Fidelity Digital Assets, the cryptocurrency custody arm of Fidelity Investments, recently disclosed a significant downturn in revenue, with a staggering drop of nearly 60% and losses exceeding $8.9 million for the previous year. As reported by Financial News, the company’s revenue for the 12-month period ending in December 2023 amounted to $700,000, a notable decline from $1.7 million in the previous year.
The decline in revenue for Fidelity Digital Assets, established in 2018, is primarily attributed to a decrease in service-level agreement fees. These fees encompass digital asset management services provided to Fidelity Investments, its parent company, as well as introducer fees earned through the introduction and onboarding of new customers.
Alongside the revenue decline, the unit witnessed a substantial rise in operating expenses, soaring by 32% year-on-year to reach $9.9 million. This increase is predominantly driven by escalated staff salaries and benefits, which surged from $2 million to $4 million. Consequently, Fidelity Digital Assets incurred a loss of $9 million in 2023, a significant rise from $3.1 million in 2022.
Despite facing financial challenges, the company remains optimistic about its future outlook. In its accounts, Fidelity Digital Assets expressed its ongoing commitment to expanding product and service offerings within the digital asset space. The company anticipates revenue growth fueled by increased business activity in custody and trading services, with expectations of onboarding additional new clients.
The crypto custody industry is witnessing heightened competition, with established traditional finance entities venturing into the market. For instance, London-based Zodia Markets, owned by Standard Chartered, and Komainu, launched by Nomura, signify traditional finance’s interest in crypto custody. Additionally, BNY Mellon and Deutsche Bank, among others, have introduced their crypto custody platforms.
Notably, European asset managers are also embracing digital assets. Abrdn and Schroders, along with other major players, have made strategic investments in digital asset platforms. Furthermore, several asset managers have launched crypto exchange-traded products (ETPs) for European clients.
HSBC Holdings has announced plans to introduce a custody service for digital assets in collaboration with Metaco, a technology firm owned by Ripple Labs. Similarly, DZ Bank in Germany has launched its blockchain-powered custody platform. Moreover, Deutsche Bank and Standard Chartered’s venture arm SC Ventures are exploring solutions to facilitate seamless communication between blockchain-based transactions, stablecoins, and central bank digital currencies (CBDCs).
In summary, while Fidelity Digital Assets faces challenges in revenue decline and increased losses, it remains optimistic about future growth opportunities. The competitive landscape in the crypto custody industry, coupled with traditional finance’s entry into the market, underscores the growing significance of digital assets in the financial ecosystem.
