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

Industry participants say BlackRock’s leap deeper into cryptocurrency is a sign that institutions are looking beyond widespread volatility — raising the possibility that traditional financial rivals will follow suit.

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

The move comes on the heels of other notable crypto efforts by TradFi giants this year that made headlines as potential catalysts for the industry’s advancement. Goldman Sachs executed its first cash-settled crypto options trading 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 company’s 401(k) investment plan.

Fidelity formed Fidelity Digital Asset — a platform that offers cryptocurrency custody and trade execution to institutional investors — in 2018.

“We believe this news brings more 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.

Can others follow BlackRock?

CK Zheng, co-founder and chief investment officer at ZX Squared Capital, said that while Fidelity has built its digital assets division on its own, BlackRock apparently wanted to accelerate its coverage of cryptocurrency through the Coinbase partnership.

Zheng, who spent most 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 would be involved in sectors where they could be profitable, such as cryptocurrency derivatives.

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

First revealed in 2019, JPM Coin is an authorized payment path and depository ledger that allows some JPMorgan clients to convert US dollars within the system.

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

Martin Bednall, former managing director of BlackRock and recently CEO of Jacobi Asset Management, described BlackRock’s move as a major step forward in the industry that gives confidence to institutional investors to add digital assets to their investment world.

“We hope this news will provide an additional incentive for other major asset managers to either start or accelerate their crypto plans,” he added.

Vanguard spokespersons and State Street Global Advisors declined to comment on future encryption plans.

But Michael Miller, equity analyst at Morningstar, said he does not expect the deal to radically increase the speed with which asset managers are entering the sector, citing regulatory concerns and volatility as persistent roadblocks to institutional involvement in the crypto space.

“The partnership between Aladdin and Coinbase from BlackRock makes it easier from a functional point of view for institutional investors to participate and manage their crypto assets alongside their traditional investments, but I would be surprised if it opens the door wide for adoption since it doesn’t directly address the issues that I mentioned it.”

Kristen Smith, CEO of the Blockchain Association, said the BlackRock-Coinbase link is further evidence of institutional crypto adoption.

“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, head of Syscoin, said in an email that the move could pressure lawmakers to push regulations supporting innovation given BlackRock’s impact.

“We are very far from bull territory, but these types of developments create a solid foundation for the future and sustainable growth of the digital space,” Seydoux said.

Coinbase for a boost?

Although BlackRock’s decision to partner with Coinbase could be seen as a positive endorsement of crypto exchanges from a major investment firm, Miller said, he added that he does not expect it to be a major driver of Coinbase’s results in the near term.

The Morningstar analyst added that while the deal improves the investment process for clients using Aladdin and the Stock Exchange, he doesn’t think it significantly changes the investment decision calculations for institutional investors.

“There will be long-term benefits for both Coinbase and the cryptocurrency industry, but it will likely take a long time to realize,” Miller said. “It is also worth noting that at the moment the trading connection between the two is limited to bitcoin purchases.”

Coinbase stock is up 4.6% on the day, as of 3:30 PM ET on Friday. It’s up nearly 53% in the past five days, although it’s down more than 60% so far.

The cryptocurrency exchange will hold a question-and-answer session to discuss its second-quarter financial results at 5:30 PM ET on August 9.

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

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