What Fidelity Is Doing With the Bitcoin It’s Mined

Christine Sandler, head of sales and marketing at Fidelity Digital Assets, talks about how 30 years in traditional finance and an early retirement led her to Coinbase, and, eventually, Fidelity Digital Assets. She discusses the history of Fidelity’s involvement in crypto, how they became one of the first to enter the space, and what the future holds. Topics include:

• what Fidelity Digital Assets is and Christine’s role there
• Christine’s background in traditional finance, how she was drawn into the world of cryptocurrencies, eventually working at Coinbase, and how she found her way to Fidelity Digital Assets
• the role Fidelity sees itself playing in the digital asset space
• how the client base for digital assets has changed over time
• how Fidelity approaches the difficulties around explaining what bitcoin and crypto is, and the most common questions they receive
• how the pandemic has changed the conversation around digital currencies
• the types of services and products Fidelity is considering for the future
• the differences Fidelity sees in how international investors are approaching digital currency
• Fidelity’s plans for a Bitcoin index fund and whether they are considering offering futures
• how financial institutions and institutional investors fit into a world of decentralized finance founded with the ethos of excluding them
• the regulatory improvements Fidelity is hoping to see
• what a Bitcoin ETF would mean for Fidelity
• how Fidelity might use a central bank digital currency in its business
• Fidelity’s thoughts on offering proof of stake services
• whether a more deflationary Ethereum might attract more institutional investors
• and whether Fidelity will offer Ethereum in the future

Thank you to our sponsor! 

Episode links: 

Christine Sandler: https://twitter.com/shoegalnyc

Fidelity Digital Assets: https://www.fidelitydigitalassets.com/overview

Twitter: https://twitter.com/DigitalAssets

Christine leaves Coinbase for FDAS: https://www.coindesk.com/fidelity-poaches-coinbase-institutional-sales-head-christine-sandler

Fidelity Center for Applied Technology: https://fcatalyst.com/overview

Fidelity Digital Assets looking to become prime broker: https://www.theblockcrypto.com/daily/68920/fidelity-digital-assets-eyes-service-for-introducing-crypto-funds-to-big-investors

How the client profile has changed: https://www.theblockcrypto.com/daily/42342/the-client-profile-is-changing-fidelity-digital-assets-exec-says-new-players-are-entering-the-crypto-fold

How to Explain Cryptocurrencies and Blockchains to the Average Person

Unchained episode: https://unchainedpodcast.com/how-to-explain-cryptocurrencies-and-blockchains-to-the-average-person/

Fidelity expands crypto business to Europe: https://www.coindesk.com/fidelity-to-expand-institutional-crypto-business-to-europe

Fidelity obtains New York Trust Charter: https://www.coindesk.com/fidelity-gets-a-new-york-trust-charter-to-custody-bitcoin-for-institutions

Bitcoin Index Fund: https://www.forbes.com/sites/michaeldelcastillo/2020/08/26/fidelity-president-files-for-new-bitcoin-fund/?sh=13aa335445c9

Fidelity survey of 800 institutional investors: https://www.fidelitydigitalassets.com/bin-public/060_www_fidelity_com/documents/FDAS/institutional-investor-study.pdf

FDAS hiring: https://www.fidelitydigitalassets.com/articles/engineering-hiring-initiative?ccmedia=owned&ccchannel=social&cccampaign=hiring_blog&cctactics=twitter

Kingdom Trust: 

Transcript:

Laura Shin: 

Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I’m your host, Laura Shin, a journalist with over two decades of experience. I started covering crypto five years ago and as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. Subscribe to Unchained on YouTube, where you can watch the videos of me and my guests. Go to YouTube.com/c/unchainedpodcast and subscribe today.

Laura Shin: 

Welcome everyone to the 200th episode of Unchained. When I started this baby, I never realized what a big part of my life it would become, so, thank you to all the listeners, and to now, the viewers, who have helped Unchained get to where it is today. Today’s guest is Christine Sandler, head of Sales and Marketing at Fidelity Digital Assets. Welcome, Christine.

Christine Sandler:
Hi, Laura. Great to be here. Congratulations on your 200th show.

Laura Shin:
Thank you. What does Fidelity Digital Assets do and what do you do within it?

Christine Sandler:

Fidelity Digital Assets, we’re an institutional custody and execution services provider, and I’m responsible for our sales, marketing, and research teams. So, many of our client-facing activities, and also, our perspective in the marketplace.

Laura Shin:
And so, why don’t we dive into your story of how you got into crypto, because you have extensive experience in traditional financial services, so, how did you make that transition?

Christine Sandler:
Happy to talk a little bit about my background. So, I joined Fidelity Digital Assets in March of 2019. Prior to that, I was with Coinbase for about a year, and prior to that, I spent about 30 years in traditional finance. The 30 years were composed with, I traded on both the buy side and on a proprietary basis early in my career, and then, as trading began to change, I did a little bit of a shift where I went to work for Bloomberg, and Bloomberg intelligently put me in their electronic trading division in 1998, so, as a former trader, selling trading technology to hedge funds and other institutional participants. 

And I was somewhat successful, and chose to join a startup based in Chicago, called Archipelago, and Archipelago was quite successful in helping to shape the narrative around electronic trading. Archipelago was subsequently acquired by the New York Stock Exchange, the business that I ran was spun off and sold to Merrill, entered Merrill Lynch in 2006 as an MD, courted that business over, that became the basis of Merrill’s electronic offering, and then about a year later, joined my team at the New York Stock Exchange, where I became Global Head of Sales, reporting to the CEO and part of the management committee.

It was a great time to be at the Exchange. Lots of change, rebuild of the technology platform, changes in market structure, and also, the backdrop of the financial crisis. So, it was just an incredible vantage point, to see multiple narratives begin to play out. 

We were, the New York Stock Exchange was acquired by a rival exchange in 2013. I left to join Barclays and was there for about a year and a half. And then I subsequently retired, and I think, for me, the change was, we went from creativity, a great deal of creativity in terms of shaping markets, and then a period of intense competition, and then, full-on commoditization in about 10 to 15 years. 

So, the full-on monetization was not nearly as fun as both the competition and the creativity, so, I retired. And I was little young to be retired. Most of my friends weren’t retired, but I started to think about when I was happiest and most successful, I felt like I was surrounded by some very smart people who were solving complex problems, and that’s what led me to crypto. I couldn’t help but notice that there were some very intelligent people finding their way to crypto, and I took at a look at the markets and found them to be clearly dysfunctional and homogenous, and I thought, maybe there’s something I could bring from my previous experience to these markets. 

And so, it was the market dysfunction that truly attracted me at first, and the underlying technology, all of the use cases and this incredible community, that kept me here. So, very pleased to be part of this community and love the change that we’re seeing, kind of year over year, month over month, in terms of the development of the marketplace and the ecosystem.

Laura Shin:
And how did you end up coming out of retirement to work at Coinbase?

Christine Sandler:
It’s actually a funny story. There was a recruiter that had given me some guidance, and I was working with him on a couple of searches, either for me for others, and one day, out of the blue, he calls me up and says, Christine, I have something a little off the beaten path. And I said, David, is it Coinbase? And he said, yes, it is. So, quite honestly, I was delighted to speak with Coinbase. I couldn’t have picked a better place to get kind of a really deep education in crypto. Obviously, market-leading brand, wonderful team, and a great experience. So, engaged with Coinbase, during that period of the runup in 2017, when things were going absolutely, kind of bananas, and joined them in March of 2018.

Laura Shin:
And tell me, then, about the transition to Fidelity.

Christine Sandler:
So, the transition to Fidelity, look, I think, what I loved about Coinbase was the possibilities. I mean, they clearly looked at digital assets as…there were great possibilities for lots of different client constituents, and clearly, they were an on-ramp for lots of individuals. So, that was their kind of core client base. Then they began to grow into different businesses, but I came from an institutional background, and I felt that a real necessary focus had to be placed on institutions and to have an institutional player with an institutional focus, and I felt that that was sorely missing. So, when I chose to leave Coinbase, I wanted to leverage the experience that I had in the past, and the clear choice, or the clear player was Fidelity. So, engaging with Fidelity, kind of brought together both of my passions for institutional engagement, and this wonderful new ecosystem of digital assets. So, it was good fit for me. It was less about leaving Coinbase, and more about joining Fidelity.

Laura Shin:
And what role does Fidelity see itself playing in the digital assets space?

Christine Sandler:
That’s a great question, Laura. I think when we look at the space, I’m not sure if everybody realizes this, but our digital journey goes back a number of years. We began to study distributed ledger technology back in 2013-2014. We began to mine cryptocurrencies, just in order to get more familiar with the asset. So, we ended up with owning the asset and we realized that there were a number of frictions that institutions faced in terms of the safe storage of those assets, trading those assets, and there was lack of a real infrastructure, and I think that that contributed to our decision to begin to build institutional services and products, given the fact that Fidelity does engage with a broad range of participants, both retail investors, high net worth individuals, founding offices, registered investment advisors, pensions and endowments. So, we do have a broad perspective on the traditional ecosystem, and I think that we viewed our opportunity to be unique, in terms of providing services to the institutions. 

Prior to launching a commercial business, we implemented a couple of proof of concepts that helped to cement the thoughts around building institutional products and services. So, it was not something we took lightly, and I think we also felt that there were really robust onramps for retail clients, but no one was methodically serving the needs of the institutional investor. Looking at the frictions that they faced, and trying to kind of, ease those frictions.

Laura Shin:
So, you just kind of listed out the general client base that you have, but I’ve wondered how has that changed over time?

Christine Sandler:
Definitely. So, there has been a pretty big shift, and I would say, this year in particular, so 2020, has been a pretty significant change. I think it’s been a significant change in so many respects, but we’ve seen a fairly strong move, in terms of, the institutional adoption. And when I say the institutional adoption, clearly there were institutions that were trading in digital assets or engaging in digital assets prior to 2020, but many of those were natively digital hedge funds, venture firms, liquidity providers. So, it was a fairly small, and not too diverse a group. They were similar businesses. What we did see in 2020 was an adoption of…a broader adoption of that digital gold narrative. And that digital gold narrative began to resonate with other pockets of institutional investors, namely hedge funds, ultra-high net worth individuals, and subsequently, family offices, registered investment advisors that serve both family offices and ultra-high net worth individuals. So, we saw a broadening of the base in terms of the types of clients that we were seeing engaging in the ecosystem. And so that, enter Fidelity, we kind of speak that language. We approach risk in a similar way to help some of the more traditional institutions approach it, and we were also a friendly face. We’ve probably interacted with most of these firms in other asset classes and in other ways, so, we became a trusted brand for institutions and I think that that’s contributing to our success here.

Laura Shin:
So, I totally understand all that, and yet, I do wonder if the fact that Fidelity, kind of, was first amongst its group to really embrace this industry, if that ever led potential clients to seem skeptical about the fact that Fidelity was kind of putting itself out there, and in general, you know, whether or not you thought being first kind of helped or hurt Fidelity in its attempt to kind of build out this business?

Christine Sandler:
That’s a unique perspective. I think, when we…I do think, when we…I’ll draw that parallel back to, we also survey clients fairly often, on a fairly regular basis, we’ve issued two digital, institutionally-focused digital asset surveys. One was 2018 and one was 2019, the results of which we unveiled the following year. We plan to rerun the survey as well. And what we looked for is, general sentiment around digital asset adoption. The frictions that clients face, and then we look to see, are these trends in place? And in 2018, we saw that there was some interest. It became kind of a touchstone piece for us. In 2019, we started to see some increase in the adoption, and the positive sentiment around digital assets. And then, we also started to see that there were some thoughts around, when we queried, like, what is missing in terms of the ecosystem, and clearly, they sided some of the traditional frictions, like regulatory ambiguity. They said, also, that there was a lack of traditional players. I think there was the hope that more traditional institutions would begin to adopt solutions. And I think, now we are seeing a little bit more of that, but clearly, Fidelity was one of the first, and I think it was significant that in 2017, Abby Johnson chose to address Consensus. That would be nontypical, but that was a fairly bold statement from our CEO saying, look, we see tremendous promise in terms of digital assets, and we’re willing to take both our intellectual capital, the experience that we have in other asset classes, to help build a framework to empower others to adopt digital asset strategies. And so that footprint was in place, and we continue to test the market as well, to see, look, are we on the right track, are we building the right tools and services to serve the client that we feel most closely associated with.

Laura Shin:
And I think, also, because of how early you guys were, and even now, still today, I think, this is a pretty prevalent problem. One of the hardest or biggest challenges that people face in bringing new people in crypto, is simply explaining what crypto is or what bitcoin is, or why people should care about them, or how they work, and I know that this is a core part of your duties of the messaging around this, and just to underscore how important this is, like one of my most popular episodes is titled something like How to Explain Cryptocurrency to the Average Person. I don’t remember the exact title, but something like that, and a recent guest on the show, Dan Tapiero, mentioned it to me saying, that for him, it was one of the most pivotal shows for him in his journey to understanding how bitcoin works and what it means, and blah, blah, blah, and it’s funny that he remembers it all these years later, and to mention to me, that was the episode where I finally understood this key issue. 

So, what are some of the most common questions that you field, and what are your favorite or most effective explanations?

Christine Sandler:
First of all, that is a great statement, and I think everyone that’s involved in digital assets, in spite of the length of their involvement, has kind of one of those, really strong reactions, to either something that someone has written, or a podcast, where they’re like, wow, this really pulls in so many narratives, or really helps to clarify some of the things that I think about, and I think, that’s one of the things that we take pride in. So, clearly, we have an institutional voice. Clearly, we have an opinion on digital assets. It’s our hope that we can help shape the opinions of others that are thinking about investing in digital assets. So, we did hire someone, a brilliant young woman, to lead the research for our unit, and we feel very strongly that content should be part of the narrative around digital assets, and you would be surprised at some of the questions that we receive. Incidentally, the woman’s name is Ria Bhutoria, and we would be lost without her. She’s an absolutely exceptional talent and I hope that she will be on your show at some point, but she is just truly, truly an exceptional talent. And the way we’ve leverage Ria’s content is in a number of ways. So, what we try to do is, either explain things about the ecosystem in relative terms, so that clients understand, wow, I understand this parallel in traditional assets or equities, per se, this might be the parallel in digital assets. So, things like the importance of audit. So, structural components around either the technology, the ecosystem, or even regulation.

But we also talk about, what are some of the prevailing investment themes, whether that’s bitcoin as a store of value, bitcoin as exposure to the venture, an aspirational venture bet. So, what we like to do is to take some of the narratives that are in play, and maybe help to reinforce other’s opinions, or others that are beginning to shape their narrative. We hope that the writings and the thoughts help to reinforce their own narratives, as well. So, I think we want it to be as constructive as possible. We want the dialogue to be as open and as thoughtful. We’ve also included some thought leaders, in terms of, as contributors to some of the research. So, it’s not just us thinking about, in a room thinking alone, we partner with the rest of the ecosystem for really balanced, thoughtful pieces.

And we’ve also taken, you know, we’re all on Zooms, so we’ve leveraged some webinars, as well. So, we’ve had a couple of webinars with some great speakers, Dan Morehead from Pantera, Cathie Wood, from ARK, and we intend to kind of continue to leverage that medium, as well. And we find that that really does drive home a narrative. And I think, when we think about creating that content, we also create that content and tailor that content based on the segment that might be interested. And so, let’s say it’s a group of family offices. That content we can help to shape for a family office audience as well, so we’re lucky enough to be exposed to a number of different types of clients, and also, a number of different client coverage teams, that interact regularly with them. So, we listen to their feedback and we listen to their concerns, and we hope to address those concerns and shape them in terms of…by leveraging this content. 

Laura Shin:
So, you did allude to this earlier, but let’s dive into it a little bit more. How has the pandemic changed, or any of the other related events this year, changed the conversation? What new questions are people asking, or what new levels of understanding have they had because of these outside events?

Christine Sandler:
Yes. I don’t think I fully answered your question around what are some of the things that people are asking about, but clearly the pandemic has really helped to shape the narrative around digital assets. So, we clearly hear more from folks that have not been active in assets, in digital assets, up to fairly recently, but clearly, Fed actions have had a profound impact on digital assets and on the digital gold narrative. And when we go back to some of the content that we’ve collected as a result of the survey, we look at those frictions. So, one of the frictions was, regulatory ambiguity. We’re beginning to see some really constructive statements from a number of regulators. Whether it’s the CFTC, even in their enforcement action against a noted exchange, they noted the potential, for digital assets was still quite viable and great. That’s pretty constructive. And clearly, a watershed event was the OCC making a statement saying, look, it’s okay for banks to hold digital assets on behalf of their customers. That’s a critical piece. So, when you look at that as a friction, well, we’re ticking that off. 

And then, I think, also, the number of high-profile, you know, very successful, established investors, either in the global macro space, or the hedge fund space, making profound statements around the value of bitcoin in a portfolio, in terms of diversification, building on that digital gold narrative, that’s really helped to reduce the kind of career risk of investing in digital assets. So, I think, clearly, Paul Tudor Jones, and most recently Stan Druckenmiller, constructive, brilliant investors, across a number of asset classes and across a diverse market times, that goes a long way as well. So, those are the types of questions that we hear, so could bitcoin be part of a diversified portfolio? We seek to help clients do the work to understand, could they fit bitcoin in the portfolio, and using what type of vehicle. Is it so holding spot bitcoin? Is it exposure to a fund? Is it finding, actually, a professional manager to leverage? So, someone that is experienced in digital assets or has implemented a more dynamic strategy. So, it really is about consulting with my client about the best options for them.

Laura Shin:
So, currently, as you mentioned before, Fidelity Digital Assets focuses on custody and execution. What are some other services and products that it feels would help kind of fill out its offering?

Christine Sandler:

Well, great question, Laura. I think, so we felt that custody and execution services, really were the pillars of an institutional offering, and I think we still have, yet a lot to build in terms of a really robust ecosystem. What we focus on, is we think about institutions, let’s choose hedge funds. You know, hedge funds would like to actually leverage or use capital more efficiently. It’s very challenging to kind of begin to deploy capital and have to place it on multiple exchanges, so, in building our execution services platform, we sought to create one single counterparty and access to multiple pools of liquidity, but I do think we can also do a better job there. When we think about easing those frictions, we think about capital efficiency. Could we make it a little bit easier? We look at the growth in lending and we look at that as a potential opportunity to build out an adjacent service as well. When we think about liquidity aggregation, liquidity is still highly fragmented in this marketplace and I do think that those are the types of frictions that we think about, and we think about easing for our clients. So, when we think about product adjacencies or building out a business, we always think about, look, is this a benefit for our clients? Could Fidelity potentially benefit from this as well? And honestly, is it good for the broader ecosystem, as well?

Laura Shin:
And Fidelity Digital Assets is also expended to Europe and Asia, in particular Singapore. Do you find that institutional investors in these different geographies have a different attitude or approach to investing in crypto? For instance, do their concerns or questions differ from those of US investors, or do you find it’s like different types of investors in those places that are interested? What are the differences you see?

Christine Sandler:

So, there are a couple of differences, and quite honestly, actually, I’m going to go back to the survey. We opened up the survey, this past survey, to European investors, and we were actually pleasantly surprised to see the numbers were quite robust with respect to interest, both in, particularly throughout Europe and that’s been consistent. I would say there are similar trends, but slightly little bit more regional differences. We also see that in North America, we don’t have…mining is not as prevalent as it is in Asia. We have more interest in terms of mining operations and other slightly different strategies that are being employed. Aside from that, we do see a fair amount of consistency. And the same types of challenges as well, in terms of aggregating fragmented liquidity and accessing markets, as well.

Laura Shin:
And when you say, in Asia, people are more interested in mining, obviously, the Fidelity Center for Applied Technology does do mining, is that what you were referring to? Or what exactly did you mean by that?

Christine Sandler:

No, I think…look, I just think, Fidelity does mine cryptocurrencies, but we actually don’t see as…we see a little bit more traction in the US. We are seeing a little bit more traction in the US, but mining is really, quite an established business outside of the US. That’s really what I meant.

Laura Shin:
And so, I understand this is a different unit from Fidelity Digital Assets, but I think It’s somewhat of a mystery what Fidelity is doing with the bitcoin that it mines, and given the news this year, with MicroStrategy and Square, you know, it just sort of seems like perhaps what it’s doing is some smart financial move that has made big news recently. 

Christine Sandler:
I’m actually glad you asked that question, because Fidelity Center for Applied Technology is obviously part of our organization and quite honestly, Fidelity Digital Assets wouldn’t be here without the Fidelity Center for Applied Technology, and what we do there is we study lots of different technologies. So, whether it’s distributed ledger, and we implement the proof of concepts, literally there, and then test the viability for commercial propsects…to see if they can actually be viable commercial businesses. So, the Center for Applied Technology is doing lots of very cool things, some of which I’m not even aware of. We think of them as our R&D. In terms of making smart decisions around the use of digital assets, look, I think a smart decision was to allow our donor-advised funds to begin to accept appreciated digital assets to fund those accounts. That was game changing. I think that’s something we come to expect from Fidelity, and I think that that spirit of innovation that lives in Fidelity Center for Applied Technology does bleed out into the rest of the company. So, Fidelity does own the Bitcoin, and quite honestly, in terms of the appreciation, I think it’s been a decent move. 

Laura Shin:

Yeah, I’m sure a lot of other companies are wishing that they’d gotten in as early as you have. 

So, in a moment we’ll be talking about a future of bitcoin index fund and other Fidelity plans, but first a quick word from the sponsors who make this show possible. 

Laura Shin:

Back to my conversation with Christine Sandler. In august, Fidelity Investments President, Peter Jubber, filed form D documents to the SEC to establish a bitcoin index fund called Wise Origin Bitcoin Index Fund I. It has an investment minimum of 100 thousand dollars, so I think we could probably guess what type of investor or client this is for, but can you elaborate on that, and you know, just, is this somebody who, like why would they prefer this over something like spot bitcoin?

Christine Sandler:

Look, Laura, that’s a great question. I think in creating the product, we…and interacting with our clients as well, there are some clients that can’t hold spot bitcoin in a portfolio, and need that kind of wrapper of a fund, whether it’s of the downstream impact of actually holding physical bitcoin in a fund, whether it’s tax treatment, or what have you, we found that there were a number of clients that wanted exposure to the asset class, but did not have the luxury of holding spot bitcoin, or it was just way too cumbersome. The opportunity to create, it would probably not shock you that a large asset manager would have potential designs to create asset management products in a new asset class that we know and love. Primarily, it’s to accommodate those that really did have challenges in terms of holding spot bitcoin in a portfolio. So, yes, it’s geared to institutions. Either accredited individuals or institutions, and we look forward to that fund launch fairly soon.

Laura Shin:
Any date you can put on that?

Christine Sandler:
I can’t. I wish I could. I wish I could. More to follow.

Laura Shin:
And you don’t currently offer futures, but is that something Fidelity is thinking about doing?

Christine Sandler:
It’s unlikely that we would offer futures, at least in the near term. We’re not a huge future shop as an organization. It’s not outside the realm of possibilities, but it’s not on the near-term road map. Clearly, we have seen the trend where a lot of investors, particularly on the hedge fund side, have looked to future as an on ramp, or as an on trade to this asset class. We can’t deny that. The growth in open interest is absolutely underscoring a broader institutional narrative, as well. 

Laura Shin:
One thing I wanted to ask about is, a driving ethos behind the rise of bitcoin, and crypto more broadly, is the fact that it cuts out intermediaries, you know, that it enables people to transact peer-to-peer, that is democratizes access to finance. So, giving that premise, where do you think financial institutions and institutional investors fit in, in this world?

Christine Sandler:

I think they can fit in many places. It’s also our belief that the infrastructure that we’re building at Fidelity Digital Assets will help empower other intermediaries to build out businesses as well, and clearly, we’re seeing that trend. So, while we offer products directly to customers that have investment philosophies and investment strategies predicated on bitcoin and other digital assets, we’re also taking our infrastructure and offering it to others to help them build digital asset businesses. So, whether they are payment processors or financial intermediaries that are looking to expand their offering, they leverage our technology. So, clearly, we’re potentially empowering the next phase of competitors. We feel that the broader ecosystem could withstand that competition, and the more robust the overall ecosystem gets, the stronger and healthier the markets will be. 

Laura Shin:
And what types of businesses are you seeing interested in those sorts of solutions?

Christine Sandler:
So, we are seeing a number of intermediaries, so we are seeing some interest from banks. We actually announced a sub-custody deal with another custodian, a custodial bank, and…

Laura Shin:
Kingdom Trust.

Christine Sandler:
Kingdom Trust. We serve as a self-custodian for bitcoin for them. And we expect to see more in this space. They may not look the same as Kingdom. The beauty of this is through API connectivity, you can tailor the experience to meet the needs of the underlying investors. And also, you can keep, in a sub-custody offering, the custodian maintains control and maintains the client experience. So, they retain the ability to shape that client experience while leveraging our strong technology. So, it’s potentially a win-win situation. It gives them the ability to potentially propel into a new asset class without having to build from the ground up.

Laura Shin:
And so, to go back to the most recent survey that you published in June, one fact that struck me was it said that 25 percent of European investors found the fact that cryptocurrencies are “free from government intervention to be appealing, whereas only 10 percent of investors in the US feel this way.” I guess I was surprised because I sort of view libertarianism as being more popular in the US, so, what do you think accounts for this discrepancy? 

Christine Sandler:
You know, I would be speculating, but my perspective might be shaped by, I think Americans feel that the dollar is a pretty safe, stable currency. That may not be the same perception throughout Europe, where there had been historic instability around individual currencies, but I think that may help to shape some of these opinions. Like if you queried someone that was in South America, I think you might see even higher numbers. That is definitely something that we see that’s not consistent globally. 

Laura Shin:
And we lightly touched on regulation or the lack of clarity around it, and I wondered, that’s something that a lot of people in the crypto space have been talking about and saying they feel it’s sort of hindering development, at least here in the US. What’s on Fidelity’s wish list when it comes to better crypto regulation.

Christine Sandler:
We are really excited to see the SEC’s reaction to Wyoming’s No-Action letter stating that one of their banks was a qualified custodian. What we think is really important is that the period of consultation that the SEC has kicked off, could potentially yield, not only greater clarity, but a really collaborative effort in terms of shaping the thought of what it means to be a qualified custodian for digital assets, and we absolutely welcome that dialogue. So, on our wish list is absolutely more regulatory clarity, and quite honestly, we’re almost indifferent as to what structure it is, whether it’s a bank or a broker-dealer, or an ATS. Quite honestly, we’d run to that regulated entity and create a business that was most regulated. We’re open to contributing to the discussion around regulatory clarity and what potential best practices should be. 

Laura Shin:
And there was news recently, that SEC Chairman, Jay Clayton, will be stepping down at the end of the year and I’m sure many people wish him well, but I also know that a lot of crypto people who work closely with regulators were pretty excited because they feel that he’s been a little bit of an impediment to the development of the space, and a lot of people are also saying that this is quite positive for a potential bitcoin ETF, sometime soon. How do you feel that a bitcoin ETF or at least the idea that there could be one soon, will affect your work at Fidelity?

Christine Sandler:
Look, the opportunity to have a bitcoin ETF would be fantastic. While we are still talking about a nascent industry and ecosystem, I do think that a bitcoin ETF would be met with great praise. Just look at the recent inflows to Greyscale. Greyscale is probably the only immediately accessible product. If you woke up one morning and said, I need to have exposure to bitcoin, you can immediately access it through the Greyscale Bitcoin Trust. 

We do think that there will be more competitors coming to balance that out, but clearly, an ETF would represent really broad-based access to the product. If there’s one concern, are we ready for it? Are we ready for that kind of volume? Let’s hope. Let’s hope the ecosystem that we’ve built is resilient and strong enough. It’d be a horrible faceplant if we didn’t.

Laura Shin:
And Fidelity Digital Asset has said for a while, that it might offer Ethereum in the future. I think an article, even earlier this year said it might even happen this year. Do you have any update on when that might happen, or what factors would enable that to happen?

Christine Sandler:

It’s clearly on the road map, Laura. I would be remiss if I could state a date, but definitely on the road map. 

Laura Shin:
And speaking of Ethereum, Ethereum 2.0 is coming online, and already staking has become an established way to produce yields on other crypto networks. Are institutional investors interested in that? Do you see Fidelity shifting to begin offering that service?

Christine Sandler:
I think to be a digital asset custodian, and offering proof of stake assets, you definitely have to offer staking services. It puts you at a disadvantage, so I would expect us to build up those services once we can support Ethereum. To be quite candid, most of what we hear is bitcoin. On occasion, we do hear from investors that are seeking access to Ethereum, but most of what we still hear is bitcoin. So, the predominant institutional narrative is around bitcoin. 

Laura Shin:
And why do you think there’s such a difference in interest?

Christine Sandler:
I think that this digital gold narrative, which is the prevailing investment theme, has really resonated with the more traditional side and that the client that Fidelity Digital Assets is engaging with most frequently. I do think the broader ecosystem has thoughts around whether it’s DeFi or Ethereum, they may have broader use cases. The clients that we’re interacting with are primarily interested in bitcoin.

Laura Shin:
And I don’t know how far you’ve dug into the Ethereum 2.0 system of staking and slashing, but there are some people who are saying that given the way that its set up, that eventually Ethereum could be even more deflationary than bitcoin. Do you think something like that would pique the interest of institutional investors?

Christine Sandler:
I would imagine so. Laura, I think, to be honest with you, bitcoin is definitely the entre vehicle for many of these institutions. We still have basic conversations around, can you please explain what this all means. So, you would be surprised at the lack of penetration among the traditional ecosystem. You’d be surprised. We talk about it every day, but it is not the vernacular for many of the traditional investment community. 

Laura Shin:
Yeah. I mean, that makes sense to me in the sense that, like, most of my friends have no idea about those words. So, you know, I just extrapolate that to probably the rest of the US. But just to understand the process of, you know, adding something new, a new asset or whatever, you know, you kind of mentioned DeFi and I’m sure it’s too far in its infancy to be under serious consideration for Fidelity products, but what are the kinds of metrics you would look for, or just what factors would tip something over into, okay, now, we probably would start offering this?

Christine Sandler:
Clearly, we are a client centric organization, so, we’re going to look to our clients for that demand side of it, and when we think about adding new assets, we think about the technical piece of it, the safety and stability of that asset, and then the underlying network that supports it. And so, those are the primary factors, and I think those are the ones that we would most broadly consider, and then begin to do the work around, look, is this something that we can support with our existing technology? How much of a build would require robust support? We’re typically not a speculative company, so, we would probably go pretty slow. Given the fact that we’re a bitcoin only, we’ll go pretty slow.

Laura Shin:
Can I just ask, because you did talk about how the creative period in your career has been more fun, what is your opinion of what’s going on at DeFi?

Christine Sandler:
I think it’s fantastic. I absolutely think it’s fantastic. It’s been an incredible thing to see these proof of concepts play out in real time, and truthfully, work needs to happen on the governance side and on the resilience. We need greater transparency, but it has been remarkable to see these proof of concepts play out. Just absolutely breathtaking.

Laura Shin:
Yeah. I would agree. Just covering it, it’s sometimes too fast to keep up. So, on the horizon, it looks like we might be seeing more Central Bank Digital Currencies. How might Fidelity use CBDCs in its business?

Christine Sandler:
I don’t think we’ve issued any kind of forward-looking statements around CBDCs, but I do think we believe that CBDCs will be…I think I was on a panel a few months ago and someone asked, the moderator asked, do you think we’ll see CBDCs any time soon, and I think I was the most bullish saying, I think we will see them in at least the near-term. In a couple of years we’ll see viable Central Bank Digital Currencies, and the reason that I think we’ll see them is I think the ecosystem is growing so quickly, particularly when you think about use cases for the real world…the tokenization of real-world assets and leveraging things like smart contracts. I don’t think it’s outside of the realm of possibilities that you would use a digital dollar or a Central Bank Digital Currency to interact with that ecosystem. I think they’ll exist side-by-side with traditional fiat currencies. I don’t think that that’s outside the realm of possibilities, at least in the near term, one to two years away. How that could be used, clearly, to plug into an ecosystem in a similar way to how stable coins have kind of facilitated other activities within the digital ecosystem, as well. 

Laura Shin:
Your CTO just published a blog post announcing a call for hires, that included a call for more than 20 engineers. What kinds of products and offerings does Fidelity have in the works?

Christine Sandler:
So, we’ve got a lot of great plans for the 20 engineers that we hope to join our company. Part of it is building, continuing to build out this robust resilient ecosystem. Part of it is executing on the existing plan that we have for development. When we think about the products and services, we’ll go through the same analysis that any company would go through. Is it better to build, buy, or partner with someone? And quite honestly, we may partner with other strong institutional players in the ecosystem, to get a product to market, either quicker, or if we feel it’s a more robust offering, then we could build ourselves. So, look for us to think about filling those institutional gaps with products and services. So, whether it’s activity in the lending space, whether it’s the reconstitution or reduction of fragmentation in terms of liquidity. Those are the types of things that we will be working on. So, we think about our client needs, obviously, our own resources, and then, really helping the broader ecosystem as well.

Laura Shin:
So, a lending product would be something on bitcoin, where the depositor could withdraw dollars?

Christine Sandler:
That’s something that we’re thinking about. 

Laura Shin:
And as for what you were describing before, is that capital allocation for the different, like, hedge funds or other institutional investors that use your execution service?

Christine Sandler:
So, when we think about that, we think about is the ecosystem friendly enough for a hedge fund to implement the types of strategies that they’ve implemented in other asset classes? And so, that’s truly how we think about the development of the ecosystem.

Laura Shin:
So, what do you see as the big gaps right now, between the way that an operator could work in the traditional financial system, versus in crypto?

Christine Sandler:

Things like, there’s a lack of cross margining. So, let’s say you are a hedge fund, long in futures, lack of cross margining, across spot and futures. That’s potentially challenging for them. I think what we’ve asked participants in the ecosystem to do is to stitch together the pieces. What they want us to do is to begin to stitch together the pieces for them. So, that is more broadly what we’re thinking about and what we’re working on.

Laura Shin:
All right. Well, to satisfy the Twitter trolls, I’m going to ask you, when Fidelity Retail?

Christine Sandler:
Of course. Inevitable. We think about it all of the time, and we do get, look, and we do obviously, get a lot of inbound interest from retail clients. And as we said before though, for us to be a really great institutional provider, we have to remain focused on this institutional client and not to take away from that focus. It’s not outside the realm of possibilities, but it’s not on the near-term roadmap to offer access to retail. Retail has some wonderful robust options, whether it’s players like PayPal and Square that are known to them where they use them all the time, or a more digitally native offering like Coinbase. There’s some really robust options for retail. We feel our efforts are really more focused and better focused on the institutional community, where I think we can actually help scale and breadth and resilience. 

Laura Shin:
So, from your answer, I mean, Obviously, I understand why you’re focusing where you are now. It seems like you’re, kind of, leveraging your particular strength, but it does sort of feel, you know, at some point in the future, that a Fidelity retail offering would happen. So, what would need to happen before you would make that move? Like, are there particular metrics that you’re looking for in the marketplace, or you know, what are the factors that would come under consideration in that decision?

Christine Sandler:
To be candid with you, I think there are so many factors that would contribute to making that decision. The ability to provide a really robust offering, that’s the absolutely critical piece. We’re definitely a client-first organization. If we couldn’t provide something that’s better, we probably wouldn’t do it. 

Laura Shin:
I see. Okay. All right. Well, this has been a super fun discussion. Where can people learn more about you and Fidelity Digital Assets?

Christine Sandler:
Yes. Please follow us. You can follow us on Twitter, @FidelityDigitalAssets, and you can also visit our website and see all of Ria’s great research, and look for us in the media, as well. 

Laura Shin:
Perfect. Thank you so much for coming on Unchained.

Christine Sandler:
Thanks, Laura. Thank you for having me. 

Laura Shin:
Thanks, so much, for joining us today. To learn more about Christine and Fidelity Digital Assets, check out the show notes for this episode. Don’t forget, you can now watch video recordings of the shows on the Unchained YouTube channel. Go to Youtube.com/c/unchainedpodcast and subscribe today. 

Unchained is produced by me, Laura Shin, with help from Anthony Yoon, Daniel Nuss, Bossi Baker, Shashank, and the Team at CLK Transcription. Thanks for listening.