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BlackRock Reverses Course on Crypto, Partners With Coinbase to Offer Bitcoin to Investors

Tuesday, August 16, 2022 02:34 PM | Kyle Depontes
BlackRock Reverses Course on Crypto, Partners With Coinbase to Offer Bitcoin to Investors

The emergence of Bitcoin from a little-known digital coin into a major asset class has led to fierce polarization among leaders in the financial world.

Despite over a decade elapsing since Bitcoin's development in 2009, governments, businesses, and investors still have mixed opinions about whether the cryptocurrency has any long-term value.

Although some larger companies such as Tesla and Block have embraced the technology to some degree, many Bitcoin critics have suggested that the cryptocurrency will never see mass adoption unless large institutional funds began to add Bitcoin to their portfolios.

For many years, it seemed as if Bitcoin's adoption by key financial institutions would never happen. In 2017, JPMorgan CEO Jamie Dimon said that Bitcoin was a "fraud" that would be regulated by governments as soon as it grew too big.

Billionaire investor Warren Buffett, who was at one time the richest man in the world, went as far as to call Bitcoin "rat poison" in 2018 and said it would "almost certainly would come to a bad ending."

However, despite the pessimism of the last few years, as well as a major crypto crash in May of 2022, the tide against cryptocurrencies has slowly been turning in favor of digital assets.

Coinbase Partnership

One of the most well-known firms to embrace Bitcoin in recent weeks is BlackRock (BLK), the world's largest asset manager which was reported to have over $10 trillion under management  as of January 2022.

Although BlackRock has challenged the rise of Bitcoin at every step of the way, the company recently sent shockwaves through the financial world by announcing in a blog post that it had partnered with the cryptocurrency exchange Coinbase (COIN) to make Bitcoin directly available to institutional investors.

As a result of the deal, mutual customers of Coinbase and BlackRock’s investment management platform, Aladdin, will have access to crypto trading, custody, reporting capabilities, and prime brokerage.

Customer access will be granted through Coinbase Prime, a platform that BlackRock and Coinbase will build out in phases.

Speaking about the deal, Joseph Chalom, global head of strategic ecosystem partnerships at BlackRock, said, “Our institutional clients are increasingly interested in gaining exposure to digital asset markets and are focused on how to efficiently manage the operational lifecycle of these assets.”

Private Trust

Almost a week later, BlackRock announced that it would launch a private trust which would give US-based institutional clients exposure to spot Bitcoin.

The trust will be BlackRock's first product that offers direct exposure to the price of Bitcoin.

In a statement, the company said, "Despite the steep downturn in the digital asset market, we are still seeing substantial interest from some institutional clients in how to efficiently and cost-effectively access these assets using our technology and product capabilities."

The global asset manager has revealed that it has four main areas of interest regarding digital tokens: permissioned blockchains, stablecoins, crypto assets, and tokenization.

BlackRock's Crypto Timeline

While BlackRock has finally decided to enter the crypto markets, the company's path toward Bitcoin adoption was anything but smooth.

2017: Opposition to Crypto

In October 2017, Larry Fink, the co-founder and CEO of BlackRock, was quoted saying the digital token was nothing more than an “index of money laundering.”

Fink added, “Bitcoin just shows you how much demand for money laundering there is in the world. That’s all it is.”

At this point, Bitcoin's price hovered around $4,800.

2021: Sentiment Begins to Change

March

BlackRock's tune began to change early in 2021 when the company's CIO of global fixed income Rick Rieder revealed that the asset manager had begun to buy BTC.

Although Rieder refused to provide the specific allocations that BlackRock had put towards Bitcoin, he did mention that the coin could serve as a hedge against inflation.

Rieder said, “I think crypto generally has gotten the imagination of a lot of people. Today, the volatility of it is extraordinary, but listen, people are looking for storehouses of value. People are looking for places that could appreciate under the assumption that inflation moves higher and that debts are building, so we’ve started to dabble a bit into it.”

Later filings, such as a March 31 disclosure, stated that the BlackRock Global Allocation fund had gained exposure through CME's Bitcoin futures product - buying 37 units of CME's March 2021 bitcoin futures at the beginning of the year.

July

Despite BlackRock's first BTC purchases in 2021, CEO Larry Fink's BTC stance remained unchanged.

In an interview with CNBC in July, Fink said the asset manager had seen "very little demand for digital assets."

Fink also took a veiled shot at Bitcoin investors, stating that "clients interested in crypto or other volatile assets like meme stocks may not be BlackRock's clientele."

October

By the end of the year, Fink's tone began to soften on cryptocurrency. In an interview in October, Fink said that he could see a role for either Bitcoin or a digital dollar in the global financial system.

Fink seemed cautiously optimistic, saying, "I’m not a student of Bitcoin and where it’s going to go, so I can’t tell you whether it’s going to go to $80,000 or zero, but I do believe there’s a huge role for a digitized currency and I believe that’s going to help consumers worldwide.”

2022: BlackRock Expands BTC Offering

March

Ironically, it was in 2022, the year that Bitcoin suffered its second major crash, that BlackRock took major steps towards crypto adoption.

Part of the reversal was Russia's invasion of Ukraine, which led to massive global support in the form of BTC and ETH donations, which allowed Ukraine to buy much-needed arms and shore up its economy.

Many Ukrainians also turned to crypto as banks and financial institutions were destroyed, allowing them to preserve their money and instantly send funds to family members.

Speaking on the conflict, Fink said that the "brutal attack" would cause countries to "reevaluate their currency dependencies."

He added, “A global digital payment system, thoughtfully designed, can enhance the settlement of international transactions while reducing the risk of money laundering and corruption."

“Digital currencies can also help bring down costs of cross-border payments, for example when expatriate workers send earnings back to their families.”

April

A month later, BlackRock launched a blockchain-focused exchange-traded fund (ETF) that provided investors with exposure to the crypto and blockchain industry without needing to directly own digital assets. 

The $4.7 million ETF did not directly own cryptocurrencies but instead tracked an array of international companies that are involved in the industry.

What does this mean for Bitcoin?

Cathy Wood famously said that if major financial institutions ever adopted BTC, the digital asset had the potential to reach $500,000 a coin.

However, the recent news with BlackRock has not spurred buying the way that many in the crypto community had hoped for.

The price of BTC has remained relatively unchanged since BlackRock's Coinbase partnership in early August, leading many to suggest that we are still in the depths of a bear market.

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