Fidelity Bites Down on Bitcoin

Fidelity Flirts Further With Bitcoin

Is Fidelity jumping fully aboard the bitcoin train? Yes, but not in the way the media suggests.

You might have seen the recent headline “Fidelity buys 7.4% stake in bitcoin miner Marathon.” The implication is that with this purchase Fidelity is making a big move into the bitcoin mining game. Well, Fidelity has been mining bitcoin since 2014, when Abigail Johnson set up a mining machine in her office. But this purchase of Marathon Digital Holdings has been overblown.

Yes, Fidelity owns $20 million worth of Marathon, but the shares were purchased across four index funds: Fidelity Extended Market Index Fund (FSMAX), Fidelity Nasdaq Composite Index Fund (FNCMX), Fidelity Total Market Index Fund (FSKAX) and Fidelity Series Total Market Index Fund (FCFMX). It’s a tiny stake and is entirely driven by the stock’s inclusion in the underlying indexes these funds are aiming to track. So, this story isn’t about Fidelity buying bitcoin (or not)—heck, Vanguard also bought shares of the bitcoin miner, and they haven’t made even the smallest move toward bitcoin or other digital currencies.

Index fund purchases aside, here’s how Fidelity is actually positioning for bitcoin and a cryptocurrency future: As we discussed this spring, Fidelity has already filed plans with the Securities and Exchange Commission (SEC) to create an exchange-traded fund to give individual investors access to the volatile cryptocurrency. (The SEC has yet to approve any bitcoin ETF; Fidelity’s is not the only proposal.) Fidelity already offers custodial services for large institutional investors to store bitcoin holdings. And earlier this summer, it announced plans to expand its digital assets team by two-thirds, adding 100 jobs to the division it launched in 2018.

The Boston-based fund giant clearly wants to establish itself as the dominant platform for traditional investors to access the currency. In a lengthy interview with its hometown paper, The Boston Globe, the firm expounded on its plans for the asset class. Tom Jessop, president of Fidelity Digital Assets, told the paper the pandemic—and the ensuing surge in stimulus spending by governments across the globe—helped spark interest among large investors in bitcoin’s potential as an inflation hedge. According to Fidelity’s own study, 80% of institutional investors now believe cryptocurrencies should be part of their portfolios.

The firm believes that where institutional investors lead, individual investors—and more regulation—will follow. For now, Fidelity is looking to invest in cryptocurrency startups. While bitcoin is its main focus, it’s exploring other cryptocurrencies, like ethereum. The firm also plans to make it easier for financial advisers to purchase cryptocurrencies for their clients through Fidelity’s platform—though at this time, the service is available exclusively to institutional and very-high-net-worth clients.

At Adviser Investments, we share Fidelity’s interest in the evolving cryptocurrency landscape but we’re not ready to follow their lead. Our special report on the subject breaks down our reasoning (and explains how cryptocurrencies work). As we’ve touched on before, bitcoin is an incredibly volatile asset. It started off 2021 trading around $32,000; by mid-April, its value had risen to nearly $64,000; in late July, it had sunk below $30,000. As of this writing, it was priced around $45,000. That sort of wild ride is a lot of fun at Disneyland; less so when it’s your retirement or your legacy that’s at stake.

The stock market itself regularly experiences volatility, but unlike a stock investment, bitcoin does not pay interest or dividends, nor does it entitle holders to share the profits from any type of business. While stock and bond prices are supported by underlying cash flows, there’s nothing fundamental supporting bitcoin’s price aside from what the next buyer is willing to pay for it. Increasing buy-in from institutional players like Fidelity may help reduce some of the risk associated with investing in bitcoin and other cryptocurrencies in time. But for now, any investment in bitcoin should be one you can afford to lose.

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• How much of the earnings boom is due to the “base effect”
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• Whether record-high profit margins are sustainable
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The stock market has climbed to some dizzying heights over the past year. Will the delta variant trip it up? Charlie and Steve analyze the prospects. Listen now and learn more!

Adviser Investments’ Today’s Market Takeaways

There’s no shortage of hyperbolic headlines and provocative punditry in the financial media. But you won’t find such hysterics here. In Today’s Market Takeaways, members of our investment team provide timely videos that clearly and concisely explain what we’re seeing in the markets.

In our most recent Market Takeaways, Vice President Steve Johnson talked about the streak of market records we’ve been seeing, while Research Analyst Liz Laprade discussed how the United Nations’ latest climate report may impact the financial markets.

We hope you find these episodes engaging and accessible. If there are any topics you’d like us to address, please send an email to info@adviserinvestments.com!

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About Adviser Investments

Adviser Investments is a full service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trusts, institutions and foundations since 1994, and have more than 3,500 clients across the country and over $6 billion in assets under management. Our portfolios encompass actively managed funds, ETFs, socially responsible investments and tactical asset allocation strategies, with particular expertise in Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To.

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