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Why BlackRock’s Deal with Coinbase is Bigger for Crypto Than You Might Think

Institutions, institutions, institutions. Institutions have been the Holy Grail crypto for several years now, with more than a few industry insiders predicting that institutional adoption could help Bitcoin shift to being “global money” and could “give rise to a bull market that is more intense than previous ones.” However, up until now adoption of cryptocurrencies by banking and financial firms has been tentative at best, with banks offering some custody (and brokerage) services, but with little evidence such services are attracting large numbers of customers.

Nonetheless, it looks like things are about to change. This month, BlackRock — the world’s largest asset manager (in terms of AUM) — announced a partnership with Coinbase, whereby the US-based crypto-exchange would help it offer Bitcoin trading and custody to institutional investors. Even better, it then announced its very own private trust that would track the spot price of bitcoin, again enabling institutional clients to gain exposure to the cryptocurrency and its movements.

This is a big moment for Bitcoin and for crypto in general. Yes, banks from around the world have been offering various services for a while now, but the entry of BlackRock into the ring is more significant. That’s because the creation of a private Bitcoin fund is all-but tantamount to BlackRock itself endorsing the cryptocurrency, with its entry into the bitcoin market likely to encourage more institutions to follow suit. And make no mistake, sooner or later this will result in big gains for the cryptocurrency market.


How BlackRock Is Getting Involved in Bitcoin and Crypto

To recap, BlackRock’s partnership with Coinbase will see the former’s Aladdin investment-management system connect with the latter’s trading platform. In other words, BlackRock customers will be able to log into their Aladdin accounts and, from there, trade cryptocurrencies on Coinbase. At first, bitcoin will be the only cryptocurrency BlackRock customers can access, but the roster will expand outwards soon enough.

According to BlackRock, more of its institutional clients have been asking the asset manager about how to gain exposure to cryptocurrencies in recent months, even with a relatively stagnant market.

“Our institutional clients are increasingly interested in gaining exposure to digital asset markets and are focused on how to efficiently manage the operational life cycle of these assets,” said Joseph Chalom, BlackRock’s global head of strategic ecosystem partnerships, as quoted in an earnings call.

This same earnings call made repeated reference to BlackRock’s clients wanting to delve into crypto, which again is an impressive piece of information, given that the market had witnessed a downswing over the previous few months.

“The crypto market has witnessed a steep downturn in valuations over recent months, but we are still seeing more interest from institutional clients about how to efficiently access these assets,” the authors of the earnings call wrote.

Needless to say, this news was greeted positively by the market. Coinbase’s stock rose to $98 on August 8 (four days after the announcement), having stood at $52 as recently as July 26. Similarly, the price of bitcoin rose from $23,000 to nearly $25,000 in the wake of the news (before settling to $23,518 in what remains an uncertain environment).

Of course, part of the reason why Coinbase stock and bitcoin continued to rise after August 4 was that, on August 11, BlackRock announced its Bitcoin trust. Indeed, this is arguably the bigger piece of news, since rather than allowing their clients to manage their own BTC purchases, it will see BlackRock itself managing such purchases.

The fund will be available to US-based institutional investors, and while this might sound relatively limited, bear in mind that assets under management in North America — worth $54 trillion in 2021 — account for nearly 50% of the global total.

Why the Market Will Expand

This is therefore a big opportunity for bitcoin and cryptocurrency, with BlackRock arguably the conduit that will drive more institutions than ever before into crypto. It manages $10 trillion in assets, as of December 2021, with its weight more than enough to make otherwise skeptical institutions think again about bitcoin and other cryptocurrencies.

“The launch of BlackRock’s bitcoin fund is a sign of how far crypto has matured as an asset class”, said Sui Chung, CEO of CF Benchmarks, speaking to the Financial Times.

Likewise, Oppenheimer & Co. analyst Owen Lau is also of the view that BlackRock’s moves are big for the market. Speaking to Bloomberg at the time of Coinbase partnership announcement, he said that the deal is “a validation of the future of blockchain and digital assets and also a validation of Coinbase’s reputation […] It’s a big plus for the industry and also for Coinbase.”

Obviously, BlackRock’s move hasn’t instigated a new crypto bull market immediately, with the total cap of the overall market still 12.7% down over 90 days, as well as 61.6% down compared to its all-time high of just over $3 trillion in November 2021. But it will in due course, since its fund will make it much easier than ever before for institutional investors to gain exposure to bitcoin.

By extension, with eight of the top ten asset managers in the world also being based in North America, BlackRock’s foray into crypto is likely to force its rivals to also offer similar investment products, for fear of losing customers.

Source: Twitter

While it now seems safe to say that institutions will increasingly invest in crypto, it remains debatable as to whether bitcoin will continue to receive the lion’s share of attention, or whether investment will be spread more or less evenly across the market.

For now, BlackRock’s remarks in its announcement of the private fund suggests that bitcoin — and its price — will be the chief beneficiary of steadily increasing institutional interest.

“Bitcoin is the oldest, largest, and most liquid crypto asset, and is currently the primary subject of interest from our clients within the crypto asset space. Excluding stablecoins, bitcoin maintains close to 50 percent of the industry’s market capitalization,” its spokesperson said in the announcement.

Accordingly, there’s an argument to be had that the next bull market will be driven by bitcoin, with the latter witnessing the biggest gains and continuing to dominate the market in terms of its cap. Even with Ethereum’s important shift to proof-of-stake, for example, it may continue to be the case that institutions are drawn in by BTC’s hard cap and deflationary tokenomics. Still, with the global macroeconomy remaining unsettled, it may be some time before another bitcoin-led bull market.

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CryptoVantage Author Simon Chandler

About the Author

Simon Chandler

Simon Chandler is a journalist based in London. He writes about technology, markets and politics, and has bylines for Forbes, Digital Trends, CCN, Wired, TechCrunch, the Verge, the Sun, the New Internationalist, and TruthOut, among many others. His Twitter handle is @_simonchandler_

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