By Thomas Kostigen
Many technology experts believe the real value of cryptocurrency is the block chain technology that facilitates its creation and trading. In fact, banks and brokerages are adopting blockchain technology and developing platforms of their own to service institutions, family offices and hedge funds.
This is important to know for retail investors and financial advisors alike because how securities are traded—whether cryptocurrency or stocks and bonds— increasingly matters. Garnering the best return of an investment can often come down to decimal points on a trade. Blockchain technology platforms can enhance trading efficiencies allowing for lower, or even no-cost trades and, therefore, better pricing for investors. Of course, as cryptocurrencies (whose name is being rebranded to the more benign sounding “digital assets”) become more commonplace, there is more opportunity for adoption by the investing public at large. And financial institutions want to establish early footholds, lending their trusted brand names to the nascent space. The more investors, the more volume, the better the pricing and liquidity. Or so the thinking goes.
Fidelity is one such recognized financial institution that is staking its place in the cryptocurrency industry.
“Fidelity began exploring blockchain and digital assets as early as 2014 in its Blockchain Incubator (part of Fidelity Center for Applied Technology). In October 2018, the company launched Fidelity Digital Assets to address a clear gap that existed for institutional investors who had been waiting on the sidelines for a trusted provider to enter the digital asset market,” Fidelity explained in a statement about the launch of its new service offering. “Fidelity has proven for more than 70 years that it can provide integrated technology, operational and customer support experience that gives institutions the confidence to enter the digital assets space.”
Clearly the venerable institution is coaxing more investors into the cryptocurrency arena. But to what end?
“Our goal is to make digitally native assets, such as bitcoin, more accessible to investors,” Fidelity Investments chief executive Abigail Johnson said in a statement. She said the brokerage is looking at all sorts of ways to make “this emerging asset class” easier for investors to understand and use. Which on the surface sounds nice, but there is likely a deeper strategy? And that is to better utilize internet-based financial technology.
Financial advisors know that in an ideal investment environment, the capital markets would be “frictionless,” meaning no fees or transaction costs would be associated with trades. Administration, bookkeeping, labor, and custody all add up to the cost of financial services. Many of these charges can be eliminated through internet-based trading. And Wall Street firms are beginning to capitalize on this to gain more market share. By now, you’ve likely seen “no fee” trading advertised by brokerage firms. Internet-based financial technology allows this.
Traditional stocks and bonds, of course, are still traded on exchanges. These exchanges cost money and charge fees. That’s friction. Meanwhile, digital assets that can be traded like stocks or bonds (which is what cryptocurrency is) lowers costs to a near nothing—near frictionless. Which may be why the Japanese bank Nomura, Goldman Sachs, and Northern Trust are also getting in on the digital asset custody business. Look for more brokerages to begin offering digital assets services, too. And if you are curious about learning more about the digital asset investing, speaking with a financial advisor is always a good place to start.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor , the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.