By Tom Wilson and Simon Jessop
LONDON (Reuters) - The cryptocurrency arm of Fidelity Investments, one of the world's largest investment managers, has launched its first foray into Europe, opening a new front in efforts to drag digital money into mainstream investing.
Fidelity Digital Assets will act as a custodian for bitcoin held by London-based cryptocurrency investment firm Nickel Digital Asset Management, the two companies said on Tuesday.
The lack of back-office services like custody offered by major financial firms has been one reason that large investors across the world have held back from involvement in the highly volatile but potentially lucrative emerging asset.
Yet it remains to be whether the provision of such services alone by firms like Boston-based Fidelity, which has $7.8 trillion under management, will pave the way for an influx of mainstream money into cryptocurrencies.
Big pension funds and asset managers remain highly sceptical of digital currencies because of their patchy regulation and reputation for hacks, heists and other crime, despite the large potential gains on offer.
Bitcoin <BTC=BTSP> almost doubled in value last year, buoyed by expectations of growing mainstream use. Yet bitcoin markets are dysfunctional and plagued by double-digit price swings, opaque price discovery and patchy liquidity.
Facebook's <FB.O> high-profile attempt to draw cryptocurrencies into the mainstream with its Libra coin has met with regulatory scepticism globally, with France and Germany pledging to block the currency from operating in Europe.
Fidelity Digital Assets' Europe head, Chris Tyrer, said the hurdles to participation in cryptocurrency markets by institutional investors - regulation, as well as the quality of service providers and high volatility - were gradually becoming lower.
"We see those three factors slowly resolving themselves, and as a result we are seeing a pick up in institutional investor interest," he told Reuters. Harmonised regulation in the European Union would be useful for service providers, he added.
Tyrer said his firm was attracting interest from family offices, wealth managers and some cryptocurrency companies. He declined to say how much money it manages or how many clients it had.
Launched in 2018, Fidelity Digital Assets offers cryptocurrency trading and custody services for financial firms and corporations. In November it was given the nod by New York's financial watchdog to offer its services to companies in the state.
(Reporting by Tom Wilson and Simon Jessop; Editing by Pravin Char)