The big news from last week was that BlackRock, the world’s largest asset manager, has launched a spot bitcoin private trust to give its U.S.-based institutional clients direct exposure to the world’s largest digital asset.
According to BlackRock, the main reason behind this move is that the organization is seeing demand from its clients. But there is a much bigger story here for bitcoin than the increase in demand.
So let me break down to you five reasons why BlackRock's move into bitcoin is a big deal.
Does it now mean there’s a strong institutional interest in Bitcoin?
The short answer is: Yes, likely.
The bitcoin community has been talking about institutional adoption for years. It looks like institutions are finally knocking on the door.
Numerous large banks like JP Morgan, Morgan Stanley, and UBS have already opened the bitcoin space to their clients. And despite the price downturn in recent months, Schroders picked up a stake in the crypto-focused fund manager Forteus and Fidelity announced it would allow investors to add cryptocurrencies to their 401(k) retirement schemes.
In other words, institutional adoption is here. As former Grayscale CEO Barry Silbert commented on BlackRock's move, "Here comes Wall Street."
Anthony Scaramucci, founder and managing partner of Skybridge Capital, who briefly served as former President Donald Trump’s communications director in 2017, believes BlackRock’s Bitcoin trust will contribute to a demand shock for bitcoin that will send its price to another level.
He said that the “future” is arriving sooner than he thought and predicted that Bitcoin will reach $300,000 per coin within a few years.
Cathie Wood from ARK Invest is more conservative. She believes the entry of BlackRock into the crypto world will only double the bitcoin price.
She notes that if you applied that 2.5% rule to BlackRock’s $40 trillion platform, that translates to more than $1 trillion worth of demand. That level of demand would “more than double” bitcoin’s price.
In 2017, BlackRock's Larry Fink said, “Bitcoin just shows you how much demand for money laundering there is in the world,” and called bitcoin an “index of money laundering.”
Fast forward five years, and Larry Fink is doing one-eighty.
But his pivot to digital assets hasn’t been as sudden as it looks. Larry Fink appeared to change his tune in 2020 when he acknowledged the largest digital asset’s potential to become a “global market.”
For better or worse, BlackRock’s bitcoin fund illustrates how far bitcoin has matured as an asset class in the last five years.
The bitcoin network runs on an energy-intensive blockchain system and has been criticized for its carbon footprint and broader environmental impact. While most of the adverse environmental effects have been proven wrong, some concerns about ESG still prevail.
The acronym ESG stands for environmental, social, and governance, and BlackRock considers itself a leader in ESG investments. However, the new BlackRock’s Bitcoin trust eliminated all the doubt about bitcoin's sustainability.
In other words, an ESG investment leader would not begin allocating billions of clients’ funds in bitcoin if they regarded it as not environmentally friendly.
While futures-based Bitcoin ETFs have already been approved, the SEC has repeatedly rejected spot Bitcoin ETF applications from firms like Grayscale or Fidelity Investments.
Some bitcoin-friendly investment managers say they’re hopeful that BlackRock’s investment trust will boost the probability of a spot Bitcoin ETF approval.
“One of the biggest, most established traditional finance players has made a major entrance into crypto space (and possibly the bitcoin ETF sweepstakes, too, as a trust can be converted into an ETF),” said Anthony Scaramucci.
In short, BlackRock will likely convince the SEC to change its attitude towards spot bitcoin ETF.
It is undeniable that bitcoin investors are the ultimate winners here. Bitcoin has a fixed supply of 21 million coins, and the influx of new demand from large institutions would catalyze further price recovery.
However, it’s also important to remember the more Wall Street institutions enter bitcoin, the more open it will be to market manipulation.