BlackRock Partners with Coinbase
Cryptocurrencies, as Rodney Dangerfield would say, “get no respect.” Since Bitcoin was first minted on January 3, 2009, with Satoshi Nakamoto’s mining of the genesis block of Bitcoin, it has become the most popular and valuable of the cryptocurrencies. However, you still can’t use it to make purchases at the grocery store or pay your electric bill with them.
But BlackRock Inc. (BLK) announced on August 4 the launch of a private trust that will hold Bitcoin and seek to track the asset’s performance, with Coinbase (COIN) serving as the trust's custodian.
Why is this so important?
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BlackRock, Inc. is a publicly owned investment manager. The firm primarily provides its services to institutional, intermediary, and individual investors including corporate, public, union, and industry pension plans, insurance companies, third-party mutual funds, endowments, public institutions, governments, foundations, charities, sovereign wealth funds, corporations, official institutions, and banks. It also provides global risk management and advisory services. It operates internationally.
When a staid and somewhat conservative institution such as BlackRock forges a partnership that it will involve it in the cryptocurrency market, that’s big news. BlackRock will now provide direct access to crypto starting with Bitcoin on BlackRock’s investment platform, Aladdin. This gives crypto, especially Bitcoin, more credibility in the non-crypto financial world than it has enjoyed. Their endorsement of cryptocurrencies is therefore a milestone in the history of crypto.
BlackRock’s entry into crypto may seem odd. While it has tried to position itself as a leader in environmental, social and governance (ESG) investing, Bitcoin mining is a high-energy-use endeavor. However, BLK said it was “encouraged that organizations such as RMI and Energy Web are developing programs to bring greater transparency to sustainable energy usage in Bitcoin mining and will follow progress around those initiatives.” To show how much influence BlackRock has in the financial industry, their mention of the Energy Web Token (EWT) drove its price up as much as 35% following the announcement.
How will the partnership work?
BlackRock's private Bitcoin trust will be available to the $10 trillion asset manager’s U.S. institutional clients, while Coinbase will serve as custodian over its Bitcoin through its Prime product. “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,” BlackRock stated in its release.
One of the drivers of BlackRock’s position, according to Chairman and CEO Larry Fink, is the Ukraine-Russia war. He believes it could accelerate the use of digital currencies. Later, BlackRock, with three other firms, invested $400 million in Circle, the issuer of stablecoin USDC.
Where does crypto fit into their clients’ benefit and the capital markets?
BlackRock says these include permissioned blockchains, stablecoins, cryptoassets, and tokenization.
BlackRock’s offering is a “client exclusive” version of publicly available Bitcoin trusts that trade on over-the-counter (OTC) markets. But unlike exchange traded funds (ETF), these trusts cannot continuously create and redeem shares. The result is that trust shares often trade at a discount or premium to Bitcoin’s open market price.
If more firms of BlackRock’s standing join in the rush, crypto may finally begin to penetrate more people’s consciousness and be more widely accepted in the real world.