CEO Larry Fink's about-face demonstrates Wall Street's growing desire to profit from a market long considered the Wild West of finance. One of the former cryptocurrency skeptics is helping to bring Bitcoin into the mainstream. Larry Fink, the Chief Executive Officer of BlackRock, called Bitcoin "an index of money laundering" in 2017 and later dismissed cryptocurrencies as something his clients were not looking for. Today, he says he's a big proponent of Bitcoin. His company manages the fastest-growing Bitcoin fund and has forged partnerships with some of the biggest players in the digital asset industry.
The U-turn Fink is making at BlackRock has granted Bitcoin credibility and signals Wall Street's growing desire to profit from a market long regarded as the Wild West of finance. By selling Bitcoin in a cost-effective and popular exchange-traded fund, BlackRock has enabled mainstream investors to buy and sell Bitcoin as easily as stocks. "We see it as part of our mission to provide choices and access," said Rob Goldstein, Chief Operating Officer of BlackRock, in an interview. "This is an important issue for our clients."
Bitcoin's Resilience Also Played a Role in This Decision
The short history of the token was marked by crashes. However, after each bankruptcy, a new boom cycle started, attracting more investors. Today, Bitcoin prices are back at record levels, flirting with $70,000, a development that seemed unthinkable 16 months ago when the crypto exchange FTX spectacularly collapsed. At that time, Bitcoin prices were around $16,000. Industry critics say they are surprised by BlackRock's approach to crypto, given the reputational risk the company faces by offering its clients exposure to such a volatile asset. John Reed Stark, former head of the Internet Enforcement Division of the Securities and Exchange Commission, said it is obvious that companies like BlackRock are in the game to collect fees. "The irony is obvious because it's supposed to be decentralized, but what is more decentralized than a Wall Street giant collecting fees from every possible side and selling something that nobody understands?" he said.
BlackRock Currently Earns an Average Fee of 0.19% on Assets in Its Bitcoin ETF. The Fund Has Already Reached Its Fee Limit, Which States That Investors Must Pay 0.12% in the First Year or Until Assets Reach $5 Billion. After the First Year, the Fee Will Increase to 0.25%. BlackRock Emphasizes That It Has Studied the Crypto Industry for Years to Develop a Strategy for Digital Assets and to Deliver What Its Customers Want. And Bitcoin's Comeback After the Crypto Meltdown of 2022 Gave BlackRock the Conviction to Stick to This Strategy, According to People Familiar with the Matter.
BlackRock Also Earns a Share of the Credit for the Recent Bitcoin Rally. Of the nine ETFs that held Bitcoin in January, its iShares Bitcoin Trust leads in terms of net inflows. In fact, the ETF is the fastest ever to attract more than $10 billion in assets. Many mainstream investors began buying Bitcoin in June, when BlackRock entered the competition for the first fund, as the asset management company can boast an almost perfect record with ETF applications. A court ruling that forced the SEC to reconsider a competitor's application further fueled the fire.
Dennis Kelleher, President and CEO of Better Markets, a group advocating for financial sector oversight, said it is no surprise that BlackRock is quickly becoming a market leader in Bitcoin. "BlackRock has an unprecedented market penetration with an outstanding distribution network and a marketing giant," he said. "All these characteristics provide Main Street investors with a false sense of security."
BlackRock's View on Crypto Significantly Differs From That of Vanguard, Its Biggest Competitor. Founded by legendary investor Jack Bogle, Vanguard has stated that it has no plans to create a Bitcoin ETF and does not offer crypto-related products on its trading platform. The asset management company, which manages over $8.7 trillion in assets, called Bitcoin "more of a speculation than an investment" in a recently published blog post.
In addition to the Bitcoin ETF, BlackRock has formed partnerships with some of the biggest players in the crypto world. It holds a minority stake in the stablecoin company Circle Internet Financial and manages over $25 billion in reserves that back Circle’s USD Coin in a government money market fund. BlackRock has also cooperated with the crypto exchange Coinbase Global to enable users of the asset manager's Aladdin software platform direct access to crypto by introducing an integration with Coinbase's institutional department. Moreover, BlackRock manages a private Bitcoin trust for professional clients. The majority of the trust's clients, which had already attracted more than $250 million in assets, have now shifted their money to the new ETF, according to people familiar with the matter.
BlackRock's Approach to Bitcoin Was Gradual. During the pandemic, Rick Rieder, the Chief Investment Officer for Global Fixed Income at BlackRock, began investing in Bitcoin futures within his funds. Robbie Mitchnick, the head of the digital assets department at BlackRock, also helped in making Fink a Bitcoin proponent, according to individuals familiar with the matter. 2022 was the year when Fink's attitude towards digital assets visibly started to change. In a conference call in April that year, he stated that his firm had extensively studied the crypto sector and noticed an increased interest from clients.
Within the same month, BlackRock invested in Circle's $400 million funding round, and during the summer, BlackRock quietly launched a private trust - its first spot Bitcoin product for institutional clients in the USA. The company capitalized the fund with its own money and expanded it with external investors. BlackRock also worked behind the scenes for a long time on the partnership with Coinbase, which allows institutional clients who own Bitcoin on the cryptocurrency exchange to access Aladdin, the asset manager's suite of software tools. Today, BlackRock uses Coinbase as the custodian for its spot Bitcoin ETF.
BlackRock's Crypto Aspirations Now Extend Beyond Bitcoin. The asset management company has filed an application with the SEC to launch an ETF tied to Ether, the second-largest cryptocurrency after Bitcoin and the native token on the Ethereum blockchain. The regulatory agency has until May to make a decision on several such applications.
