FidelityConnects: Bitcoin and beyond – Exploring digital assets

[00:04:02] Pamela Ritchie: Hello, and welcome to Fidelity Connects. I'm Pamela Ritchie. The digital assets market continues to experience significant growth and evolution in 2025 driven by increased institutional adoption, key regulatory developments and product innovation. Today, the total market capitalization of digital assets stands at approximately $5.5 trillion Canadian, which is up more than 50% from a year ago. This coincides with important legislative developments in the United States. Last week, which was dubbed Crypto Week, with Bitcoin recently hitting a new all-time high of $168,000, again, Canadian. Joining us here today to talk about these developments and what may lie ahead for Bitcoin and digital assets is Chris Kuiper. He's Vice President of Research at Fidelity Digital Assets, and he joins us from Washington, DC. Hi, Chris, how are you? Thanks for joining us.

[00:04:59] Chris Kuiper: My pleasure, thank you for having me.

[00:05:00] Pamela Ritchie: We're delighted to have a chance to talk to you about all of this. We'll invite people watching here today to send in any questions for the next half hour or so. We called this discussion Bitcoin and beyond because I think it's reasonable to think a lot of people have at least an understanding of Bitcoin, perhaps even where it belongs, or they've had that discussion. It's the beyond part that we now need to fold into this discussion. Why are we saying beyond?

[00:05:30] Chris Kuiper: You're right, Bitcoin is probably the most well-known. It's got that brand name for everyone. It was the very first cryptocurrency and the one that's still, by far, the largest, at least 60 to 70% of the entire crypto market cap, depending on how you want to count it. We've got other things, too. We've got an entire bucket of tokenized things, the largest of which are stablecoins, which I'm sure we'll talk about today. That's over $250 billion now. Then you've got all the other tokens besides Bitcoin. Some people call these altcoins. They've been seeing a lot of recent interesting developments, a lot of price action as well. Ethereum or the Ether token is the second largest one right behind Bitcoin. You have a number of them after that as well. People are looking, like you said, at beyond Bitcoin, wanting to understand the space more fully so, hopefully, we can answer some of those questions.

[00:06:20] Pamela Ritchie: Let's go ahead and do that. Let's talk a little bit about the regulatory framework which has now been codified in the United States. It was a big week. I think a lot of people heard about the Genius Act. Let's talk about that first. There are more, though, to the regulatory story, but let's begin with the significance, really, of the Genius Act, what it allows, sort of opens the flood gates for.

[00:06:40] Chris Kuiper: This one was recently passed, signed into law by President Trump just this week. It's called the Genius Act. Really think of it like a stablecoin act, that is almost its entire purpose. It's really focused on stablecoins, which we just mentioned. For those who may not be familiar, these are tokens that are backed by, usually, U.S. dollars and usually one-to-one. People send in their dollars, these stablecoins are minted and what that gives you, it gives you something to transact in that stable that doesn't change versus the dollar like Bitcoin. People who want to do trades, who want to make remittances or payments, will often use these stablecoins. It really is one of, what we say, the killer app use case of these crypto networks.

[00:07:25] Stablecoins have found a really good product market fit. For a while there was a lot of regulatory uncertainty so this Genius Act that just got passed, hopefully, removes a lot of that. What it does, in a nutshell, is it really gives some guidelines, clear guidelines as to who can issue these stablecoins. It's very narrow, not anyone can do it. They have to be backed one-to-one by U.S. dollars, and they have to backed by either cash or very conservative cash-like instruments like U. S. Treasuries. Again, a lot more clarity. There's more in it that we probably won't get into the weeds but, hopefully, that gives you a good understanding there.

[00:08:02] Pamela Ritchie: No, that's really helpful. Who can issue stablecoins then?

[00:08:09] Chris Kuiper: It's big financial institutions and banks. Again, I would have to look back at all the very specifics but it's meant to be of these larger institutions that are well-regulated, already regulated under certain things like banking or the Fed or FDIC, or whomever it is are issuing these, not just anyone on the street, if you will.

[00:08:29] Pamela Ritchie: Fantastic. That gives some context around stablecoins and that they can be stable because they have some rules and regulation and legislation now passed around them. There are two more that were passed, they sound a bit more like they're structuring the market in which these stablecoins will circulate, one of them does. Just tell us about the second one first.

[00:08:52] Chris Kuiper: That's exactly right, you said it right there. It's really a market structure bill that's called the Clarity Act. People who follow these bills in politics closely, maybe not as much in Canada but in the U.S., there was one before this called the FIT21 that tried to address some of these things. As a market structure bill it's really trying to delineate which regulators or agencies are responsible for certain things. Digital commodities, that's going to fall under the CFTC. Securities, that's going to fall under the SEC. There's some provisions in here of some minimums, or I should say, I guess, maximums of how much someone could raise in terms of capital without having to go through some of these registrations. Again, a lot of specifics that I'm not even as familiar with yet. This one has not been passed until, well, it has passed through the House, most recently, during Crypto Week here in D.C. Now it's with the Senate and being drafted. I think just this morning a new draft just got put up. We'll be following that one closely as well. Again, big picture, bringing clarity, the much needed clarity. I've gone to these conferences, especially ones in DC here, and for years the number one thing everyone kept hammering on was we need clarity, clarity, clarity, and now they're saying we need codification, codification, so now we're finally getting a little bit of both here.

[00:10:12] Pamela Ritchie: That's pretty exciting, actually. The third piece of legislation, it goes to sort of the central bank story and whether they can or can't or how people, ultimately, would transact with the much talked about, although not really issued, central bank digital currencies.

[00:10:30] Chris Kuiper: CBDCs is a hot term, it can ruffle a lot of feathers. A central bank digital currency, CBDC, this would be a digital currency like a token or a stablecoin but instead of being issued by a private company or a bank, like a lot stablecoins are today, it would be issued directly by the government or the Federal Reserve. This act, the Anti-CBDC Surveillance State Act, is targeted directly at that to expressly prohibit the Federal Reserve in the United States from issuing its own CBDC, and really also giving any kind of accounts to, or bank personal people or retail customers, really, so keeping the Fed away from these things. This really comes off of one of the campaign promises, I believe, and I think there was even an executive order in the early days of Trump's presidency to address this. That's why we're seeing this also being looked at.

[00:11:26] Pamela Ritchie: That's really fascinating. Would you say that from Crypto Week the legislation was, obviously, an enormous part that came out of it but it does seem like in around that we've heard a flurry of announcements, well-timed announcements, of IPOs for companies that are either going to be holding ... these Treasury companies we hear a lot about, can you just sketch that story for us? They're building off new legislation, it looks like, but they've been ready for some time. What are Treasury companies that are holding digital assets?

[00:11:59] Chris Kuiper: When you talk about Bitcoin Treasury companies, or even other digital asset Treasury companies, these are companies that have decided to allocate some of their cash or some of their balance sheet to purchase something like Bitcoin and hold it at the company level. For a lot of these companies they're looking at a way to diversify their cash, preserve their purchasing power or provide access in markets where people can't buy certain vehicles or get exposure to Bitcoin but they can buy publicly traded securities. This allows a bit of an arbitrage or an opportunity to give them access through this way. As you said, this is the hottest thing right now. It's absolutely exploded. On the research side we are trying our best to keep up with multiple announcements every day of either an existing company saying, we're going to adopt a Bitcoin Treasury strategy, or new special purpose companies spinning up to execute these strategies.

[00:12:57] Just as one example here I've got some data. Our research team tracks the publicly traded companies that hold 1,000 Bitcoin or more. In just the last few weeks it's gone from 25 companies to 35 companies. Publicly traded companies now own nearly 900,000 Bitcoin. That's, actually, over 4% of the total 21 million Bitcoin that will ever be in existence. It gives you some idea of how big this is becoming and why a lot of people are latching onto this.

[00:13:28] Pamela Ritchie: Chris, who are some of the big names behind this? It seems like there are a number of names that we recognize along with these announcements that are the beginnings of Silicon Valley names, certainly some of them. Who else though? It does seem like this has attracted really a huge industry interest in this. Just a bit of colour on who you're meeting, talking about, reading about, studying.

[00:13:55] Chris Kuiper: There's, obviously, the biggest company that has pioneered this strategy, pun intended, or maybe no pun intended, which is a strategy formerly known as MicroStrategy. They're, obviously, the biggest, far ahead of everyone else, but others saw what they did and have emulated the playbook to different levels. It really varies over all industries. You have anything from software companies doing this to medical device makers to semiconductor companies. Now we're actually even seeing some companies adopt other Treasury strategies than Bitcoin so they're not buying Bitcoin. There's a handful that are now buying Ether, the Ether token on the Ethereum network, which is one of the things we could talk about, which is maybe why Ethereum's up 100% or so in the last few months. There's even some that are even doing other tokens as well. It's getting pretty crazy in some ways but it'll be interesting to see as we follow this how it turns out.

[00:14:52] Pamela Ritchie: To the best of your ability can you explain the difference between Bitcoin and Ethereum? Ethereum is something that it does sound like we're going to be talking an awful lot more about.

[00:15:01] Chris Kuiper: I's a great question we get a lot and something investors really need to understand. Ethereum, originally, when it was invented a lot of the developers and people were working and writing about Bitcoin. Then they realized this Bitcoin network is really interesting but I think we can do more by making a different one that's more programmable. This way it doesn't just become a monetary good in a payment network, it actually becomes this entire computing platform that you can build these decentralized apps on. That's what Ethereum seeks to do. It's made itself very different from Bitcoin, which I think is a good thing, because these things are very different, in my opinion, they serve different use cases. I think investors need to think of them with a different investment lens.

[00:15:48] So we're big advocates on the research side of looking at Bitcoin as an alternative monetary good, alternative commodity, an aspiring store of value because the whole value proposition is there is a fixed limit, 21 million Bitcoin, that will ever exist and it has all the properties of potentially being a great monetary good, something that you use to store value and make payments in. Ethereum, on the other hand, again, different use case. It's to drive and host these decentralized applications. A lot of decentralized finance stuff is done on Ethereum. Stablecoins are, I think, around 30% of all of Ethereum's transactions. A lot of people are getting excited about Ethereum with the rise of stablecoins. That's why you have to think of two different things and the difference between them.

[00:16:36] Pamela Ritchie: When we think about the use cases, ultimately, whether it's Bitcoin or another digital currency like Ethereum and even stablecoins, you talked about payments, remittances, making sure that those are available and being able to hold a store of value, ultimately. What about the picture for trade? You'll hear a lot about how we can finish this, we can complete this transaction in minutes rather than days. This is often referring to overseas transactions. Sometimes it has to do with enormous contracts that could be oil, or could be anything else in between. The idea of trading and transacting globally could be much, much faster. Do you see this as a boon for trade?

[00:17:29] Chris Kuiper: On the stablecoin side that you mentioned, on a micro level, as in individuals and companies, we're already seeing this. This is why I mentioned stablecoins are like the killer app use case, the perfect product market fit for a lot of people. They want to send money either back home as remittances or they want to pay for things. As you know, things like Western Union and other money transmission services can be very, very expensive to send money to other countries, double-digit percentages as fees. I think the average remittance fee is around 6 or 7%. The average credit card fee around 2 to 3%. Stablecoins and some of these other things, depending on what network you use and maybe how you have to transfer it back into a local currency, they can be 1% or less, even fractions of a penny. We're seeing a lot of use case there.

[00:18:21] To your question on the trade part, global trade, we haven't seen this as much, at least that I'm aware of, although we have seen it a bit at the margin. If you think about how global trade is settled, the U.S. dollar is still king, it's 70, 80%+ of all trade volume, I believe, so people still use US dollars. If it makes sense to either opt out of the dollar or they want to opt out of other trading systems like SWIFT or ACH or some of these other systems here, they might start looking towards something even like Bitcoin, not even a stablecoin, because you have final settlement within a few minutes to a few hours so you can be assured, you can see the transaction. Remember, everything is open on this ledger. Anyone who's ever sent an international wire or SWIFT or something like that, it's harrowing. It takes days, it gets lost, it gets stuck. You don't know where it is, what it's doing, and it's very expensive. Whereas, on the other hand, we have many demonstrated cases of people sending literally billions of dollar's worth of Bitcoin around the world in a matter of minutes for two or three bucks. That gives you the idea of where this could go. It'll be interesting to see if we see this adopted at more of a nation state, big trading partner level or not.

[00:19:39] Pamela Ritchie: Nation state and then even financials like the banks themselves or those that are akin that take deposits and then make such transfers as part of their business. There are so many questions. I'm going to put some of them to you if that's all right. If you were to summarize, Chris, what is the biggest risk and opportunity for crypto today? You kind of answered this but it's good that people are circling back to some of the things you said.

[00:20:07] Chris Kuiper: I think it depends on what you're looking at. Again, we lump crypto digital assets into one big thing because compared to other markets, it's still not that big. You mentioned the 5.5 trillion Canadian dollar figure at the opening there, still very small so people lump it into one thing but really you have to look at specific things. For example, the biggest opportunity for something like Bitcoin, in my opinion, is as this emerging store of value and monetary good, if you look at all the things we store value in, all of the asset classes, starting with real estate is the biggest, bonds is the next biggest, equities or stocks, and then people even store value in things like gold, commodities, art, collectibles. All of that investible universe is around $2,000 trillion U.S. dollars and Bitcoin is a little over $2 trillion right now. It's got .1% of that total addressable market of store of value, is one way to think about it.

[00:21:08] Not necessarily saying it's going to take more of it but you can begin to see that if it even takes a little percentage of the gold market or the bond market or the real estate market as a store of value, that's the biggest opportunity. Of course, the risk is there's a non-zero chance that something could happen to take down this entire network. We've gotten this far with some really big major setbacks, big hacks, big blowups. Even very early there were bugs in the Bitcoin code. But you have to be honest as an investor that that will always be a risk there. We've gotten further and further away from that. I think we've de-risked from a lot of those things. Again, that's one of the biggest risks there. We could talk about other things, risk and opportunities with the other ones but you really have to look at what bucket you're talking about first.

[00:21:58] Pamela Ritchie: Well that's a really good explanation of sort of the overall risks. Other questions, back to stablecoins, what does adoption look like outside of the U.S.?

[00:22:13] Chris Kuiper: It's a great question. I'm not a stablecoin expert but stablecoins are much more adopted outside of the U.S. than within the U.S., I know that for a fact. Again, the three biggest use cases is as a trading pair, so if you want to trade out of another token like Bitcoin or Ether, Ethereum, and into something stable, you want to take risk off, you can just trade into a stablecoin, very easy because it's all digital, it's all on the same rails and network for a lot of these exchanges or platforms, whatever you're using, rather than have to go into dollars at like a bank or something. That can be a lot more time consuming and cumbersome. That's the number one use case. Internationally, it's huge. Stablecoins are a huge trading pair in the crypto universe.

[00:22:57] Two and three are payments and remittances. Again, this is also more popular in other countries because they don't have the banking systems and payment systems that you and I are familiar with and enjoy as developed first world countries. They don't have people who have bank accounts or MasterCard or Visa or Zelle or PayPal or Venmo, whatever it is. That's a big use case as well. To your other point, maybe we see this move beyond the individual level to companies and then corporations and maybe even state levels for stablecoins.

[00:23:30] Pamela Ritchie: That is absolutely fascinating. There's a couple of questions on sort of the role of cryptocurrencies today. I would say you've answered that in the use cases themselves. This is going back to the financials, the sort of legacy financial companies which often have been very good at adopting new technology along the way and incorporating them and sometimes fighting it but then, ultimately, making it work within. The question is why do banks and governments use Ethereum or other digital currencies rather than creating their own? They do create their own as well, right?

[00:24:07] Chris Kuiper: There have been some big banks, big investment banks that have created their own blockchain networks and their own tokens on those. From what I've seen, and I'm not an expert here, they seem to be pretty limited because these are permissioned blockchains, meaning they're not open to everyone to use. They're only to use for their banking partners or their clients or whoever it may be. There may be some efficiencies to gain with using some of this technology but, of course, the question you have to ask is, well, why don't they just, if it's already private and permissioned why not they just use a better internal database or something like that? I think that's what they have to figure out on that level.

[00:24:50] However, to the earlier point of your question, what we are seeing now is the traditional finance companies adopt this. Speaking of Crypto Week and the legislative side, a week or two ago we had the OCC, Office of the Comptroller of the Currency here in the U.S., as well as some of the other regulators go out and specifically reaffirm that large traditional banks and custodians can custody digital assets. There's nothing new here. There weren't any new laws but it was very significant that they went out of their way to reassure and remind people that they can do this. We have seen the big banks, and this is who you haven't seen come into the space yet, Fidelity excluded, or notwithstanding, they have not come into the space in force yet. That's where I think you're going to see a lot of interesting infrastructure develop around this. They're going to develop around what's already there.

[00:25:46] This answers the other part of your question, why would they use something that's already out there? The biggest thing with all these things are network effects. You don't want to use something that nobody else is using. You want to be on the network that everyone else is on. That's what makes it valuable. They're going to adopt and integrate things that people are already using and wanting to use because that's what the value is, that's where the network is.

[00:26:06] Pamela Ritchie: That is so interesting. In a way, at least part way, that's where the regulators are too, they're already there. It's already being regulated. It's an add-on on some level rather than a reinvention. Is that also part of the logic?

[00:26:22] Chris Kuiper: Yeah, and I'm not an expert here in the legality of this but I just thought it was interesting that they didn't have to change laws, they're just reaffirming that, look, we will treat this like other assets or other currencies and you can custody them and we are okay with that. Of course, you have to follow all the same guidelines and regulations but you're not going to get in trouble for that, because we've recognized this as legitimate asset to custody, which I think is important.

[00:26:52] Pamela Ritchie: That's fascinating, as you say, just to sort of justify that. We've also seen some alternative layer one blockchains, altcoins, you hear about this all the time. Solana is one that we hear quite a lot about. It's performed well. Maybe just bring us up to date on sort of where it belongs in a pecking order, if you will.

[00:27:12] Chris Kuiper: That's a great question, one we get a lot as well. Solana is, as you just said, a layer one, meaning it's like a base layer where the security is handled along with all the transactions. It really is in many ways a competitor to Ethereum because it's also a smart contract platform, which is what Ethereum is. When I said people want to build apps, decentralized apps on top of the Ethereum network they're also building apps on top of the Solana network. Now, these networks are completely separate. You can't easily go from one to the other. If you've got tokens and stuff on one you can't move it over very easily to the others. So that's why they're a bit in competition.

[00:27:52] Again, getting back to the use case, Solana is distinguishing itself by trying to be the more performative network, being faster and cheaper. It's all about throughput, more and more transactions per second, getting that settlement and finality done quicker, processing transactions faster and making them super, super cheap. Now, all of these things are engineering design trade-offs. There's no free lunch here. You have to make a trade-off. Their trade-off is they're more centralized. They're more centralized than Ethereum, which is more decentralized compared to it. So it really depends, we're figuring out what the market wants, how much of a centralized system are they okay with versus how much do they want it to be decentralized. That's one of the things that we'll continue to monitor and watch as it plays out.

[00:28:39] Pamela Ritchie: Can I follow up on that by asking you to remind us the benefits of decentralized? I mean, essentially, the idea was always that it was defi and it took you out of the traditional legacy type financial system essentially. That was sort of the goal.

[00:28:53] Chris Kuiper: Exactly. Let's go back to that layer one technology. Let's say you build an app for peoples' smartphones. That app is going to have to sit somewhere like on Google or Apple's servers. If their servers go down  your app is not going to work anymore. If they have a problem with your app they can kick you out. Applications built on top of the Ethereum network are decentralized. As long as the entire Ethereum network as a whole, it's up and running and it's been up and running 100% ever since it started, those applications will continue to function.

[00:29:30] The other benefit that decentralization brings is censorship resistant. It's open to anybody, anybody can build on it and nobody can really stop you. Unlike someone who controls the main switch to a server, they can't shut the thing down, they can't kick you out. Then there's varying degrees of it. It's a spectrum. Ethereum is pretty decentralized. Bitcoin is by far the most decentralized, which is why people value it for very high value monetary goods like Bitcoin. Solana is less decentralized. Again, that's the question people are wrestling with, how decentralized is it? The network has gone down a number of times and then people are stuck because it's not as robust, but the trade-off is its got faster and cheaper transactions so we'll see.

[00:30:17] Pamela Ritchie: Okay, that's super helpful to sort of understand how each of them bring different things to the table, really, in that sense, especially for investors in those. Do you think investors wanting to get in, I'm not sure how they would do this, there's certainly Fidelity options for investors to have access and exposure to digital currencies, but there's always that question, is it too late? We just saw Crypto Week, we've seen a flurry of things flip out into the public markets, there's lots of things in the private market, if you were to get in now are you far behind it or is it still nascent? What would you say?

[00:30:55] Chris Kuiper: Zooming out, we are still very, very early. I think the question of am I too late needs to be paired with the question of what's your timeframe? If you need money, if you need that capital in the next one, two, three, four, I would say even five years or longer, or five years or less, yes, you might be too late because we have seen four to five-year cycles in this industry. Not to say it will continue, maybe better, maybe worse, but that's what we've seen. However, if you zoom out, let's just take Bitcoin, for example, if you look at a logarithmic chart, the chart has been overall up and to the right. That, to me, shows the adoption of this.

[00:31:31] Now, be careful. You have not experienced a loss. That's the thing people need to think about, that long time horizon. Again, I'll go back to my stat earlier of something like Bitcoin, .1% of all investible assets shows you probably how early we still are.

[00:32:08] Pamela Ritchie: That's a very good, very good picture to paint. Just with a moment or two left I wonder if you can broadly speak, you don't need to sort of go too deep into this, but if you were to have exposure to Bitcoin or another digital asset do you then need to take something else out of your portfolio? This is the where does it fit question. Broadly speaking, where does this fit?

[00:32:32] Chris Kuiper: Yes, a great question. Number one, we've done a lot of the historical analysis. The old adage from the Nobel Prize winner, Harry Markowitz, diversification is the only free lunch, or at least he's assumed to have said that, nobody can find the exact written quote. Anyway, this is pretty much true that in finance theory if you add something to your portfolio that is non-correlated or has low correlation to everything else in it and it has a high expected return you can improve the risk-adjusted returns of your portfolio. You're getting more return without taking on the commensurate amount of risk. Bitcoin, yes, it's volatile, it's risky, but at least historically its performance has far outweighed that extra risk you take on. So one of the things to really think about is not either or but how much. Again, Bitcoin might not be right for everyone but even if you've got a long enough time horizon and you don't want to take on that much risk just think about a very small position size. Historically, a small amount goes a long way.

[00:33:37] Now, to answer your question about where does it fit, where to take it out, that's really going to depend on the individual. Obviously, people will look at the riskiest stuff like stocks and say, I'm going to replace a little bit there because this is another risky thing. You have Jurrien Timmer on your show regularly, I just had a great value exchange conversation with him, a webinar we do. You can see it on our YouTube channel, Fidelity Digital Assets. His words, he actually brought up the idea of are bonds an impaired asset class. Given all the fiscal deficits we see, inflation that might stay high or be structurally high, investors might need to think about and, again, this is his words, replacing some of the bond part of the portfolio with things like alternatives, commodities. That's where Bitcoin has a lot of the same characteristics as an alt or as a commodity or something like that. Hopefully, just a few things for your listeners to think about and, again, it will all depend on them individually.

[00:34:35] Pamela Ritchie: Really, I think you've just provided a cornucopia of questions and answers to questions that came out of last week in really kind of where we are. Chris, we hope you'll catch up with us again soon. Thank you.

[00:34:48] Chris Kuiper: Thank you.

[00:34:48] Pamela Ritchie: Chris Kuiper joining us today from Fidelity Digital Assets. He's in Washington, DC. Delighted to have him join the show. Let's tell you what's coming up over the next few days. Tomorrow, Wednesday, Étienne Joncas-Bouchard. He's Director of ETFs and Alternative Strategy and often talks about a little bit of Bitcoin that is, in fact, in the All-in-Ones so we'll catch up with him, expand on what he thinks about the ETF space right now, ultimately, and how the All-in-Ones may well fit into investors' portfolios. Quick reminder, Wednesday's show, tomorrow's show, will be available with live French audio interpretation.

[00:35:22] On Thursday of this week, Denise Chisholm, who is Fidelity Director of Quantitative Market Strategy. She'll be sharing her latest market thesis, ultimately, on the sectors she's keeping an eye on, a big discussion about what the increased capex cycle means for earnings, and it's good. We'll dig into that with her on Thursday.

[00:35:40] At the end of the week, Fidelity equity research analyst, Cameron Ho, he joins us on Friday. He's focusing on U.S. retail and, really, apparel. We'll dig in deep into what the consumer, ultimately's, health is at this point, trends that he's tracking and how ongoing trade and tariff developments are impacting this sector. Thanks for joining us here today. I'm Pamela Ritchie.