Coinbase has announced a deal with BlackRock to give asset manager clients more seamless access to the digital asset markets, in the latest sign of how a growing number of traditional investors are getting involved in cryptocurrency.
San Francisco-based Coinbase said Thursday that it will contact Aladdin, BlackRock’s investment technology platform. The system, which provides essential plumbing to the global investment industry, will give clients of the world’s largest asset manager direct access to cryptocurrencies. The first available token will be Bitcoin, but others may come later.
The correlation represents a victory for Coinbase, which has been under heavy pressure since its direct listing last year as a result of plunging cryptocurrency prices and lower trading volumes. It also shows how despite the turmoil in the cryptocurrency markets this year, some institutional investors are more actively considering allocations in digital tokens.
“Our institutional clients are increasingly interested in exposure to the digital asset markets and are focused on how to efficiently manage the operational lifecycle of these assets,” said Joseph Shalom, Global Head of Strategic Ecosystem Partnerships at BlackRock.
Coinbase shares initially rose as much as 44 percent after Wall Street opened, before cutting their gains to around 15 percent. However, shares remained down more than 60 percent in 2022.
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Dan Ives, an analyst at Wedbush Securities, said the BlackRock agreement was a “major confidence booster and much-needed positivity for Coinbase after a tough year.”
Coinbase in June abandoned its growth plans and reduced a fifth of its workforce – more than a thousand people – due to the downturn in the cryptocurrency markets. To make matters worse, US prosecutors last month charged a former employee and two of his aides with insider trading.
David Trainer, CEO of investment research firm New Constructs, said he was skeptical about the Coinbase-BlackRock project. “The idea that organizations need more access to encryption seems far fetched to us, because any organization that wants access can get it through other channels,” he said.
Coinbase said it will provide BlackRock customers with “cryptocurrency trading, custody, prime brokerage, and reporting capabilities,” adding that this connection was an “exciting milestone for our company.”
BlackRock’s Aladdin system is one of the most widely used technologies in the financial services industry, connecting investors to the markets and measuring risk. It is used by asset managers, banks, insurance companies, pension funds, and corporations.
The deal represented a stark contrast to the position once held by BlackRock CEO Larry Fink in the crypto space. Speaking at the October 2017 IIF meeting, he said, “Bitcoin just shows you how much money laundering is in demand in the world. That’s it.”
However, in a second-quarter earnings call this year, Fink said that the asset manager continues to see interest from institutional clients regarding cryptocurrency trading. She was studying the digital asset ecosystem, “particularly in areas relevant to our clients, including stablecoins, crypto-assets, cryptocurrencies, and licensed blockchains.”
In April, along with asset managers including Fidelity and Marshall
Wace, BlackRock Company Announces Minority Investment in Global Circle
Internet Payments and Treasury Infrastructure Group is the source
of the stablecoin known as USDC.
A stablecoin is a type of cryptocurrency that is tied to an asset like the US dollar and acts as a bridge between traditional markets and cryptocurrencies. BlackRock has become the lead manager of USDC cash reserves at Circle, where the assets are entirely invested in short-term US Treasuries.
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