Fink At It Again
BlackRock (BLK) investment fund was the first asset manager to surpass $10 trillion in assets held as the US Central Bank fueled the largest asset bubble created in human civilization.
That was a great achievement.
This is also why the CEO of BLK Larry Fink, as of April 2022, is worth an estimated US$1 billion according to Forbes Magazine.
Not too shabby.
Fast forward to the end of 2nd quarter of 2022, BLK was the first to lose $1.7 trillion in assets in the first half of 2022 when the tech market nosedived.
The monumental loss has resulted in some unique unintended consequences that have now manifested in BlackRock migrating into crypto by teaming up with Coinbase on a product designed to help institutional investors trade bitcoin.
The propensity for BlackRock to entertain asset inflow by sliding them into passive funds is great on the way up, but volatility has really twisted the fork into that strategy as the deleveraging in the capital markets has made it harder to achieve alpha.
How will BLKs new partnership work?
The world’s largest asset manager will allow clients to use its Aladdin investment management system to buy, sell and monitor their cryptocurrency holdings via Coinbase’s exchange, the biggest in the US.
BlackRock said the partnership will be focused on bitcoin – at least “initially”.
The move is the latest sign that some of the biggest players in traditional finance – known as TradFi in crypto circles – are confident in the long-term prospects for cryptocurrencies.
This major nod of approval to crypto was a glimmer of good news among the bad as Coinbase, which has been mired in multiple investigations from the Federal government, is handcuffed in regulatory limbo.
The major crypto exchanges have also slashed jobs at a dizzying pace with 1,100 jobs in recent months, after admitting that it hired too quickly during the crypto bull run of 2021.
Institutions made up about three-quarters of Coinbase's $309 billion in trading volumes in the first quarter, the company said in May. Among others, its clients include asset managers, large corporate treasuries, and asset managers.
I believe this is BLK's buy-low approach to the crypto industry as many critical pieces to the crypto infrastructure have flamed out in bankruptcy lately.
BLK wants to cover its bases by being able to take part in the next crypto resurgence if and when that happens.
This also gives them a low-cost exit strategy if the sushi hits the fan.
As investors believe rate cuts will occur next June, that obviously brightens the prospects for crypto prices.
This by no means translates into BLK exposing clients to major crypto investments.
I hear that they are advising high net worth clients into an asset allocation of 1-3%.
I highly doubt there will be a comingling of assets like crypto and equities into one branded ETF.
BLK most likely will silo the crypto business and see if it takes off all while taking a measured approach to its prospects.
The BLK management are already smoothing over the normal talking points like paying lip service to the superior technology of blockchain and how it can be “incredibly innovation and disruptive.”
Buzz words are nice on the ear but usually short on substance.
The truth is that crypto has been an absolute failure since November 2021 and its latest rally has evolved from the backdrop of an expectation of sooner interest rate cuts.
Unfortunately, the crypto industry was one of the few industries in America that got hit by the deleveraging bubble because it is the most speculative.
One might also throw in meme stocks like Gamestop (GME) and AMC (AMC) as secondary losers to the central bank tightening.
Even zombie corporate companies are alive and kicking as the tightening cycle hasn’t been that tight.
We are setting up for a positive 2023 and crypto could really take off when interest rate cuts become the new normal.
