The Last Trade E017: Tipping Points of Institutional Adoption with Fidelity's Chris Kuiper
Sep 15, 2023
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Chris Kuiper, Fidelity Digital Assets, discusses Fidelity's work in the cryptocurrency space and the potential of free banking with Bitcoin. They explore institutional adoption, Fidelity's influence on Bitcoin investment, understanding Bitcoin's growth and ecosystem, the significance of the having in economics, accelerated adoption and tipping points, and the impact of institutional adoption on the cryptocurrency ecosystem.
Fidelity's focus on custody services and their long-term view of Bitcoin as an asymmetric bet have been key factors in their success and growth in the digital asset space.
Fidelity advises investors to pay close attention to the long-term fundamentals of Bitcoin, such as hash rate, address growth, and transactions, which can provide insights into the asset's resilience and potential value as a long-term investment.
Fidelity believes that institutions are coming to realize that Bitcoin is not a passing fad and are taking steps to incorporate it into their investment strategies.
Fidelity anticipates a turning point in institutional adoption of Bitcoin, driven by the inclusion of Bitcoin in mainstream benchmarks and the reduction of career risk for fund managers.
Fidelity has conducted research on optimal Bitcoin allocations and has found that the allocation depends on an investor's risk appetite and time horizon.
Fidelity emphasizes the role of human psychology, particularly career risk, in driving Bitcoin adoption among institutional investors and the need to understand the psychological factors at play.
Deep dives
The Role of Fidelity in the Evolution of Bitcoin
Fidelity's journey into the world of digital assets began in 1999 with the creation of the fidelity center for applied technology, which aimed to identify potential disruptors and innovations in the financial industry. Fidelity's interest in Bitcoin dates back to at least 2014, when they started mining and experimenting with using it for payments. They recognized the need for institutional-grade custody solutions and eventually launched fidelity digital assets in 2018. Fidelity's focus on custody services and their long-term view of Bitcoin as an asymmetric bet have been key factors in their success and growth in the digital asset space.
The Importance of Understanding the Bitcoin Having
While the impact of the Bitcoin halving on the price and market dynamics is still open for debate, Fidelity recognizes the potential significance of this event. They have observed that investors are becoming more sophisticated and aware of the halving's potential effects. Fidelity advises investors to pay close attention to the long-term fundamentals of Bitcoin, such as hash rate, address growth, and transactions, which can provide insights into the asset's resilience and potential value as a long-term investment.
Preparing for Institutional Adoption of Bitcoin
Fidelity acknowledges the gradual but increasing interest and adoption of Bitcoin among institutional investors. They believe that institutions are coming to realize that Bitcoin is not a passing fad and are taking steps to incorporate it into their investment strategies. Fidelity's approach includes bridging the gap between digital assets and traditional finance, speaking in terms familiar to institutional investors, and addressing their concerns around risk and volatility. They also emphasize the asymmetric nature of Bitcoin's potential returns and the need to appropriately size positions based on the investor's risk tolerance.
The Turning Point for Institutional Adoption
Fidelity anticipates a turning point in institutional adoption of Bitcoin, driven by two factors. Firstly, the inclusion of Bitcoin in mainstream benchmarks will compel money managers to allocate a portion of their portfolios to the asset. Secondly, the reduction of career risk for fund managers as more institutions and peers adopt Bitcoin will drive further adoption. Fidelity believes that a gradual adoption trend will eventually reach a tipping point where institutions rapidly increase their exposure to Bitcoin as part of their asset allocation.
The Integration of Bitcoin into Traditional Portfolios
Fidelity recognizes the challenge of incorporating Bitcoin into traditional investment portfolios. They have observed that investors often carve out a separate allocation for Bitcoin, treating it as a commodity or real asset. Fidelity has conducted research on optimal Bitcoin allocations and has found that the allocation depends on an investor's risk appetite and time horizon. They also highlight the importance of considering Bitcoin's unique characteristics and fundamental indicators in order to determine the appropriate positioning within a portfolio.
The Role of Psychology in Bitcoin Adoption
Fidelity acknowledges the role of human psychology, particularly career risk, in driving Bitcoin adoption among institutional investors. They believe that the fear of underperforming peers and missing out on potential returns will motivate fund managers to embrace Bitcoin. As more high-profile institutions and investors express interest in Bitcoin, career risk diminishes, paving the way for broader adoption. Fidelity highlights the importance of understanding the psychological factors at play and the potential impact on investment decisions.
Anticipating Future Market Developments
Fidelity acknowledges the ongoing developments in the market, with more institutions actively building infrastructure and preparing for the next wave of adoption. While the timing and specific effects of these developments remain uncertain, Fidelity expects a gradual but accelerating shift towards Bitcoin and other digital assets. They emphasize the need for institutions to stay informed and responsive to market trends in order to capitalize on the growing opportunities in the digital asset space.
The Role of Fidelity's Research and Education
Fidelity's research and education initiatives aim to bridge the knowledge gap and provide valuable insights for investors. They focus on delivering educational content that explains Bitcoin in the context of traditional finance, addresses investor concerns, and showcases the long-term value proposition of digital assets. By catering to different investor personas and emphasizing the asymmetric potential of Bitcoin, Fidelity aims to guide institutional investors towards understanding and incorporating digital assets into their portfolios.
The Need for a Gradually Then Suddenly Moment
While institutional adoption of Bitcoin has been evolving gradually, Fidelity expects a turning point where interest and adoption accelerate rapidly. This shift is driven by factors such as increasing exposure to Bitcoin through benchmarks, the reduction of career risk for fund managers, and the recognized potential for asymmetric returns. Fidelity's long-term view on Bitcoin and their experience in the digital asset space position them to support institutional investors in navigating this transition and capitalizing on the opportunities presented by Bitcoin and digital assets.
Bitcoin adoption driven by human psychology
The speaker explains that the adoption curve of Bitcoin is a manifestation of human psychology, with individuals being pushed or pulled into Bitcoin based on their desire to outperform their peers or preserve wealth.
Challenges and opportunities for wealth management and financial advisors
The speaker discusses the challenges that wealth management and financial advisors face in embracing Bitcoin, including career risks and the need for infrastructure to support Bitcoin investments. Fidelity is developing solutions like the wealthscape platform to help advisors integrate Bitcoin into their services.
The importance of gradual adoption and exponential growth
The speaker emphasizes the gradual nature of Bitcoin's adoption and its potential for exponential growth. They draw parallels to historical technology waves and how Bitcoin's infrastructure and network capacity will incrementally improve over time, enabling the onboarding of more capital and people.
The Last Trade: a weekly, bitcoin native, interactive podcast covering where Bitcoin and traditional finance meet on a macro scale. Hosted by Marty Bent, Jesse Myers (Croesus), Michael Tanguma, and a special weekly guest host.
Join us as we dive into what Bitcoin means for how individuals & institutions save, invest, and propagate their purchasing power through time. It's not just another asset - in the digital age, it's the Last Trade that investors will ever need to make.
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