Industry watchers, executives assess the importance of the BlackRock-Coinbase deal

  • The Wall Street veteran labels JPMorgan as a candidate to develop cryptographic skills
  • Fidelity spokesperson says BlackRock’s deal “brings further legitimacy and credibility to this emerging space”

BlackRock’s leap into cryptocurrencies is a sign that institutions are looking beyond widespread volatility, industry participants say, raising the prospect of traditional finance competitors following suit.

The largest asset manager in the world said Thursday that it has partnered with Coinbase to offer crypto access to its institutional clients. By linking BlackRock’s investment platform, Aladdin and Coinbase Prime, the companies provide cryptocurrency trading, custody, prime brokerage and client reporting capabilities.

The move follows other notable cryptographic efforts by the TradFi titans this year that have earned the headlines as potential catalysts to advance the industry. Goldman Sachs ran its first cash-settled cryptocurrency options exchange with Galaxy Digital in March, and Fidelity said the following month that it would allow people to allocate a portion of their retirement savings in bitcoin across the 401 plan’s investment range. (k) of the company.

Fidelity formed Fidelity Digital Assets, a platform offering cryptocurrency custody and trade execution to institutional investors, in 2018.

“We believe this news brings further legitimacy and credibility to this emerging space, which will benefit our industry and our customers,” said a Fidelity spokesperson of BlackRock’s partnership with Coinbase.

Could others follow BlackRock?

While Fidelity built its digital assets division on its own, BlackRock apparently wanted to accelerate its crypto hedge through the Coinbase partnership, said CK Zheng, co-founder and chief investment officer of ZX Squared Capital.

Zheng, who spent much of his career at Bank of America, Morgan Stanley, and Credit Suisse before co-founding a crypto hedge fund, previously told Blockworks that Wall Street firms will be involved in segments where they can be profitable, such as cryptocurrencies. derivatives.

“I think strong demand from institutional investors will be a key bullish factor in the next cryptocurrency cycle,” Zheng said following the BlackRock deal. “Other financial institutions, such as JPMorgan, which initiated the JPM digital currency, may wish to further develop their crypto capabilities to meet the demand of their institutional clients, especially as the regulatory framework is further established.”

First revealed in 2019, JPM Coin is an authorized payment guide and deposit account ledger that allows some JPMorgan customers to transfer US dollars within the system.

A JPMorgan spokesperson did not return a request for comment.

Martin Bednall, a former BlackRock CEO who recently became CEO of Jacobi Asset Management, called BlackRock’s move a major industry step forward that gives institutional investors confidence to add digital assets to their investment universe.

“We hope this news is a further catalyst for other large asset managers to launch or accelerate their crypto plans,” he added.

Spokesmen for wealth management giants Vanguard and State Street Global Advisors declined to comment on future crypto plans.

But Michael Miller, an equity analyst at Morningstar, said he doesn’t expect the deal to radically increase the rate at which asset managers enter the segment, citing regulatory concerns and volatility as continuing obstacles to cryptocurrency’s institutional involvement.

“The partnership between BlackRock’s Aladdin and Coinbase makes it easier from a functionality perspective for institutional investors to get involved and manage their cryptocurrency assets alongside their traditional investments, but I would be surprised if it opens the door to adoption as it doesn’t. it does directly address the issues I mentioned, ”Miller said.

Kristin Smith, executive director of the Blockchain Association, said the BlackRock-Coinbase link is further evidence of institutional adoption of cryptocurrencies.

“Greater adoption requires a regulatory framework for cryptocurrencies and I am optimistic that we will finally see much-needed legislation in 2023,” said Smith.

Jagdeep Sidhu, president of Syscoin, said in an email that the move could put pressure on lawmakers to push for innovation-friendly regulation given BlackRock’s influence.

“We are a long way from bull run territory, but these kinds of developments are creating a solid foundation for future and sustained growth for the digital space,” Sidhu said.

Coinbase to get a boost?

Although BlackRock’s decision to partner with Coinbase can be seen as a positive endorsement for the cryptocurrency exchange from a large investment firm, Miller added that he doesn’t expect it to be a determining factor in Coinbase’s results. short term.

Although the deal improves the investment process for clients using Aladdin and the exchange, the Morningstar analyst added, he doesn’t believe it significantly alters the calculation of investment decisions for institutional investors.

“There will be long-term benefits for both Coinbase and the cryptocurrency industry, but it will likely take some time to build up,” Miller said. “It is also worth noting that for now the commercial connection between the two is limited to bitcoin purchases.”

Coinbase shares were up 4.6% on the day, at 3:30 PM ET on Friday. It has risen by around 53% in the past five days, although it has dropped by more than 60% year to date.

The cryptocurrency exchange will hold a Q&A session to discuss Q2 financial results at 5:30 PM ET on Aug.9.

BlackRock stock fell roughly 0.25% on Friday, 3:30 p.m. ET. It has increased by 5% from five days ago, but has so far plummeted by around 24% in 2022.

Get the best cryptocurrency news and insights of the day delivered to your inbox every night. Sign up for the free Blockworks newsletter now.

  • Ben Strack

    Ben Strack is a Denver-based journalist who focuses on macro and crypto-native funds, financial advisors, structured products and integration of digital assets and decentralized finance (DeFi) in traditional finance. Prior to joining Blockworks, he was involved in the wealth management industry for Fund Intelligence and was a reporter and editor for various local newspapers on Long Island. He has a BA in Journalism from the University of Maryland. Contact Ben by email at [email protected]

Leave a Reply

%d bloggers like this: