The cryptocurrency space continues to be characterized by conversations surrounding its adoption and investment by large institutional investors. Landmark events like Coinbase’s (COIN) direct listing in April may suggest that digital currencies are beginning to break into the mainstream. According to Fidelity Digital Assets President Tom Jessop, however, there are two emerging themes that are becoming apparent about cryptocurrency.
“What's apparent are two things — this is seen as its own unique asset class with its own fundamental drivers, which differ from other financial assets,” Jessop told Yahoo Finance Live. “We see clients digging into those issues, really understanding not only the technology, but the application of those assets in their portfolios. And maybe most importantly, what we're seeing is continued purchase interest over a longer period of time.”
A recent Fidelity Digital Assets survey found that around 70% of respondents intend to have an allocation to digital assets over the next five years.
“And this is a cross section of institutions ranging from family offices and hedge funds, all the way through to much more traditional institutions,” Jessop added. “So we continue to see slow and steady interest in progress towards bringing this asset class mainstream.”
Jessop joined Yahoo Finance Live to discuss the state of the crypto market amid pandemic conditions as well as Fidelity’s accelerated hiring in light of increased crypto demand. Fidelity Digital Assets, a standalone company originally operating as a division within Fidelity Investments, provides custody and trade execution services for the emerging asset class of cryptocurrencies to institutional investors.
In regard to what may be causing hesitation by investors to take the dive into crypto, Jessop said that volatility remains one of the most prominent factors. Another is that many are still learning about the fundamental framework of crypto that gives them value. Finally, regulation of cryptocurrencies also remains at the forefront of many potential investors’ minds.
“The regulation and regulatory clarity still is an issue for many investors who want to make sure there's a sound footing of regulation, or at least a direction of travel before they commit significant assets to the space,” Jessop said.
Regulation of cryptocurrencies
On Tuesday, Aug. 3, SEC chairman Gary Gensler suggested that the path towards mainstream adoption of cryptocurrencies would be one of tighter regulation. The former Goldman Sachs partner stated that the SEC was looking closely into digital assets and their applications, including initial coin offerings (ICOs), trading venues, lending platforms, DeFi, stablecoins, custody, and exchange-traded funds.
Jessop believes that some level of “regulatory clarity” is needed, and that investor protection is an issue that is limiting the elevation of crypto as an asset class to the confidence level behind stocks and bonds.
“We think the attention is positive, even though there may be some concerning things that are said from time to time,” Jessop said. “But we and others are very engaged with regulators and continue to educate them on ways to bring this asset class into the mainstream and into a regulatory framework that captures a lot of the principles that apply to other asset classes.”
As for what a “fair” regulatory framework for crypto may look like in practice, he said that transparency regarding reporting and implementing standards that apply to existing asset classes is what is most important.
“I think [regulation would integrate] the same standards of investor protection, transparency,” Jessop said. “The things that have made the U.S. and global capital markets liquid and accessible to all investors [would be applied] to digital assets, but again, [regulation must] take into account some of the unique attributes of the technology.”
Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter: @thomashumTV