BlackRock, one of the most well-known financial companies in the world, made a name for itself in the traditional markets. More recently, though, it’s been showing a keen interest in the crypto space, too.
With its mission to democratize investing and a history of creating user-friendly, affordable products, many see BlackRock's foray into crypto as a watershed moment for the industry.
But is the involvement of a company with the financial clout of BlackRock actually a good thing for crypto?
We’ve been digging a little deeper to find out.
In this article, we'll take a look at BlackRock's crypto journey, its bet on Bitcoin, and the impact of its crypto initiatives on the broader investment landscape.
What Exactly is BlackRock?
BlackRock is a global investment management behemoth — in fact, it’s the world’s largest asset manager with a mind-boggling $9+ trillion AUM, according to the latest figures from Statista.
Founded in 1988 and headquartered in New York City, it has since grown to oversee a vast and diverse range of investment products and services, including managing assets for institutional clients, such as pension funds and insurance companies, as well as retail investors.
The firm is renowned for its expertise in passive investment strategies, particularly through its iShares exchange-traded funds (ETFs), and actively manages a broad array of assets, including equities, fixed income, real estate, and alternative investments.
BlackRock is a major player in shaping global financial markets and has attracted attention for the influence it exerts on corporate governance, environmental, and social considerations, as well as its role in the evolution of investment strategies in the modern financial landscape.
BlackRock’s Changing Crypto Stance
BlackRock may be keen on crypto these days, but that hasn’t always been the case. Turn the clock back to 2017 and BlackRock's CEO, Larry Fink, was going so far as to accuse Bitcoin of being nothing more than an index of money laundering. He wasn’t the only one talking like this either, plenty of Wall Street firms echoed this sentiment at the time.
Since then, thanks to growing interest from their clients, alongside high transaction costs in traditional investment avenues, there’s been a significant shift in attitude. Fast forward to today, and Fink is spearheading a concerted effort to get BlackRock evermore actively involved in the world of crypto.
Such has been the change in tune from Fink that on an appearance on Fox Business in July 2023, he made a point of emphasizing the important role Bitcoin and other cryptocurrencies could play in diversifying investment portfolios and even went as far as to say that crypto could “...revolutionize finance”.
Instead of banking on gold as a hedge against inflation, Fink suggested investors could consider Bitcoin as a digital alternative.
What is BlackRock’s Involvement in Crypto?
It was around the time of these comments that BackRock made its most significant move in the crypto space to date, filing for a spot Bitcoin ETF in the U.S., an investment tool allowing ordinary investors to gain exposure to the price fluctuations of Bitcoin without actually owning the digital asset themselves.
The role of ETFs, according to Fink, is radically transforming investing, and BlackRock clearly believes that their previous track record with ETF applications smoothens the way to enter the crypto space with it, too. The asset management giant aims to ease investing, making it cost-effective, in an approach Fink dubs as "democratizing investing".
However, this wasn’t its first foray into crypto. BlackRock had previously launched a blockchain-themed ETF, a clear signal of intent.
Since then, BlackRock has announced an integration with the popular cryptocurrency exchange, Coinbase. This allows BlackRock's institutional clients to manage their crypto exposures alongside their regular portfolio investments in a bid to make crypto exposure management feasible for institutional clients.
Without doubt the highest profile move was the announcement of its filing for a spot Bitcoin ETF in the U.S., something which has got many people excited. BlackRock was forced to resubmit their Bitcoin ETF filing after the U.S. Securities and Exchange Commission said the initial filing required additional details around the exchanges involved. Though no decision has yet been reached on its approval, people are eagerly anticipating the outcome, and the word on the street is this may come into play in the first part of 2024.
Seemingly unsatisfied with Bitcoin alone, BlackRock has now set its sights on Ethereum, too, filing for a spot Ethereum ETF, reinforcing its belief in the potential and validity of cryptocurrencies.
With all that’s going on, it looks like BlackRock's crypto journey is far from over.
What is the BlackRock Bitcoin ETF?
The BlackRock spot Bitcoin ETF has garnered considerable attention so it’s worth taking a closer look at exactly what it involves.
ETF stands for Exchange-Traded Fund – a type of investment fund and exchange-traded product that keeps track of a specific asset or a group of assets.
A Bitcoin ETF is therefore a product that provides ordinary investors exposure to the price moves of Bitcoin in their regular brokerage accounts, without having to engage directly with exchanges.
Not all Bitcoin ETFs are created equal, however. While derivatives-based bitcoin ETFs use financial instruments like futures contracts to replicate Bitcoin’s prices, a spot ETF invests directly in Bitcoins as the underlying asset.
What makes BlackRock Offering Different?
Presently, the mainstream types of funds available on the Bitcoin ETF market include grantor trusts, futures-based ETFs, and Bitcoin-adjacent equity funds. Each one carries a unique method of tracking Bitcoin's price, potentially leading to variations in the spot market.
However, BlackRock's proposed spot Bitcoin ETF aims to sidestep these issues with anticipated improved price tracking and lower fees.
For instance, current heavy hitters in the domain, ProShares Bitcoin Strategy ETF and Grayscale, impose fees of 95 basis points and 2% respectively. With BlackRock planning its entry into the game, investors will likely find a more affordable investment choice, perhaps leading to a better overall investing experience.
Not only does the BlackRock Bitcoin ETF aim to offer competitive fees and more accurate tracking of Bitcoin values, but it's also poised to provide an opportunity for strategic investment diversification. By including Bitcoin among other assets in the ETF, BlackRock offers an effective counter to traditional investment vehicles.
We talked in-depth about whether a Bitcoin Spot ETF is good or bad for crypto, you can read to learn more.
What does BlackRock’s Involvement in Crypto mean for the industry?
The kind of moves BlackRock has been making in the crypto space are bound to have a ripple effect, especially given its preeminence in the financial world.
Many believe the spot Bitcoin ETF in particular could open the floodgates to a surge of institutional adoption and act as a crucial convergence point between traditional finance and the world of crypto, sending the crypto sector marching towards mainstream acceptance.
The broader question remains, though: is BlackRock's involvement a good thing?
Is BlackRock a Force of Good or Bad for Crypto?
While the knock-on consequences of BlackRock’s involvement in the crypto market are inevitable, the exact nature of them is less clear cut.
Many people hail the growing influence of BlackRock in the crypto space as a huge positive for the industry, some of the main reasons they cite for this are as follows:
#1: Increase Legitimacy
Despite its rising popularity, the size of the crypto market still pales in comparison to traditional assets. At the time of writing, while the crypto space had a market cap of $1.52 trillion, total assets globally have been estimated at $1,540 trillion. Even the market cap of gold alone at $13.573 trillion dwarfs crypto. Many feel that if crypto is ever going to reach its true potential, it will require the support of big institutions like BlackRock.
They consider this the best way to help integrate crypto into the mainstream financial ecosystem, bringing legitimacy to what is still essentially considered a niche market and elevating it to a recognized asset class in its own right.
In turn, this legitimacy can attract even more institutional and retail investors as cryptocurrencies like Bitcoin become a more viable form of investment.
#2: Support the Industry
The crypto industry has had it rough in recent times – a lengthy crypto winter and black swan events such as the FTX and Silicon Valley being cases in point. In the U.S. in particular, the industry has taken a battering from institutional bodies like the Security and Exchange Commission.
BlackRock has a good relationship with U.S. regulators.
This could be harnessed for the good of the crypto sector and the investors that operate within it, with further emphasis placed on the need for clear rules and safety nets to make the market safer and more reliable for both institutional and retail investors alike.
Through its involvement in and backing of the crypto space, BlackRock puts its considerable weight behind the industry, supporting it in the face of those who would seek to destroy it.
#3: Improve Liquidity
Given that ETFs are well-known for their liquidity, there’s no reason to assume a spot Bitcoin ETF would be any different.
With large institutional players injecting liquidity into the crypto market, this may help reduce the volatility that has put many investors off and result in better price discovery, fostering a more appealing alternative for portfolio diversification.
#4: Bump Price
One of the most obvious positives BlackRock involvement can bring is a price bump. When news of the BlackRock spot Bitcoin ETF filing first hit, there was a price peak directly on the back of it.
In fact, several cryptocurrencies experienced price hikes and remarkable increases in trading volumes. Many are hopeful that as BlackRock involves itself further in the crypto space, prices will continue to pump in response.
While many see BlackRock’s involvement in crypto as a good thing, there are still plenty of negative voices around. Some of the most common objections are as follows.
#1: Undermine Crypto Ethos
There is one enormous elephant in the room when it comes to the involvement of the likes of BlackRock in the crypto industry. Namely, that the very presence of traditional financial institutions actively flies in the face of what those who created the industry in the first place wanted to create.
In particular, people are concerned that its involvement is a slippery slope towards centralization, with the inevitable consequence being too much crypto coming under the control of a single custodian.
For an industry that’s all about self-custody and an ethos rooted in decentralization, the influence of major players could fundamentally compromise the distributed nature at its core.
#2: Possible Market Manipulation
The concentrated power of institutional investors can pose risks of market manipulation. Coordinated actions by major players may impact prices, creating an uneven playing field for retail investors.
As Bitcoin is traded in unregulated venues around the world, this also poses a challenge in preventing fraud and price manipulation.
#3: Environmental Damage
There’s no getting away from it, Bitcoin is environmentally unfriendly. Like really environmentally unfriendly. The energy intensive proof of work validation mechanism it relies on uses a lot of energy, In fact, a 2022 report, ‘Revisiting Bitcoin’s Carbon Footprint’, conducted by climate and economics researchers across Europe estimates that “Bitcoin mining may be responsible for 65.4 megatonnes of CO2 per year … which is comparable to country-level emissions in Greece (56.6 megatonnes in 2019).”
It doesn’t take a genius to realize that any massive uptick in Bitcoin usage driven by BlackRock involvement would mean increased energy consumption. Whilst this isn’t directly an issue for the crypto industry per se, it would bring unwelcome attention from some quarters.
Change is Coming
Whether or not the involvement of BlackRock in the crypto industry is a good or a bad thing depends on the perspective you are coming from.
Having shifted from a position of skepticism to become actively engaged in the space, even amidst controversies and state-led operations against Bitcoin, what definitely can be agreed on is that BlackRock's entry into the crypto market is a real game-changer.
The company's launch of a blockchain-themed ETF and integration with Coinbase are just the beginning, as proved by the more recent spot ETF filings it’s been pursuing.
We could be witnessing a new era of investment, one that's set to blur the lines between traditional finance and digital assets and bring more conventional investors over into the crypto market.