In a Canadian first, asset management firm Fidelity Investments has added Bitcoin exposure to its All-in-One Conservative portfolio. The Fidelity Conservative Income ETF Portfolio will now allocate 1% towards bitcoin by integrating the purposes of the Bitcoin ETF.
While a seemingly minor portfolio adjustment, Fidelity’s strategic bitcoin allocation signals growing mainstream conviction around digital assets and their place in conventional investment plans.
Fidelity Embraces Crypto
Fidelity Investments stands today as one of the world’s largest asset managers overseeing $11 trillion in customer assets. The firm only began significant crypto involvement starting in 2018 with the launch of Fidelity Digital Assets - an arm facilitating institutional cryptocurrency operations. Initially many dismissed this crypto segment just opportunistic profiteering during 2017’s market mania by an established player.
Bitcoin prices by 2019 crashed from all-time highs around $20,000 down to below $4,000 dampening interest. Yet Fidelity’s crypto commitment persisted through the subsequent crypto winter. The firm continued expanding digital asset product offerings including:
- Crypto custody services - safeguarding institutional digital holdings
- Mining services - enabling clients to mine cryptos themselves
- Crypto research - delivering institutional-grade analysis on developments
The firm also began integrating digital asset eligibility across individual retirement accounts, charitable donation options and other consumer products.
Most recently in 2022, Fidelity filed with Canadian regulators to launch a spot Bitcoin ETF - the Fidelity Advantage Bitcoin ETF. This ETF went live April 2022, quickly garnering over $100 million assets under management (AUM) since inception.
All of this signals Fidelity's growing conviction around cryptocurrencies as the firm embraces digital assets spanning multiple business lines.
Adding Crypto to Conservative Offerings
In October 2022, Fidelity Canada unveiled plans to integrate bitcoin exposure across the firm’s entire target date and asset allocation suite of funds. The first product modification came this November by adding bitcoin to Fidelity’s All-in-One Conservative ETF Fund portfolio.
Specifically, the Fidelity All-in-One Conservative Income ETF Portfolio (FCIP) will allocate 1% of the fund towards the Purpose Bitcoin ETF. This marks the first ever integration of cryptocurrency exposure into an otherwise conventional conservative investment portfolio.
Kelly Creelman - Senior Vice President of Fidelity Investments Canada explained the forward-looking move, stating:
"We have seen growing interest from advisors and investors looking to gain tactical exposure to cryptocurrencies through their portfolios. Integrating a small allocation to purpose Bitcoin ETF in our asset allocation ETFs provides advisors another option to achieve that."
While only 1% exposure, the FCIP bitcoin allocation is seen as a first step bringing digital assets into mainstream passive investing. FCIP manages roughly $200 million worth of assets from conservative investors.
The Fund’s portfolio manager cites client desire for prudent crypto exposure plus bitcoin’s historically low correlations with other asset classes as key motivators behind Fidelity Canada’s change.
Bitcoin as Portfolio Hedge
Fidelity research found from June 2020 to July 2022 adding a 2-6% bitcoin allocation to 60/40 stock/bond portfolios substantially improved cumulative returns while lowering volatility. This data affirms bitcoin’s merit as an uncorrelated asset improving portfolio risk-adjusted returns - a characteristic especially valued among conservative investors.
The report concludes “In each case, the risk-reward profile improved substantially with a small allocation to BTC.” Hence starting with a modest 1% position allows clients to gain upside exposure while Fidelity continues assessing larger allocations.
Sammy Dakdouk, VP overseeing Fidelity Digital Assets further notes,
"Existing correlations may not persist, but investors should have the access and ability to add BTC to portfolios regardless."
This signals Canada’s move could encourage Fidelity to incorporate crypto into investment products elsewhere as client interest continues growing.
Mainstreaming Crypto Assets
Fidelity adding bitcoin to its Conservative Income ETF Portfolio product has significant implications for wider cryptocurrency adoption.
1. Institutional Endorsement
Despite meteoric price gains during recent years, many legacy finance players remained skeptical of Bitcoin and digital assets. Common accusations range from hyper volatility to environmental damage, lack of clear regulatory oversight plus links to illicit transactions.
Yet world-leading asset manager Fidelity actively embracing crypto - not just opportunistically profiteering but incorporating into core offerings - powerfully refutes much prevailing skepticism.
Instead it bolsters credibility around the view supporting regulated, controlled exposure to decentralized digital assets as a legitimate portfolio diversification strategy.
If conservative funds incorporate crypto, this implies potential for substantially greater mainstream traction.
2. Market Validation
The total valuation for cryptocurrency markets surged from roughly $780 billion at the start to briefly eclipse $3 trillion in late 2021. Still at approximately $850 billion currently, the crypto space compared to equity markets valued around $80 trillion remains tiny at just over 1% comparative size.
Yet Fidelity’s adding bitcoin to its Conservative Income ETF substantiates market outlooks anticipating exponentially greater capital inflows ahead. Research suggests that just 10% global portfolio allocation towards crypto could pump valuation towards $20 trillion-plus. This implies 20X growth.
While forecasting assumptions vary on upside magnitude and adoption timelines, Fidelity’s active portfolio integration signals gathering institutional conviction around sustained maturation ahead within digital asset markets.
3. Focus on Education
Perhaps most crucially, Fidelity taking initiative to carefully integrate digital assets for clients strongly incentivizes broader educational efforts around blockchain technologies and cryptocurrency benefits/risks.
Previously crypto exposure often meant direct independent purchase on exchanges - an intimidating learning curve, especially for conservative retail investors unlikely speculating heavily into such a novel volatile asset class.
Now just like buying stocks or bonds, clients can gain indexed crypto exposure through familiar ETF products. This promises a far less turbulent adoption journey that thoughtfully eases trepidation around the burgeoning but still often mystifying Web3 space.
The Road Ahead
For the newly crypto-infused Fidelity Conservative Income ETF portfolio, the 1% allocation towards Bitcoin marks only the beginning.
Fidelity executives already confirmed they plan adding more crypto assets and blockchain equities into additional offerings targeting different investment risk profiles. Expanding beyond Bitcoin, clients may soon find tokenized versions of Ethereum or other digital assets within standard portfolio product menus.
Yet far beyond just expanding consumers' financial inclusion to decentralization, the permeation of digital assets into conventional passive investing channels carries tremendous symbolic significance.
By proactively assimilating cryptocurrencies within mainstream wealth management pathways, Fidelity helps position blockchain technologies closer towards an institutional tipping point moment.
To this point, Michael Sonnenschein, CEO of Fidelity Digital Assets concludes:
“There’s a sense that maybe there is a changing tide happening. These types of news can accelerate that pace of adoption.”
A prospect sure to keep Wall Street and financial incumbents looking over their shoulder.
Are the walls between crypto and conventional finance crumbling faster than anticipated?