Industry watchers and executives weigh the significance of the BlackRock-Coinbase deal

  • Wall Street Veteran Labels JPMorgan as a Candidate to Develop Crypto Capabilities
  • Fidelity spokesperson says deal with BlackRock “brings additional legitimacy and credibility to this emerging space”

BlackRock’s deeper jump into crypto is a sign that institutions are looking beyond the widespread volatility, industry participants say, raising the possibility that traditional financial competitors will follow 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 BlackRock’s investment platform Aladdin and Coinbase Prime, the companies provide clients with cryptocurrency trading, custody, prime brokerage and reporting capabilities.

The move follows other notable crypto efforts by TradFi titans this year that have made headlines as potential catalysts for industry advancement. 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 plan’s investment line. company’s 401(k).

Fidelity formed Fidelity Digital Assets, a platform that offers 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 has built its digital assets division solo, BlackRock apparently wanted to speed up 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 cryptocurrency hedge fund, previously told Blockworks that Wall Street firms will get involved in segments where they can be profitable. like cryptocurrencies. derivatives.

“I think strong demand from institutional investors will be a core bullish factor in the upcoming crypto cycle,” Zheng said after the BlackRock deal. “Other financial institutions, such as JPMorgan, which started the JPM digital currency, may want to further develop their crypto capabilities to meet demand from their institutional clients, especially as the regulatory framework becomes more established.”

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

A JPMorgan spokesman did not respond to a request for comment.

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

“Hopefully, this news will be a further catalyst for other large asset managers to start or accelerate their crypto plans,” he added.

Spokespeople 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 doesn’t expect the deal to radically increase the speed at which asset managers enter the segment, citing regulatory concerns and volatility as continuing obstacles to institutional participation in cryptocurrencies.

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

Kristin Smith, CEO of the Blockchain Association, said that the BlackRock-Coinbase tie-up 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,” Smith said.

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

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

Coinbase to get a boost?

Although BlackRock’s decision to partner with Coinbase could be seen as positive endorsement of cryptocurrency trading by a major investment firm, Miller said, he added that he doesn’t expect it to be a major factor for Coinbase’s results anytime soon. .

Although the deal improves the investment process for clients using Aladdin and the exchange, the Morningstar analyst added, he does not think it will noticeably alter the investment decision calculus for institutional investors.

“There will be long-term benefits for both Coinbase and the crypto industry, but they are likely to take time to accrue,” Miller said. “It’s also worth noting that, for now, the business connection between the two is limited to bitcoin purchases.”

Coinbase shares were up 4.6% on the day, as of 3:30 p.m. ET on Friday. It’s up roughly 53% in the past five days, though it’s down more than 60% year-to-date.

The cryptocurrency exchange will hold a Q&A session to discuss its Q2 financial results at 5:30 p.m. ET on August 9.

BlackRock shares were down 0.25% on Friday at 3:30 p.m. ET. It is up 5% from five days ago, but has plunged about 24% so far in 2022.

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  • ben strack

    Ben Strack is a Denver-based reporter covering macro and crypto-native funds, financial advisors, structured products, and the integration of digital assets and decentralized finance (DeFi) into traditional finance. Before joining Blockworks, he covered the asset management industry for Fund Intelligence and was a reporter and editor for several local newspapers on Long Island. He graduated from the University of Maryland with a bachelor’s degree in journalism. Contact Ben by email at [email protected]

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