Industry Watchers and Executives Assess Significance of BlackRock-Coinbase Deal

  • Wall Street veteran calls JPMorgan a candidate to develop crypto capabilities
  • Fidelity spokesperson says deal with BlackRock “brings additional legitimacy and credibility to this emerging space”

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

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

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

Fidelity created Fidelity Digital Assets – a platform offering crypto custody and trade execution to institutional investors – in 2018.

“We believe this news brings additional legitimacy and credibility to this emerging space, which will benefit our industry and our customers,” a Fidelity spokesperson said 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 coverage 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 get involved in segments where they can. be profitable, like crypto derivatives.

“I think strong demand from institutional investors will be one of the main bullish factors in the next crypto cycle,” Zheng said after the deal with BlackRock. “Other financial institutions, such as JPMorgan, which launched the JPM digital coin, may want to build their crypto capabilities to meet the demand of their institutional clients, especially when the regulatory framework is further established.”

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

A JPMorgan spokesperson did not return a request for comment.

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

“Hopefully this news will be an additional catalyst for other major asset managers to launch or accelerate their crypto plans,” he added.

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

But Morningstar equity analyst Michael Miller said he did not expect the deal to dramatically increase the speed at which asset managers enter the segment, citing regulatory concerns and the volatility as permanent impediments to institutional cryptocurrency involvement.

“BlackRock’s Aladdin and Coinbase partnership allows institutional investors, from a functionality perspective, to get involved and manage their cryptocurrency assets alongside their traditional investments, but I’d be surprised if it opened up the valves to adoption given that it doesn’t directly address the issues I mentioned,” Miller said.

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

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

Jagdeep Sidhu, chairman of Syscoin, said in an email that the move could put pressure on lawmakers to impose innovation-friendly regulations given BlackRock’s influence.

“We are far from bullish territory, but these types of developments create a solid foundation for future and sustained growth in the digital space,” Sidhu said.

Coinbase to get a boost?

While BlackRock’s decision to partner with Coinbase could be seen as a positive endorsement of the crypto exchange by a major investment firm, Miller said, he added that he did not expect this is a major driver of Coinbase’s near-term results.

While the deal improves the investment process for clients using Aladdin and the exchange, the Morningstar analyst added, he doesn’t believe it materially changes the calculus of the investment decision for institutional investors.

“There will be long-term benefits for Coinbase and the crypto industry, but they will likely take time to accrue,” Miller said. “It should also be noted that for now the commercial connection between the two is limited to bitcoin purchases.”

Coinbase stock was up 4.6% on the day, as of 3:30 p.m. ET on Friday. It’s up about 53% in the past five days, but is down more than 60% since the start of the year.

The crypto exchange will hold a Q&A session to discuss its second quarter financial results at 5:30 p.m. ET on August 9.

BlackRock’s stock was down about 0.25% on Friday, as of 3:30 p.m. ET. It’s up 5% from five days ago, but has fallen around 24% so far in 2022.

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  • Ben Strack

    Ben Strack is a Denver-based journalist who covers macro and crypto-native funds, financial advisors, structured products, and the integration of digital assets and decentralized finance (DeFi) into traditional finance. Prior to joining Blockworks, he covered the asset management industry for Fund Intelligence and served as a reporter and editor for various local Long Island newspapers. He graduated from the University of Maryland with a degree in journalism. Contact Ben by email at [email protected]

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