Why has the "Fidelity Mafia" become a talent pipeline for crypto giants?

Original: 《The 'Fidelity Mafia' Behind Big Crypto》

Author: Vicky Ge Huang, The Wall Street Journal

Translation: Mia, Chaincatcher

Let’s look back at the entire digital asset industry, where some of the most prominent industry leaders first emerged at 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, aim to disrupt this system. However, this traditional financial giant, with a history of 77 years, became a pioneer in the Bitcoin space as early as 2014—being one of the first to mine Bitcoin when its price was around $400, encouraging employees to experiment with blockchain technology, develop new products, and launching a cryptocurrency business unit four years later.

Along the way, Fidelity has supplied many talents to the crypto industry.

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

It has proven that this cautious approach may have been wise. Following a series of crypto company collapses and the crash of the crypto exchange FTX last year, regulators began to crack down on the crypto industry. The U.S. Securities and Exchange Commission (SEC) recently sued two crypto exchange giants, Binance and Coinbase Global, for offering unregistered securities trading, among other reasons.

Although Bitcoin prices began to rebound in 2023, they still hover around $26,000, far below the highs of two years ago. Since the beginning of last year, the crypto industry has cut tens of thousands of jobs. After the downfall of Sam Bankman-Fried and other industry leaders once seen as the "future of crypto," the future role of the crypto industry in finance has begun to be questioned.

Members of Fidelity's crypto alumni network include venture capitalists, research directors, and startup founders. Just like PayPal's "alumni mafia," Fidelity's crypto alumni network humorously refers to itself as the "Fidelity Mafia," and many have since founded their own tech companies.

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

Alex Thorn, research director at Galaxy Digital, stated in a Telegram group he established with former colleagues: "Many of us have been working in the crypto space for a long time because Fidelity explored crypto much longer than any other traditional financial company."

Under the advocacy of Fidelity CEO Abby Johnson, Fidelity's cryptocurrency plans began to shift towards trading and storing Bitcoin for large investors like hedge funds. In the coming years, Fidelity's cryptocurrency plans will also make it easier for retail investors to invest in cryptocurrencies, allowing companies to include Bitcoin in Fidelity retirement plans offered to employees. Fidelity will provide Bitcoin and Ethereum trading options to most of its 43 million clients.

Alex Thorn said, "We weren't overly cautious about engaging with this 'crazy' cryptocurrency because of our backgrounds in traditional finance. On the contrary, we took a big step into the crypto space, which 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 with its first cryptocurrency experiments. Abby Johnson referred to him as a "Bitcoin Viking," and he eventually became involved in managing a crypto venture capital firm under Fidelity.

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

Matt Walsh, founding partner of crypto venture capital firm Castle Island Ventures, joined Fidelity after graduating in 2014. He noted that Abby Johnson urged making it easier for individuals and institutions to access Bitcoin during a meeting in 2017, which gave confidence to Bitcoin's development. "At that time, Jamie Dimon thought Bitcoin was a tulip bubble with no value, while Abby Johnson held the opposite view."

Although Abby Johnson's family owns 49% of Fidelity, she faced resistance from both inside and outside the company regarding betting too much of the company's future on cryptocurrencies.

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

Even years later, some Fidelity executives still express skepticism about whether cryptocurrencies can reach mainstream clients. In 2018, Kathleen Murphy, then head of Fidelity's personal investing business, stated in an interview with the Dallas Business Journal that due to regulatory concerns, Fidelity's cryptocurrency products would be limited to experienced investors.

Members of the "Fidelity Mafia" noted that Murphy's comments dampened the enthusiasm of employees focused on retail investors.

Last year, Fidelity was also criticized for its expansion in the cryptocurrency space. U.S. Department of Labor officials believed that Fidelity's plan to allow investors to put Bitcoin into 401(k) accounts could pose a threat to the nation's retirement security, while Fidelity rebutted and reiterated its commitment to digital assets as a key part of 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 was founded in 2012 and entered the Bitcoin business two years before Fidelity). Additionally, some indicated that Fidelity's traditional asset management business prevented it from engaging in high-risk ventures in an unclear regulatory environment.

Juri Bulovic, mining director at Foundry, commented, "Hindsight is 20/20; looking back, I think Fidelity could have become a household name in cryptocurrency trading like Coinbase is today." Juri Bulovic left Fidelity in 2021 after working there for eight years.

During the pandemic, when Bitcoin prices soared and eventually exceeded $60,000, Fidelity found it difficult to retain its crypto talent, as companies focused on cryptocurrencies had ample venture capital and were eager to hire knowledgeable employees.

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

Matt Walsh resigned from Fidelity in 2018 to embark on his entrepreneurial journey, founding the crypto venture capital firm Castle Island with Fidelity's support, which now manages approximately $360 million in crypto assets.

Today, Fidelity still views cryptocurrencies as a long-term growth opportunity and stores billions of dollars in customer crypto assets, with its crypto department's staff increasing steadily from dozens in 2018 to over 600. Recently, Fidelity has also rushed to submit its first spot Bitcoin ETF application, which, if approved by regulators, would allow investors to trade Bitcoin as easily as buying and selling stocks through brokerage accounts.

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