New BTC Whale: BlackRock

On March 21, BlackRock announced the launch of its first tokenized fund, BUIDL, on Ethereum, which directly boosts the popularity of the RWA (Real World Asset, referring to the tokenization of real-world assets through blockchain technology) track.

However, this is not the first time BlackRock has stirred up the crypto market. As early as January, BlackRock led the long-anticipated Bitcoin spot trading fund (ETF), which caused a sensation, after which the entire crypto market started a new round of heat. The price of Bitcoin, which had been quiet for more than a year, also began to break through the $40,000 mark.

It is expected that BlackRock will delve deeper into the crypto industry and become a decisive force in the future. As the world’s largest asset management institution, why is BlackRock interested in cryptocurrency? What impact will it have on the subsequent development of the crypto industry? Let’s take a closer look at this new Bitcoin whale in the crypto industry.

01 Who is BlackRock?

BlackRock, founded in 1988, is currently the world’s largest asset management, risk mitigation, and advisory company.

BlackRock currently has 89 offices in 38 countries around the world, with more than 16,000 employees and clients in more than 100 countries. At the same time, BlackRock holds stocks in 4,973 companies, including: Apple, Microsoft, Nvidia, Amazon, Facebook, Tesla, Exxon Mobil, etc.

BlackRock Top Equity Holdings, as of August 2023, source: startuptalky

In terms of revenue, in 2023, BlackRock’s total revenue was US$17.86 billion, of which the largest part (US$14.4 billion) came from investment consulting, management fees and securities lending. The region that contributed the most was the Americas, with a revenue of 11.9 billion US dollars in 2023. Overall, financial advisory and management fees made up the majority of the company’s revenue, with US companies accounting for the majority of the company’s revenue.

Source: https://in.tradingview.com

According to the related reports, the assets managed by BlackRock reached up to 10 trillion dollars in the fourth quarter of 2023. It can be said that even without launching a Bitcoin spot ETF, as a towering tree in the global financial industry, BlackRock securely sits in the first chair. So why has BlackRock begun to venture into the crypto industry? Is it a normal expansion of its own development? Or is it because BlackRock sees the potential of Bitcoin, and Bitcoin can hedge against traditional financial risks? Or does BlackRock think this is a good supplement to their investment portfolio?

02 BlackRock’s Crypto Operations

In fact, BlackRock had shown interest in the cryptocurrency industry and blockchain technology several years ago. However, there were many challenges at that time. The first is the relatively high volatility of the market, and the second is the lack of reasonable regulation, and market rules have not yet been fully established. Moreover, over the past decade, the SEC had consistently rejected spot Bitcoin ETF applicatin due to concerns about market manipulation. Thus, no significant action was taken.

However, on January 11, 2024, a number of institutions led by BlackRock launched the first batch of Bitcoin spot ETFs in the United States. Among them, BlackRock launched its iShares Bitcoin Trust (IBIT), directly reversing the embarrassing situation of the spot Bitcoin ETF application being rejected for the past decade, opening a new chapter for the development of the crypto industry.

1) One of the biggest promoters of the approval of Bitcoin spot ETF

BlackRock is an organization with a large number of ETF approval records. According to foreign media reports, the company has 575/576 applications approved by the SEC. It can be said that the success rate is nearly 100%. Only one was rejected in October 2014. ETF is an actively managed ETF jointly submitted by BlackRock and Precidian Investments. The reason given by the SEC for rejection was the lack of transparency in earnings.

However, in the face of the SEC, which has rejected the Bitcoin spot ETF for ten years, BlackRock has made sufficient preparations in the application in order to improve the approval rate. On June 15, 2023, BlackRock proposed solutions to the SEC’s concerns one by one when submitting its application for a spot Bitcoin ETF. For example, in order to meet the SEC’s requirements for implementing effective monitoring measures to prevent market manipulation, BlackRock plans to enter into regulatory sharing agreements with relevant well-known platforms and list Coinbase as the custodian of the proposed ETF to ensure the safe management of Bitcoin.

Due to BlackRock’s participation and its reputation, many investment/asset management institutions have joined this application race, such as Fidelity, Invesco, VanEck, Cathie Wood’s Ark Investment Management, WisdomTree and many other financial companies, most of which list Coinbase as the ETF custody service provider.

Unfortunately, on June 30, the SEC stated that the documents submitted by BlackRock, Fidelity and other companies lacked clarity and comprehensiveness, thereby rejecting the application for the bitcoin spot ETF. A few days later, BlackRock resubmitted the application. Generally speaking, the SEC’s decision time for the application of Bitcoin spot ETFs is up to 240 days. Although there may be lengthy exchanges and discussions, the application was not flatly rejected as before, bringing hope for possible approval in the future, and is seen as a positive sign of progress.

Also, according to the predictions at the time, based on the time each ETF application was published in the Federal Register’s rule change document, Tokeninsight predicted the possible approval time for the ETFs of 8 institutions as follows:

As it turns out, as predicted at the earliest, in the early hours of January 11, the SEC announced its formal approval of 11 spot Bitcoin ETFs, including BlackRock.

After the news was released, Bitcoin surged briefly, exceeding 49,000 US dollars. After that, Bitcoin began a spiraling upward process, and as of now, Bitcoin has broken through 71,000 US dollars in less than three months.

In fact, as early as when BlackRock proposed the Bitcoin spot ETF application, the market started an active cheer mode with price. Bitcoin broke through 30,000 and 40,000 US dollars in October 2023, and directly stood at 45,000 US dollars after the application was approved.

Bitcoin’s trend over the past year

And because five of the Bitcoin spot ETF companies that applied for issuance chose CEX Coinbase as their custodian, Coinbase stock price also rose from US$70 in October 2023 to a maximum of US$187 in December.

Coinbase stock price trend in 2023

According to ChainCatcher news on March 24, since its debut on January 11, 2024, new spot Bitcoin ETFs (excluding GBTC) have significantly increased their Bitcoin holdings, and the nine new spot Bitcoin ETFs (excluding Grayscale GBTC) currently hold 474363.55 BTC. Among them, BlackRock IBIT leads the way with 242,829.94 BTC holdings. This reserve makes IBIT a giant among its peers, accounting for 51.19% of the total holdings of these nine companies. When considering GBTC together with these 9 BTC, the total rises to 824,615.55 BTC, approximately accounting for 3.92% of the Bitcoin cap.

According to Cointelegraph analysis on March 25, assuming that the current capital flow does not change drastically, the number of Bitcoins in BlackRock’s spot Bitcoin ETF may surpass Grayscale’s GBTC in the next three weeks.

Although market predictions suggest that the approval of a Bitcoin spot ETF may not have a significant stimulative effect on the market in the short term, in the long run, its presence will significantly enhance the compliance and investability of digital assets, thereby improving market depth and liquidity. It will also help to reduce market volatility and enhance investor confidence.

Overall, the reputation and influence of the world’s largest asset management company, as well as its expertise and experience in launching and managing ETFs, has convinced the SEC and the market of the feasibility and value of a Bitcoin ETF. BlackRock has had a tremendous impact on the crypto world. Next, we will review the various investments and preparations it has already made in the crypto field.

2) Largest Shareholder of The Biggest BTC Holding Company

In BlackRock’s cryptocurrency investment portfolio, it holds 5.53% of MicroStrategy’s shares. MicroStrategy, as a business intelligence and software company, is currently the largest holder of Bitcoin. BlackRock acquired shares of MicroStrategy through its various funds and ETFs, such as the iShares Core S&P 500 ETF, iShares ESG Aware US Aggregate Bond ETF, and iShares Russell 1000 Growth ETF.

MicroStrategy currently has approximately over 120,000 Bitcoins worth over $5 billion and has issued over $2 billion in debt to fund its Bitcoin purchases. BlackRock’s stake in MicroStrategy is equivalent to owning more than 6,600 Bitcoins and is worth more than $300 million, according to a recent analysis by Forbes. This makes BlackRock one of the largest institutional holders of Bitcoin, although it does not directly own any Bitcoin. BlackRock’s stake in MicroStrategy also reflects its optimistic outlook and confidence in the company and in Bitcoin.

3) US$384 Million Invested in Leading Bitcoin Mining Companies

BlackRock invested $384 million in Bitcoin mining companies in August 2023, as part of its strategy to explore the potential impact of digital currencies on the global economy.

BlackRock has invested in four Bitcoin industry companies, all of which are currently the largest and most mature Bitcoin block production companies, namely Marathon Digital Holdings, Riot Blockchain, Bitfarms and Hut 8 Mining.

BlackRock’s investment in Bitcoin mining companies is a bold and innovative move. On the one hand, it promotes the growth and development of the Bitcoin network and ecosystem, improves the security, stability and diversity of the network, and supports the innovation and adoption of this technology; on the other hand, it also demonstrates its interest and participation in the field of cryptocurrencies, as well as its recognition and appreciation of the value and potential of this industry.

4) Work Closely With the Crypto Industry

Issuers have been wrestling with the SEC for a long time regarding the application for a spot Bitcoin ETF. While BlackRock is actively promoting this matter, it is also cooperating and consulting with other stakeholders and experts in the crypto industry (such as Coinbase, Fidelity, and VanEck) to address the SEC’s concerns and requirements.

In 2022, BlackRock reached a cooperation agreement with Coinbase, integrating its Aladdin operation platform with Coinbase’s leading cryptocurrency CEX to create a robust solution for the IBIT ETF.

In addition to the Bitcoin ETF, BlackRock has also established partnerships with some large cryptocurrency participants. It holds a minority stake in the stablecoin company Circle Internet Financial and manages over 25 billion dollars in reserves in the government money market fund to support Circle’s USDC and the like.

BlackRock also manages private Bitcoin trusts for professional clients. According to insiders, the assets of this trust fund have exceeded 250 million dollars, and most clients have since transferred their funds to the new ETF.

03 BlackRock CEO: Bitcoin is Awesome

BlackRock’s acceptance of Bitcoin has been gradual. During the epidemic, Rick Rieder, the company’s chief investment officer for global fixed income, began allocating Bitcoin futures in his funds. Robbie Mitchnick, BlackRock’s head of digital assets, also helped convert Fink into a Bitcoin believer, according to people familiar with the matter.

Speaking of Fink, he was already on the Forbes Global Billionaires List in 2022. Whether it’s investing talent, leadership ability, or social skills, 72-year-old Larry Fink is known as the “Godfather of Wall Street” and “Financial Empire” creator, playing a significant role in BlackRock’s development.

But Fink was not a believer in Bitcoin from the beginning. In 2017, Fink called Bitcoin a “money laundering index” and has repeatedly criticized cryptocurrencies, calling it “something that customers simply don’t want to invest in.”

It wasn’t until 2022 that Fink’s stance on digital assets began to change significantly. Insiders revealed that Bitcoin’s rebound after the cryptocurrency crash in 2022 was a significant factor in changing BlackRock’s perspective.

During a conference call in April of that year, Fink said the company was researching the cryptocurrency space extensively and was observing growing customer interest. The same month, BlackRock participated in Circle’s $400 million financing. Later in the summer, BlackRock quietly launched a spot Bitcoin product for U.S. institutional clients, their first private trust product. BlackRock provided seed funding for the fund with its own capital and expanded the scale with external investors.

Also that year, BlackRock established a partnership with Coinbase, allowing institutional clients who own Bitcoin on cryptocurrency exchanges to use their software tool suite, Aladdin, to manage portfolios and perform risk analysis. Therefore, Coinbase is currently the custodian of their spot Bitcoin ETF.

Now, it’s fair to say that Fink is one of Bitcoin’s biggest believers. His firm, BlackRock, has given Bitcoin legitimacy and manages the fastest-growing Bitcoin fund, alongside the heads of the digital asset industry. Participants formed partnerships and also opened the door for mainstream investors to buy and sell Bitcoin as easily as investing in stocks.

Today, BlackRock’s cryptocurrency ambitions are no longer limited to Bitcoin. The asset management company is submitting a pending application to the SEC to launch an ETF holding Ethereum, the second-largest cryptocurrency by market value and the native token on the Ethereum blockchain. The regulator’s deadline is in May, which is worth looking forward to.

04 summary

As BlackRock’s initiative states “Investing for a new world”, BlackRock believes that cryptocurrency and blockchain technology can change the financial industry, creating new opportunities for growth, efficiency, and inclusiveness.

Perhaps it is because they recognize that the demand and adoption for cryptocurrencies from institutional investors, retail investors, governments, and enterprises are constantly increasing, BlackRock’s interest in cryptocurrency is no longer limited to chasing trends or speculative gambling, but is considered as a strategic long-term vision.

It is foreseeable that BlackRock will be indispensable in the future cryptocurrency field.

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