New Bitcoin Whale: BlackRock

Author: Huo Huo

Source: Baihua Blockchain

On March 21, BlackRock announced the launch of its first tokenized fund BUIDL on Ethereum, a move that has directly boosted the heat in the RWA (Real World Asset, referring to the tokenization of real-world assets through blockchain technology) sector.

However, this is not the first time BlackRock has stirred the crypto market. Back in January, BlackRock led the long-anticipated push for a Bitcoin spot exchange-traded fund (ETF), which created a sensation in the industry. Subsequently, the entire crypto market entered a new wave of excitement, and Bitcoin's price, which had been stagnant for over a year, began to break through the $40,000 mark.

It is expected that in the future, BlackRock will delve deeper into the crypto industry and become a significant force. Why is BlackRock, as the world's largest asset management institution, interested in cryptocurrencies? What impact will this have on the subsequent development of the crypto industry? Let’s take a closer look at this newly emerged Bitcoin whale in the crypto space.

Who is BlackRock?

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

BlackRock currently has 89 offices in 38 countries, with over 16,000 employees and clients in more than 100 countries. At the same time, BlackRock holds shares in 4,973 companies, including Apple, Microsoft, Nvidia, Amazon, Facebook, Tesla, and ExxonMobil.

BlackRock's top equity holding company, as of August 2023, source: startuptalky

In terms of revenue, **in 2023, BlackRock's total revenue was $17.86 billion, with the largest portion ($14.4 billion) coming from investment consulting, management fees, and securities lending. The Americas region contributed the most, with **$11.9 billion in revenue in 2023. Overall, financial consulting and management fees account for the majority of the company's revenue, with U.S. companies contributing most of the income.

Source: https://in.tradingview.com

According to reports, in the fourth quarter of 2023, BlackRock managed assets totaling $10 trillion, which means that even without launching a Bitcoin spot ETF, BlackRock remains firmly seated at the top of the global financial industry. So why has BlackRock begun to venture into the crypto industry? Is it a normal expansion of its own development? Or has BlackRock seen the potential of Bitcoin as a hedge against traditional financial risks? Or does BlackRock believe this is a good addition to their investment portfolio?

BlackRock's Crypto Actions

In fact, BlackRock has shown interest in the crypto industry and blockchain technology for several years, but faced many challenges at that time. First, the market was highly volatile; second, there was a lack of reasonable regulation, and market rules had not been fully established. Moreover, for the past decade, the SEC had consistently rejected applications for spot Bitcoin ETFs due to concerns about market manipulation, so no significant actions were taken.

However, on January 11, 2024, BlackRock, along with several other institutions, launched the first batch of Bitcoin spot ETFs in the U.S., named iShares Bitcoin Trust (IBIT), directly reversing the awkward situation of spot Bitcoin ETF applications being rejected for the past decade and opening a new chapter in crypto development.

1) One of the biggest driving forces behind the approval of the Bitcoin spot ETF

BlackRock is an organization with a significant record of ETF approvals. According to foreign media reports, the company has had 575 out of 576 applications approved by the SEC, achieving a success rate of nearly 100%. Only one ETF was rejected in October 2014, which was a actively managed ETF submitted by BlackRock and Precidian Investments, with the SEC citing a lack of transparency in profitability as the reason for rejection.

However, in facing the SEC, which had rejected Bitcoin spot ETF applications for ten years, BlackRock prepared thoroughly to improve its chances of approval. On June 15, 2023, when submitting the application for the spot Bitcoin ETF, BlackRock addressed the SEC's concerns one by one with proposed solutions. For example, to meet the SEC's requirement for implementing effective monitoring measures to prevent market manipulation, BlackRock planned to sign regulatory sharing agreements with relevant well-known platforms and listed Coinbase as the custodian for the proposed ETF to ensure the secure management of Bitcoin.

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

Unfortunately, on June 30, the SEC stated that the documents submitted by BlackRock, Fidelity, and other companies lacked clarity and comprehensiveness, thus rejecting the application for the Bitcoin spot ETF. A few days later, BlackRock resubmitted the application. Generally speaking, the SEC has a maximum decision time of 240 days for Bitcoin spot ETF applications. Although there may be lengthy communications and discussions, the application was not outright rejected as in the past, bringing hope for future approval and being seen as a positive sign of progress.

According to predictions at that time, based on the publication time of the rule change documents for each ETF application in the Federal Register, Tokeninsight predicted the possible approval times for eight institutional ETFs as follows:

It turned out that the earliest predicted time was indeed accurate. On January 11, the SEC officially announced the approval of 11 spot Bitcoin ETFs, including BlackRock's.

After the announcement, Bitcoin briefly surged, exceeding $49,000, and thereafter, Bitcoin began a spiral upward process. As of now, in less than three months, Bitcoin has broken through $71,000.

In fact, since BlackRock submitted its application for the Bitcoin spot ETF, the market has actively cheered with rising prices. Bitcoin broke through $30,000 and $40,000 in October 2023, and after the application was approved, it directly stood at $45,000.

Bitcoin's performance over the past year

Moreover, among the companies that applied for the issuance of Bitcoin spot ETFs, five chose CEX Coinbase as the custodian, and Coinbase's price rose from $70 in October 2023 to a peak of $187 in December.

Coinbase's token price trend in 2023

According to ChainCatcher's news on March 24, since its debut on January 11, 2024, the new spot Bitcoin ETFs (excluding GBTC) have significantly increased their Bitcoin holdings. Nine new spot Bitcoin ETFs (excluding Grayscale's GBTC) currently hold 474,363.55 BTC. Among them, BlackRock's IBIT leads with a holding of 242,829.94 BTC, making IBIT a giant among its peers, accounting for 51.19% of the total holdings of these nine ETFs. When considering GBTC along with these nine BTC, the total rises to 824,615.55 BTC, approximately 3.92% of the Bitcoin supply cap.

According to Cointelegraph's analysis on March 25, assuming there are no drastic changes in current capital flows, the number of Bitcoins in BlackRock's spot Bitcoin ETF may exceed that of Grayscale's GBTC within the next three weeks.

Although market predictions suggest that in the short term, the approval of Bitcoin spot ETFs may not have a significant stimulating effect on the market, in the long run, their existence will significantly enhance the compliance and investability of digital assets, thereby improving market depth and liquidity, and also helping to reduce market volatility and boost investor confidence.

Overall, the reputation and influence of the world's largest asset management company, along with its expertise and experience in launching and managing ETFs, have led the SEC and the market to believe in the feasibility and value of Bitcoin ETFs, and BlackRock has made a tremendous impact on the crypto world. Next, let's review its various investments and preparations already made in the crypto field.

2) Major shareholder of the largest Bitcoin holding company

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

MicroStrategy currently holds over 120,000 Bitcoins, valued at over $5 billion, and has issued over $2 billion in debt to fund its Bitcoin purchases. According to a recent analysis by Forbes, BlackRock's holdings in MicroStrategy are equivalent to owning over 6,600 Bitcoins, valued at over $300 million. This makes BlackRock one of the largest institutional holders of Bitcoin, even though it does not directly own any Bitcoins. BlackRock's holdings in MicroStrategy also reflect its optimistic outlook and confidence in the company and Bitcoin.

3) $384 million investment in leading Bitcoin mining companies

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

BlackRock's investments in Bitcoin mining companies include four of the largest and most mature Bitcoin block production companies: Marathon Digital Holdings, Riot Blockchain, Bitfarms, and Hut 8 Mining.

BlackRock's investment in Bitcoin mining companies is a bold and innovative move, on one hand, it promotes the growth and development of the Bitcoin network and ecosystem, enhancing the security, stability, and diversity of the network, and supporting the innovation and adoption of the technology; on the other hand, it also demonstrates its interest and involvement in the cryptocurrency space, as well as its recognition and appreciation of the value and potential of the industry.

4) Close collaboration with crypto industry institutions

Publishers have been negotiating with the SEC regarding the application for the spot Bitcoin ETF for a long time. While actively promoting this matter, BlackRock has collaborated and consulted 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 partnership agreement with Coinbase, integrating its Aladdin operating 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 several major cryptocurrency participants. It holds a minority stake in stablecoin company Circle Internet Financial and manages over $25 billion in reserves in government money market funds, supporting Circle's USDC and others.

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

BlackRock CEO: Bitcoin is appealing

BlackRock's acceptance of Bitcoin has been gradual. During the pandemic, the company's global chief investment officer for fixed income, Rick Rieder, began allocating Bitcoin futures in its funds. According to insiders, BlackRock's head of digital assets, Robbie Mitchnick, also helped Larry Fink transition into a Bitcoin believer.

Speaking of Fink, he was listed on Forbes' Global Billionaires List as early as 2022. Whether in investment talent, leadership skills, or social abilities, the 72-year-old Larry Fink is hailed as the "Godfather of Wall Street" and the creator of the "Financial Empire," playing an indispensable role in BlackRock's development.

However, Fink was not always a Bitcoin believer. In 2017, he referred to Bitcoin as a "money laundering index" and criticized cryptocurrencies multiple times, stating they were "things that clients do not want to invest in."

It wasn't until 2022 that Fink's stance on digital assets began to change significantly. According to insiders, the rebound of Bitcoin after the cryptocurrency crash in 2022 was a major reason for BlackRock's change of perspective.

In an April conference call that year, Fink stated that the company was extensively researching the cryptocurrency field and observed a growing interest from clients. In the same month, BlackRock participated in a $400 million financing round for Circle. Later in the summer, BlackRock quietly launched a spot Bitcoin product for U.S. institutional clients, as their first private trust product. BlackRock provided seed funding for the fund with its own capital and scaled it up with external investors.

That same year, BlackRock also established a partnership with Coinbase, allowing institutional clients holding Bitcoin on the cryptocurrency exchange to use their software toolkit Aladdin to manage portfolios and conduct risk analysis. Thus, Coinbase is currently the custodian for their spot Bitcoin ETF.

Now, it can be said that Fink is indeed one of Bitcoin's loyal believers, as his company BlackRock has legitimized Bitcoin and manages the fastest-growing Bitcoin fund, establishing partnerships with leading participants in the digital asset industry, and opening the door for mainstream investors to buy and sell Bitcoin as easily as 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 that holds Ethereum, the second-largest cryptocurrency by market capitalization and the native token on the Ethereum blockchain, with the regulatory deadline set for May, which is worth looking forward to.

Conclusion

As BlackRock's slogan states, "Investing in a New World," BlackRock believes that cryptocurrencies and blockchain technology can transform the financial industry, creating new opportunities for growth, efficiency, and inclusivity.

It may be precisely because of the recognition that the demand and adoption of cryptocurrencies among institutional investors, retail investors, governments, and enterprises are continuously growing, that BlackRock's interest in cryptocurrencies is no longer limited to following trends or making speculative bets, but is viewed as a strategic long-term vision.

It is foreseeable that in the future crypto space, BlackRock's presence will be indispensable.