Fidelity Launches Crypto and Metaverse ETFs: What Does This Mean for Investors?

Fidelity Investments announced two new exchange-traded funds (ETFs) on Tuesday - the Fidelity Crypto Industry and Digital Payments ETF (FDIG) and the Fidelity Metaverse ETF (FMET). These two thematic ETFs expand Fidelity's product line to the crypto and metaverse industries, providing Fidelity customers with investment opportunities in companies related to the metaverse and digital payments.

The Fidelity Crypto Industry and Digital Payments ETF (FDIG) will generally invest at least 80% of its assets in equity securities, and depositary receipts representing securities, included in the Fidelity Crypto Industry and Digital Payments Index, which is designed to reflect the performance of companies worldwide that engage in activities related to cryptocurrencies, related blockchain technologies, and digital payments processing.

The Fidelity Metaverse ETF (FMET) will generally invest at least 80% of its assets in securities included in the Fidelity Metaverse Index and in depositary receipts representing the securities.

The Metaverse is a term used to describe the future state of the Internet, characterized by a network of augmented realities and virtual worlds that large numbers of users can experience continuously in a shared environment. The Fidelity Metaverse Index is designed to reflect the performance of companies worldwide that develop, manufacture, distribute or sell products or services related to building and enabling the Metaverse.

The new fund is scheduled to be officially launched around April 21. With this launch, Fidelity's ETF products will reach 51, with ETF assets under management exceeding US$33 billion. As of February 28, 2022, Fidelity managed assets of US$11.1 trillion, including US$4.2 trillion in discretionary assets.

A lot of demand for cryptocurrency and metaverse-related products, which pair virtual worlds and character-building mechanics with tradable local currencies, is coming from younger customers, one executive said.

“We continue to see demand, particularly from younger investors, to gain access to rapidly evolving sectors within the digital ecosystem, and these two thematic ETFs provide investors with familiar investment vehicles,” said Greg Friedman, head of ETF management and strategy at Fidelity.

The new funds are thematic, meaning all of the assets included in these portfolios are related to the metaverse or cryptocurrencies, but investors do not have direct exposure to cryptocurrencies.

Fidelity makes this very clear in the prospectus for its crypto ETF: “The Fund will not invest in digital assets (including cryptocurrencies) directly or indirectly through the use of digital asset derivatives, and the Fund will not invest in initial coin offerings. As a result, the Fund is not expected to track the price movements of any digital asset.”

But this does not mean that Fidelity has not tried to apply for an ETF that tracks the price of cryptocurrencies. Earlier in January, the U.S. Securities and Exchange Commission (SEC) rejected its application for the Wise Origin Bitcoin Trust, which would have been a spot Bitcoin ETF designed to track the price of Bitcoin itself.

The company’s digital arm, Fidelity Digital Assets, launched in 2018, provides custody and trade execution services to institutional investors.

As the Metaverse concept is gaining popularity, global ETF issuers are scrambling to seize the high ground before the boom arrives. Therefore, the Fidelity Metaverse ETF will be listed in a highly competitive environment to compete with other funds for market share. Funds that have already been listed in this field include Roundhill Ball Metaverse ETF (NYSEARCA: METV), ProShares Metaverse ETF (NYSEARCA: VERS) and Subversive Metaverse ETF (BATS: PUNK).