This week’s announcement by Fidelity about the launch of an institutional trading platform for crypto seemed to get too little attention. Anything that can counteract the endless FUD is most certainly newsworthy even if it didn’t move crypto prices.
In our view, this announcement is beyond a counter to FUD. It is a part of Fidelity’s multipart strategy to differentiate itself from other players.
The first thing Fidelity did was undercut discount players like Schwab on S&P index mutual funds. It offered people a way to buy S&P and other index mutual funds at zero cost. Schwab was offering those funds for .03% and, for the longest time, was proud to be the lowest cost index fund in the business. Much to everyone’s surprise, Fidelity’s strategy worked, and they attracted over $1 billion in new capital.
Currently, it has escaped most people’s attention that Fidelity offered no fee equities investing right at the top. So they lured $1 billion in capital to invest in an asset class that has topped and may range trade at best. It’s a classic example of you get what you pay for. SPY (S&P ETF) shows Fidelity’s announcement on 9/5/18 on S&P graph.
Fidelity lured people in at the top of the equity market for one big reason. They wanted to attract capital from fee sensitive people, both young and old, to eventually port them over to a crypto-based world. When their index provides lackluster returns, Fidelity will be there with an exciting alternative. Remember, Fidelity has been working on crypto for years. It started accepting BTC as payment in its lunchroom in May 2017, well before BEFORE BTC got hot in 2017.
Bottom Line: Where crypto finds a bottom short term is an open question. Where crypto and crypto assets will be in a year or two is not. Two years from now, any portfolio is going to have a major allocation to crypto assets, whether that be currencies or digital securities or both. Novogratz knows this, which is why he is Fidelity’s first customer.
All smart money has to do is survive any potential shock over the next four months, and they stand ready to cash in. The take away for readers is to have cash ready to deploy and discipline to wait for the right opportunity to get in.