When ETF? A new bitcoin fund tied to Fidelity could be the next best thing

If you've been in the bitcoin space long enough, you're likely familiar with the meme: "When ETF?"

Now it appears that Fidelity Investments might be preparing to offer the next best thing — perhaps with help from a recent policy change by the U.S. Department of Labor.

An exchange-traded fund has long been viewed as a natural next step in bitcoin's maturity, as well as an important onramp for mom-and-pop investors to access crypto via their existing brokerage accounts. Brokerages could carry a bitcoin ETF with insurance via the Securities Investor Protection Corporation (SIPC). Such an investment vehicle might be more appealing to the masses because it would be relatively free of the stigma that stems from years of headline-grabbing crypto hacks, scams, and thefts. 

There are already some non-ETF alternatives on the market. For example, Grayscale's GBTC product, which investors can purchase through conventional brokers like Charles Schwab, offers exposure to bitcoin. But GBTC is structured differently than an ETF, and at times trades at a massive premium. Other options, like VanEck's Bitcoin Trust, is only available to certain institutions. 

It appears that Fidelity will be the latest financial institution to launch a bitcoin fund. Few details exist about the fund, which according to a recent filing is called Wise Origin Index Fund I. The minimum investment amount is $100,000. No sales have been conducted to date.

Although it appears that the fund will not be open to retail investors, it's possible that it could serve as the first iteration of something that Fidelity might ultimately add to the suite of products available to its institutional advisor clients. If so, it would effectively serve as the next best thing as an ETF — at least when it comes to boosting retail exposure to bitcoin. 

Besides offering wealth management services directly to its own clients, Fidelity runs a wholesale 401(k) business that essentially offers a menu of options that third-party advisors can use to build portfolios. The Fidelity Freedom funds offer one example. They provide exposure to domestic equities and international equities and bonds — a basic retirement mutual fund.

Here's where bitcoin comes in. Earlier this year, Secretary of Labor Eugene Scalia said that the department would allow 401(k) plans to include private equity investments and "alternative investments." According to Groom Law Group's Jon Breyfogle, the move is "important because it gives fiduciaries more legal certainty if they want to consider additional asset classes as part of a diversified 401(k) investment option."

An executive in the 401(k) space told The Block that this opens the door for Fidelity to offer its new Wise Origin Index Fund alongside its Fidelity Freedom funds. Many of Fidelity's funds manage billions of dollars. The executive added it wouldn’t be unreasonable to expect a similar Fidelity bitcoin fund to grow beyond $1 billion in AUM.

“Joe Shmoe’s Tire Shop has an advisor who uses Fidelity’s institutional 401k platform to run Joe's 50-employee company retirement plan,” the person explained. “Joe’s advisor on the plan could have the option to review the existing investment options offered to the employees and request that the Wise Origin Fund be added as a way to add another competitive fund to their existing target/index/active lineup.”

Without the same infrastructure as Fidelity, Grayscale has grown its asset management business beyond $5 billion.

Whatever the plan is, a source within Fidelity says its asset management strategy will scale similarly to its custody and trading operations — slowly and methodically. The business, which launched in 2018, still only provides services for one cryptocurrency: bitcoin.