By Landon Manning
In a groundbreaking move for the Bitcoin community, BlackRock Inc, the world’s largest asset management company, has announced a spot private trust allowing clients direct access to bitcoin.
This story is a new development on a pro-bitcoin move taken by BlackRock earlier this August: the company’s partnership with Coinbase (COIN), one of the world’s largest cryptocurrency exchanges. The new service offered by this partnership was exposure to bitcoin; Coinbase’s system would be directly interfaced with BlackRock’s Aladdin investment management platform, allowing institutional clients to seamlessly trade bitcoin through the same platform used for a wide variety of other types of assets. The press release for this announcement claims that clients are “increasingly interested in gaining exposure to digital asset markets, and are focused on how to efficiently manage the operational life cycle of these assets.”
This does come with an unfortunate downside however: All the bitcoin bought and sold by these users will not change hands, instead remaining in Coinbase’s cold storage and insured for large amounts of fiat money. In other words, institutional investors going through the Aladdin platform will not “own” these coins, in the sense of being able to purchase any goods or services with them, or move them into any form of custody outside of this in-house system. However, it offers access to the world of cryptocurrency, and this is what makes it particularly interesting.
BlackRock’s new spot trading private trust, announced on August 11, 2022, has a similar core issue. Although the normal definition of spot trading involves buying commodities and currencies for “immediate delivery,” as the industry commonly defines the term, this private trust does not involve any direct change of asset custody either. According to the press release, this private trust “seeks to track the performance of bitcoin,” accounting for certain fees and expenses, claiming that “common clients will be able to manage their bitcoin exposures alongside their public and private investments.”
In other words, the value of this trust will only derive value from bitcoin, and have no opportunity for some of these institutions to directly begin dealing in the asset itself. Still, such a system will undoubtedly require a similar use of cold storage collateral to the initial partnership, to ensure that everything stays safe and legal for the customers. Even though this move will not lead directly to increased institutional participation in the Bitcoin ecosystem itself, the size of this move already casts interesting portents for the rise of the preeminent cryptocurrency.
Not one year ago, BlackRock CEO Larry Fink publicly stated that there was practically zero interest from institutional investors in pursuing bitcoin investment. And now? Hundreds of millions of dollars in collateral went into the first stage of this Coinbase partnership, and now the scale of this pivot to bitcoin is deepening further. And to think Fink made these comments when the valuation of one bitcoin was still near its all-time high! Even in recognizing the setbacks in price, the company now states, “We are still seeing substantial interest from some institutional clients,” and that “Bitcoin maintains close to 50% of the industry’s market capitalization.”
This trend of spot trading, conditional on the underlying assets actually changing custody, has been growing in the Bitcoin world. Spot trades have become one of the main avenues to pursue the long-awaited dream of a Bitcoin ETF, and supporters of this move include the commissioner of the Securities and Exchange Commission. It seems to many that this sort of development is inevitable. Even though this operation of BlackRock’s seems at first glance to only have a tangential relevance to bitcoin proper, it represents another step in a rising torrent of support from actors all over the world of traditional finance. With BlackRock, the largest asset manager in the world supporting bitcoin, it’s anyone’s guess as to what sort of new acceptance it can get in the near future. A world where platforms like this directly exchange custody, or even treat bitcoin as a valid form of currency itself, is seeming ever more possible.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
