The bitcoin price has risen 7.4% to $24,523. Ethereum is trading at just below $1,900. Altcoins are following in the footsteps of majors. XRP is now up 3.3%, cardano 7.7%, BNB 10.4%, solana 13%, Terra’s “luna2.0” 27%, Shiba Inu 5.2% and dogecoin 7.7%
Coinbase US’s largest cryptocurrency exchange announced last week a partnership with BlackRock, the biggest asset manager in the World, to bring bitcoin to institutional investors on a large scale.
This news represents a significant leap forward in bitcoin’s institutional adoption. It prompted a flood of bold calls.
10T founder Dan Tapiero predicted that Blackrock would open the floodgates to capital into crypto and push it into seven figures. “5% shift in [Blackrock] assets exceeds [today’s bitcoin] valuation today.” He tweeted that a catalyst is emerging for a path towards $250,000+ [bitcoin]
Bitcoin and other major cryptos, however, have only been following the stock market news. Why is crypto so resistant to such a large institutional vote of confidence for crypto?
Let’s take a look at the meaning of this partnership.
Coinbase will allow Blackrock’s Alddin clients direct access to bitcoin. Most institutional investors will now be able trade, hold, and broker actual cryptocurrency for the first time.
Aladdin, Blackrock’s flagship platform for asset management, serves as a “dashboard”, for some of the largest fund managers around the globe. It managed a staggering $21.6 trillion in assets, or 7% of the total global assets, as of 2020.
Although coming on Aladdin theoretically opens the door to trillions in institutional dollars, bitcoin’s slow reaction suggests that big investors won’t rush to support crypto–especially given recent events.
Jared Dillian, a Bloomberg columnist, wrote that “this year has been terrible for crypto. With a couple trillion dollars worth of value wiped off and the liquidation o f several large hedge funds, exchanges and exchanges not to mention the collateral damage in non-fungible token (or NFT) space resultant,”
He said that “more people are now questioning whether or not the blockchain technology underpinning crypto is viable and useful.”
Keep in mind that this was not the only win for Bitcoin institutions this year.
I wrote about this in Markets . In April, Fidelity made the announcement that it would be the first asset manager to offer Bitcoin in 401(k). A tiny amount of bitcoin could send any cryptocurrency skyrocketing if savers have more than $12 trillion in 401k plans.
However, just like Aladdin’s addition to bitcoin, 401ks is likely to be more of a long-term tailwind that a short-term boost.
It is due to the fact that most $12 trillion in 401ks is held in “target-date fund” accounts. None of these funds allocate even a small portion of their portfolios for bitcoin, as bitcoin is still too volatile.
CNBC’s David Ireland, a fund manager at SSGA with $150 billion in target assets, said that “it’s something you should watch, but a way out.” It’s not difficult to say no, but it’s important to know more.
The positive news about Bitcoin shows that it has the potential to be a legitimate alternative asset class. Institutional portfolios should consider a meaningful allocation.
However, it would be foolish to assume that trillions of institutional funds will pour into crypto overnight.
Although institutions theoretically have the ability to deploy this money, it is not possible due to legal and reputational risk. Most fund managers won’t spend a lot on bitcoin until crypto is regulated.
Dillian said: “The best thing to the crypto world would not want regulation.” This is something I would say as someone who has a negative view of regulation. Crypto would be safer to invest in if it was freed from all the frauds and pump-and-dump schemes.
We are making progress.
The Senate has been working since June to create a landmark crypto legislation, the Responsible Financial Innovations Act. The EU watchdogs, on the other hand, are pushing for their own crypto rules which will be in effect in 2023.