO of deVere Group, an independent financial advisory organization, told the Cointelegraph that if the SEC approves Fidelity’s BTC plans, it means “another big step in the cryptocurrency mainstream.” Inevitably, more institutional investors are pushing into the already booming world of cryptocurrencies. ”
But not everyone is so sure. “The name Fidelity is important, but it may not be big enough to overcome other obstacles,” George Ojo, assistant professor at Columbia University School of Law, told the Cointelegraph. Among these shortcomings are the lack of diversification of cryptocurrency funds, lack of liquidity and at least in the short term the fact that the agency still does not have an approved chairman of the board.
“We have seen the Securities and Exchange Commission reject many ETFs due to manipulation and market size,” Leonard Noah, head of research at Stack Funds, a provider of crypto-index funds, told Cointelegraph. The space for cryptocurrencies has grown dramatically in recent years and developed into a new asset class. “If you keep knocking on the door, it will sooner or later open.”
Michael Venuto, co-founder and chief investment officer of Toroso Investments, told Cointelegraph that there are reasons why Bitcoin ETF approval is unlikely in the near future. The SEC’s role is to protect the investor. Bitcoin ETF approval can be seen as an approval that can conflict with more powerful forces in our government. He said more clarity was needed “at the federal, financial, tax and other regulatory levels” before the agency approves the BTC.
Concentration and liquidity problems
Among other things, supervisors are concerned about the risk of concentration, ie the potential for “inflated losses” due to insufficient diversification of assets – a risk that can be particularly evident in the case of a Bitcoin fund. In the S-1 file, Fidelity itself stated that:
“Unlike other funds that can invest in diversified assets, the trust’s investment strategy focuses on a single asset within a single asset class. This emphasis increases trust exposure to various market risks related to bitcoin and digital assets. ”
In the case of mutual funds, the SEC will have no share to make up more than 25% of the ETF curve measured by market value, Ugeux told Cointelegraph. Bitcoin is certainly not royalty – it looks more like a commodity, at least according to the CFTC and recent statements from senior SEC officials – but Fidelity BTC seems to be expanding the mainstream of the SEC.
Another potential problem is liquidity, Sør added. ETF sponsors should buy and sell the fund’s underlying assets – to protect the sponsor so that it does not hold too much – but even here a bitcoin fund can be problematic because its underlying assets are not (relatively) liquid securities.
In its file, Fidelity stated that its ability to sell bitcoins could be affected by limited trading volume, lack of a market maker or legal restrictions – in fact, “a government agency can suspend or restrict bitcoin trading altogether.”