The asset management giant is teaming up with Coinbase to offer bitcoin trading, custody, prime brokerage and reporting capabilities for institutional investors.
Joseph Chalom, global head of strategic ecosystem partnerships at BlackRock, mentioned “Our institutional clients are increasingly interested in gaining exposure to digital asset markets”.
BlackRock CEO Larry Fink announced around four months ago that the asset management giant was looking into offering digital assets to clients and confirmed continued interest from institutional investors.
In order to make bitcoin and crypto available to their institutional clients, BlackRock teamed up with Coinbase Prime, which already has the infrastructure in place to offer these types of services to institutional clients.
Even though Coinbase is currently under scrutiny by the SEC and saw a sharp drop in its stock price, the partnership could open the door for a lot of money flowing into bitcoin. The big money will likely only come once there is more regulatory clarity around bitcoin and crypto.
The SEC asked Coinbase to register as a National Securities Exchange in the past and is currently looking into the exchange while several bills have been introduced to put bitcoin under the purview of the U.S. Commodities Futures Trading Commission.
SEC chair Gary Gensler stated in the past that bitcoin is a commodity, which makes it likely that bitcoin will be regulated by the CFTC. Most or all 18,000 something altcoins could be classified as unregistered securities, requiring exchanges that list more than just bitcoin to register as National Securities Exchanges.
Once this regulatory clarity is established, partnerships like the one between Coinbase and BlackRock could open the floodgates to institutional money coming into bitcoin and crypto.
As Kevin O’Leary likes to say, there is a lot of money waiting on the sidelines which will enter the space once regulatory clarity exists.
The current contagion in the bitcoin and crypto market is bringing a lot of vulnerabilities to the surface though. Several bitcoin and crypto exchanges, centralized lenders and funds went bankrupt or were on the brink of insolvency. This illustrates the counter-party risk involved when using a third-party custodian to hold bitcoin.
Unlike gold, which is expensive and cumbersome to store and hold in self-custody, bitcoin self-custody in a multi-signature setup is relatively easy, even for institutions.
A majority of gold is currently purchased and held in the form of “paper gold”, through EFT’s that claim to hold an equivalent amount or percentage of physical gold in their vaults. The inconvenience of physical transport and storage led to gold becoming relatively centralized.
Few institutions actually have a vault and store physical gold. Bitcoin has an opportunity to be more decentralized, with a majority of individuals and institutional investors taking custody of their private keys through cold storage and multi-signature setups.
Institutional investors are only just warming up to bitcoin. Only time will tell how institutions decide to invest in and custody bitcoin.
