For years, BlackRock CEO Larry Fink flirted with the idea of widespread use of cryptocurrencies, but steered clear of them, saying the firm’s institutional clients weren’t interested. On Thursday, BlackRock entered into an agreement with Coinbase that will allow the investment firm’s clients to trade bitcoin.
The move comes as the cryptocurrency has lost more than 50% of its value since the start of the year due to tighter global economic conditions. After falling more than 60% since January, Coinbase stock jumped 40% on the BlackRock news.
For BlackRock, the deal is a way to dive into crypto markets with little effort and risk. By working with Coinbase rather than building its own crypto capacity, the firm could abandon the project if clients lose interest, or regulators crack down on crypto trading.
Under the deal, BlackRock clients on the investment firm’s Aladdin platform will be able to use the tools to manage the bitcoin they own on Coinbase.
Fink changes his tune on crypto
The partnership cements a major shift for Fink, who just last summer said there was little demand for digital assets among Blackrock customers. Earlier this year, he reversed course, said he saw Russia’s invasion of Ukraine increasing demand for digital currencies.
“I don’t know how they didn’t see the demand and then they see the demand,” said Owen Lau, an analyst at Oppenheimer who covers Coinbase. “I think that they see demand in the longer term.”
Last month, BlackRock’s global head of index investing, Salim Ramji, said at one Barrons Live event that the investment giant preferred blockchain over bitcoin products, London-based Financial News reported. “In terms of the underlying technology of blockchain, it is incredibly innovative and incredibly disruptive.” he said.
A necessary boost for Coinbase
The partnership is welcome news for COIN’s struggling stock. Blackrock’s Aladdin has more than 200 institutional users, including insurance companies, pensions, corporations, banks and asset managers. This also means Blackrock can introduce Coinbase to more traditional financial institutions, Lau noted.
The exchange has been looking to diversify its income streams from retail fees, which have been the main part of the business in the past. However, this income dries up when bitcoin is less volatile, creating fewer opportunities for users to trade.
Coin base under SEC scrutiny
The deal comes as Coinbase is under investigation by the Securities and Exchange Commission over the sale of digital assets that the regulator said should have been registered as securities. While the probe may not affect the early stages of Coinbase’s deal with BlackRock, it could prove difficult later if it expands to include other cryptocurrencies. SEC Chairman Gary Gensler has deemed bitcoin a commodity, meaning it will not be treated as an unregistered security.
“The problem is that if they go down the list to the 10th token or the hundredth token, it will create some concern,” Lau said. “But bitcoin is still about half or 40% of the total crypto market capitalization.”
Blackrock and Coinbase declined to comment on how the SEC’s inquiries into Coinbase’s operations might affect the partnership.