Fidelity Digital Assets, the cryptocurrency custody arm of financial services giant Fidelity Investments, has been hit by a significant decline in revenue in 2023. According to documents filed with Companies House, the business experienced a 60% drop in revenue compared to 2022, bringing in just £545, 000 ($695, 000) over the past year. This financial slump comes alongside a rise in operating expenses of 32% year-on-year, reaching £7. 8 million in 2023. The surge in expenses is primarily attributed to increased staff salaries.
The decline in revenue is reportedly due to a decrease in service-level agreement (SLA) fees. SLA fees are typically paid by clients for guaranteed service levels, such as secure storage and timely trade execution. This suggests that Fidelity Digital Assets might have witnessed a reduction in client activity or a shift in client needs, leading to lower demand for SLA-backed services.
Fidelity remains optimistic about the future of its crypto custody business, however. The company maintains that revenue is “forecasted to grow upwards with increasing business activity in custody and trading services, as additional new clients are expected to be onboarded. ” This confidence could be based on several factors, including an anticipated growth in the overall cryptocurrency market or strategic partnerships that bring in new customers.
The news of Fidelity Digital Assets’ financial struggles comes amidst a broader slowdown in the cryptocurrency industry. The price of Bitcoin, the world’s leading cryptocurrency, has fallen considerably in 2023, and the overall market capitalization of the crypto industry has shrunk significantly. This bearish trend has likely impacted investor sentiment and dampened institutional interest in the asset class, potentially leading to reduced demand for cryptocurrency custody services.
Furthermore, the departure of Fidelity Digital Assets’ crypto chief, Chris Tyrer, in early 2023, might have also played a role in the unit’s performance. Tyrer, who had been leading the company’s efforts in the crypto space since 2019, was a prominent figure in the industry. His exit could have created uncertainty among clients and potentially hindered the business’s ability to onboard new ones.
Despite the current challenges, Fidelity remains a major player in the traditional financial services industry. The company’s vast resources and experience could prove to be valuable assets as it navigates the complexities of the cryptocurrency market. The future success of Fidelity Digital Assets will likely depend on its ability to adapt to changing market conditions, attract new clients, and effectively manage its operating expenses.
