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Some rather significant headlines hit the news wires in February, when sources said investment manager Blackrock was preparing to offer crypto trading to its institutional clients.
BlackRock CEO Larry Fink seemed to confirm these reports in a letter to shareholders on March 24. Fink, who had labeled Bitcoin “an index of money laundering” just five years ago, has done an about-face, now telling shareholders that “a global digital payment system, thoughtfully designed, can enhance the settlement of international transactions while reducing the risk of money laundering and corruption.”
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But, to understand the ripple effect of these announcements, investors need to understand what BlackRock is, why this news is in the headlines and exactly what it will mean for crypto and investors in general.
What Is BlackRock?
BlackRock is the world’s largest asset manager. Based in New York, BlackRock manages over $10 trillion of assets. Although BlackRock is known as an institutional powerhouse, the company also manages a host of consumer-facing products, including over 120 mutual funds.
Many investors today might be more familiar with the company through its exchange-traded fund division, which includes the well-known iShares family. The iShares Core S&P 500 ETF, for example, trades under the symbol IVV and is the second-largest ETF in the world, with over $327 billion in assets.
Why Is This News Making Headlines?
As one of the investment industry’s heavy hitters, when BlackRock makes a move, it makes news. And with cryptocurrency being a major buzz word in the industry as well, BlackRock preparing to offer crypto trading is No. 1 with a bullet when it comes to news items.
Although nothing official has been put into place, Coindesk had reported that BlackRock intends to use its Aladdin-integrated investment management platform as a cryptocurrency trading vehicle for its clients. Additionally, per Coindesk’s sources, the investment manager would establish a credit facility, via which customers could take out loans after pledging crypto assets as collateral.
Both of these moves would be ground-shaking, as they would make a traditional well-respected money manager a key source of crypto trading going forward. Currently, most customer-based crypto trading occurs at a limited number of online brokers.
What Would This Mean for Crypto in General?
BlackRock offering crypto trading would have some far-reaching implications.
Perhaps the most important effect would be that cryptocurrency would gain additional validation in the investment world. The uphill battle that crypto has been fighting since its inception is widespread acceptance of its viability. As it has yet to prove itself as a replacement of fiat currency, a store of value or a currency with widespread utility, it hasn’t reached an inflection point of sustainability.
A move like this, where the largest asset manager in the world gives a trading platform, and therefore credibility, to cryptocurrency can greatly increase its use, popularity and functionality.
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On a more practical level, this would give investors all over the world a huge crypto trading platform housed at a reputable investment firm. With the vast majority of crypto trading currently taking place at online brokers, the whole asset class has a bit of a “fly-by-night” or “get-rich-quick” feeling about it. If and when BlackRock gets into the game, however, the entire playing field — and investors’ perception of it — may change. The validation that an investment manager such as BlackRock can provide is priceless in terms of the acceptance of an asset class like cryptocurrency.
So, What’s Next?
Word of Blackrock’s expected move lit a fire under competitor institutions to dip their toes in the cryptocurrency waters as well, perhaps even before BlackRock begins offering trading on its platform. Fidelity, for example, is now preparing to offer its own Bitcoin ETF, dubbed the Wise Origin Bitcoin Trust.
Not to be outdone, Schwab plans to offer its own competing exchange-traded fund, the Schwab Crypto Economy ETF. This wouldn’t be a direct competitor to Fidelity and BlackRock; the ETF would invest in a wide range of companies in the crypto world, from miners and developers to exchanges and other crypto-related businesses.
The Bottom Line
BlackRock didn’t invent cryptocurrency trading; but, if and when it offers it to clients, it will change the landscape across the whole industry. As other big-name competitors such as Schwab and Fidelity rush into the space as well, others no doubt will follow.
This is the exact type of momentum that cryptocurrency needs to maintain and expand its foothold in the investment universe — and perhaps eventually in the day-to-day life of average citizens across the globe.
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