Title: The ‘Fidelity Mafia’ Behind Big Crypto

Author: Vicky Ge Huang, The Wall Street Journal

Translator: Mia, Chaincatcher

Let's take a look back at the entire digital asset industry, where some of the most outstanding industry leaders have emerged from Fidelity Investments.

The well-known mutual fund giant Fidelity represents the cornerstone of the traditional financial system, while the founders of cryptocurrencies, led by Bitcoin, are planning to disrupt this system. However, in reality, this 77-year-old traditional financial giant became a pioneer in the Bitcoin field as early as 2014—when the price of Bitcoin was around $400, it began mining Bitcoin and encouraged employees to explore blockchain technology, develop new products, and launched a cryptocurrency business unit four years later.

Along the way, Fidelity has provided a large number of talents to the crypto industry.

As the crypto industry rapidly expanded, Fidelity began to become more cautious from its previous open attitude, which ultimately led to the departure of some early employees in the crypto industry.

And indeed, this cautious approach may also be a wise move. Just last year, a series of crypto companies collapsed, and the collapse of the crypto exchange FTX, followed by regulatory agencies cracking down on the crypto industry. The U.S. Securities and Exchange Commission (SEC) recently sued two crypto exchange giants, Binance and Coinbase Global, for providing unregistered securities trading, among other reasons.

Despite the rebound in Bitcoin prices in 2023, it still hovers around $26,000, far below its peak two years ago. The crypto industry has shed tens of thousands of jobs since the beginning of last year. With the downfall of industry leaders like Sam Bankman-Fried, who were once seen as the "future of Crypto," the future role of the crypto industry in the financial field is being questioned.

Members of Fidelity's crypto alumni include venture capitalists, research directors, and founders of startups. Just like PayPal's "alumni mafia," Fidelity's crypto alumni jokingly refer to themselves as the "Fidelity Mafia" and have since founded their own tech companies.

The "Fidelity Mafia" includes: Alex Thorn, research director of the crypto financial services company Galaxy Digital; Juri Bulovic, mining director of the Bitcoin mining company Foundry; Matt Walsh, founding partner of the crypto venture capital firm Castle Island Ventures, and a dozen other members.

Galaxy Digital's research director Alex Thorn once said in a Telegram group he established with former colleagues, "Many of us have been working in the crypto field for a long time, because Fidelity has been exploring the crypto field for much longer than any other traditional financial company."

Under the leadership of Fidelity CEO Abby Johnson, Fidelity's cryptocurrency plan has shifted to trading and storing Bitcoin for hedge funds and other large investors. In the following years, Fidelity's cryptocurrency plan will also make it easier for retail investors to invest in cryptocurrencies, and companies can include Bitcoin in the retirement plans they offer to employees, providing the option of Bitcoin and Ethereum trading for the majority of its 43 million clients.

Alex Thorn said, "We did not overly cautiously approach this 'crazy' cryptocurrency because of our background in traditional finance. On the contrary, we took a big step into the crypto field, which also attracted early crypto talent to Fidelity."

Alex Thorn started as a junior analyst in Fidelity's legal department in 2009. As an early believer in Bitcoin, he volunteered to help Fidelity conduct its first experiments with cryptocurrencies. Abby Johnson referred to him as the "Bitcoin Viking," and he eventually became involved in managing a crypto venture capital firm under Fidelity.

Members of the "Fidelity Mafia" have expressed that it was Abby Johnson's early commitment to Bitcoin that attracted them to join Fidelity.

Matt Walsh, founding partner of the crypto venture capital firm Castle Island Ventures, joined Fidelity after graduating in 2014. He stated that at a meeting in 2017, Abby Johnson urged for individuals and institutions to have easier access to Bitcoin, which gave confidence to the development of Bitcoin. "At that time, Jamie Dimon believed that Bitcoin was a tulip bubble, useless, while Abby Johnson held the opposite view."

Despite Abby Johnson's family owning 49% of Fidelity, she faced resistance from within and outside the company for betting too much on cryptocurrencies for the company's future.

In a public speech last year, Abby Johnson mentioned that in 2014, she proposed a plan to spend $200,000 to purchase Bitcoin mining equipment from a Chinese supplier, which was denied by Fidelity's finance and security departments at the time. "I had to go to the office and say, 'Look, this is $200,000, we are doing this.'"

Even today, after many years, some Fidelity executives still express doubts about whether cryptocurrencies can reach mainstream clients. In 2018, Kathleen Murphy, then head of Fidelity's personal investing business, told the Dallas Business Journal that due to regulatory concerns, Fidelity's cryptocurrency products would be limited to experienced investors.

Members of the "Fidelity Mafia" have expressed that Murphy's remarks dampened the enthusiasm of employees focused on retail investors.

Last year, Fidelity also faced criticism for its expansion in the cryptocurrency field. A U.S. Labor Department official believed that Fidelity's plan to allow investors to put Bitcoin into 401(k) accounts could threaten the retirement security of the nation. Fidelity refuted this and reiterated its commitment to digital assets as a key to the financial future.

Members of the "Fidelity Mafia" believe that Fidelity could have been more actively involved in the cryptocurrency business, but instead handed over custody business clients to Coinbase (which entered the Bitcoin business two years earlier than Fidelity in 2012). In addition, some have stated that Fidelity's traditional fund management business prevented it from entering high-risk businesses in unclear regulatory situations.

Juri Bulovic, mining director of the Bitcoin mining company Foundry, said, "Hindsight is 20/20. Looking back now, I think Fidelity could have become a well-known cryptocurrency trading company like Coinbase today." Juri Bulovic left Fidelity in 2021 after working there for 8 years.

During the pandemic, when the price of Bitcoin soared and eventually exceeded $60,000, it became difficult for Fidelity to retain its crypto talent, as companies focused on cryptocurrencies had a large amount of risk capital and were eager to recruit knowledgeable employees.

Alex Thorn left Fidelity in 2021 and established a research department at Galaxy Digital, a crypto financial services company owned by billionaire Mike Novogratz. It is reported that Galaxy Digital focuses on trading, investment banking, asset management, and mining businesses, and its asset management department currently manages over $2.4 billion in crypto assets.

Matt Walsh resigned from Fidelity in 2018 and began his entrepreneurial journey. With Fidelity's support, he founded the crypto venture capital firm Castle Island, which currently manages approximately $360 million in crypto assets.

Today, Fidelity still sees cryptocurrencies as a long-term growth opportunity and stores billions of dollars in client crypto assets. The number of employees in its crypto department has steadily increased from dozens in 2018 to over 600. Recently, Fidelity has also submitted applications for the first spot Bitcoin ETF, which, if approved by regulatory agencies, will allow investors to easily trade Bitcoin through brokerage accounts, similar to buying and selling stocks.

Tom Jessop, head of Fidelity's crypto business, said, "We are working with various departments at Fidelity to develop a long-term digital asset strategy."

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