Fidelity applied late on Wednesday to launch a new Bitcoin exchange-traded fund, becoming the most prominent company to enter the competitive race to offer investors a new option for Bitcoin trading.
The funds behemoth may be known for retirement funds and other bread-and-butter investment products, but it has also been tinkering with Bitcoin — and even mining it — for several years. Fidelity Digital Assets has been offering services like custody to large institutions.
Fidelity released a survey of institutional investors last year that showed growing interest in Bitcoin adoption. An ETF would make Bitcoin available to many investors who may be wary to buy Bitcoin directly or through discount brokers like Robinhood. An ETF could be held easily in a retirement account and other kinds of standard investment portfolios. The fund’s sponsor is FD Funds Management LLC, which shares the same Boston address as Fidelity. The ETF would be tracked by Fidelity’s own Bitcoin price-index and Fidelity would be the custodian. Two Bitcoin ETFs have launched this year in Canada. At least six companies have attempted to win approval from the Securities and Exchange Commission for an ETF in the U.S. in the past few years, but were either rejected or withdrew their proposals. The SEC has expressed concerns that Bitcoin is too vulnerable to fraud or manipulative trading on unregulated spot exchanges. But some industry participants think that this is the year when an ETF wins approval. The next chairman of the SEC, Gary Gensler, has been a proponent of blockchain technology, and even taught about it at M.I.T. There are now at least three other ETF applications pending, including from WisdomTree and VanEck. Still, various U.S. government entities remain wary of Bitcoin, because of its association with illegal activities like ransomware. And while Bitcoin now trades on several regulated exchanges, much of the trading is unregulated. The Fidelity application acknowledges the risk of Bitcoin price manipulation, noting that its index tracks only regulated exchanges. “The use of the index is designed to eliminate from the NAV [net asset value] calculation pursuant to which the trust prices its shares those Bitcoin spot markets with indicia of suspicious, fake, or non-economic volume,” the application says. It’s worth noting that buyers of the Fidelity ETF would not be entitled to some benefits of Bitcoin ownership — for instance, the Trust does not expect to participate in “forks,” which occur when new digital assets are created from existing ones. This happened with Bitcoin and an offshoot called Bitcoin Cash, and was lucrative at the time for owners who held Bitcoin directly.
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