Boston’s Fidelity Investments wants to make it a whole lot easier for ordinary investors to buy into bitcoin. On Wednesday, Fidelity became the latest company to ask federal regulators for permission to launch a fund that would simplify investing in the volatile cryptocurrency.
However, the launch comes as bitcoin is going through another of its stratospheric run up in prices, from $6,700 for one bitcoin a year ago to more than $52,000 this week. The extreme volatility of the digital currency has financial experts warning investors that the risk of losing money on the currency is high.
Fidelity’s proposed Wise Origin Bitcoin Trust would be an ETF or exchange-traded fund, which is a popular way for people to invest indirectly in stocks or commodities. Instead of purchasing bitcoin directly — a complicated and confusing process — an investor could simply buy ETF shares, which are pegged to the value of bitcoin traded on cryptocurrency exchanges.
In announcing the ETF, Fidelity noted that the “ecosystem” around cryptocurrencies has grown significantly, as has demand and interest in ways to participate. “An increasingly wide range of investors seeking access to bitcoin has underscored the need for a more diversified set of products offering exposure to digital assets,” Fidelity said in a statement.
Over the past month, regulators in Canada have approved three bitcoin ETFs for trading in that country. The first to win approval, the Purpose Bitcoin ETF, has already passed $1 billion in assets under management. Earlier this week, Brazilian regulators gave the go-ahead to a bitcoin ETF. But up to now, the US Securities and Exchange Commission has yet to approve a bitcoin ETF.
In the US, Fidelity joins five other companies, including SkyBridge Capital, WisdomTree Investments, NYDIG, VanEck, and Valkyrie Digital Assets, in seeking to offer bitcoin ETFs. But as one of the world’s largest — and most recognizable — investment firms, Fidelity’s embrace of bitcoin ETF will be especially influential with retail investors, according to Ben Johnson, director of global ETF research at Morningstar.
“If there’s one name that’s going to be immediately recognizable to investors, it’s Fidelity,” said Johnson. “Unlike all of those other filers, they have a bigger ecosystem.”
If the ETFs are approved, Johnson foresees a flood of money from individual retirement accounts. “As it stands today, bitcoin is off limits,” he said.
But ETFs, which trade like stocks, could attract lots of inexperienced investors seeking rich returns. That, in turn could drive the value of bitcoin even higher. Johnson and others cautioned that investing in bitcoin is extremely risky, especially because the value of the currency is not driven by fundamental economic and business circumstances as other investments are.
S.P. Kothari, a professor of accounting and finance at the MIT Sloan School of Management, said bitcoin is only worth what people believe it’s worth.
“To the extent that people think this has value, they speculate on its value and it moves up and down,” Kothari said. And if people lose faith, investors could lose big.
“To an ordinary investor I would say be wary of an enormous amount of risk,” said Kothari.
Fidelity is no stranger to cryptocurrencies. The company began running a bitcoin mining operation in 2015, using its own computers to carry out the complex math used in generating new bitcoins. In 2018, Fidelity set up a digital assets operation, to assist institutional investors and trading firms in the buying and selling of bitcoin and other forms of digital money. For example, if a company wants to use bitcoin as collateral for a loan, Fidelity acts as custodian of the currency until the loan is repaid.
Hiawatha Bray can be reached at hiawatha.bray@globe.com. Follow him on Twitter @GlobeTechLab.
