Industry Watchers, Execs Weigh Significance of BlackRock-Coinbase Deal

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

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

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

Fidelity formed 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 customers,” a Fidelity spokesperson said of the BlackRock partnership with Coinbase.

Could others follow BlackRock?

While Fidelity has built its digital asset 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 has 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 in which they can be profitable, such as crypto derivatives.

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

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

A spokesperson for JPMorgan did not return a request for comment. 

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

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

Spokespeople for asset management goliaths 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 ongoing roadblocks for institutional cryptocurrency involvement. 

“The partnership between BlackRock’s Aladdin and Coinbase does make it easier from a functionality standpoint for institutional investors to get involved and manage their cryptocurrency assets alongside their traditional investments, but I would be surprised if it opened the floodgates 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 linkup is further evidence of institutional crypto adoption.

“Greater adoption necessitates a regulatory framework for crypto, and I’m optimistic we’ll finally see much-needed legislation in 2023,” Smith said. 

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

“We’re a long way from bull-run territory, but these sorts of developments are creating a strong foundation for future, sustained growth for the digital space,” Sidhu said.

Coinbase to get a boost?

Though BlackRock’s decision to partner with Coinbase could be viewed as a positive endorsement for the crypto exchange from a major investment firm, Miller said, he added he doesn’t expect it to be a major driver for Coinbase’s results in the near term.

Though the deal improves the investment process for clients using Aladdin and the exchange, the Morningstar analyst added, he doesn’t believe it markedly alters the investment decision calculus for institutional investors.

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

Coinbase’s stock was up 4.6% on the day, as of 3:30 pm ET Friday. It is up roughly 53% in the past five days, though is down more than 60% year to date. 

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

BlackRock’s stock was down about 0.25% on Friday, as of 3:30 pm ET. It has rallied 5% from five days ago but has slumped by about 24% so far in 2022.

---

Get the news in your inbox. Explore Blockworks newsletters:

• The Breakdown: Decoding crypto and the markets. Daily.
• 0xResearch: Alpha in your inbox. Think like an analyst.