Coinbase forges deal to give BlackRock clients access to crypto

Coinbase has announced a deal with BlackRock to give the asset manager’s clients more seamless access to digital asset markets, in the latest sign of how a rising number of traditional investors are dabbling in crypto.

San Francisco-based Coinbase said on Thursday that it would connect to Aladdin, BlackRock’s investment technology platform. The system, which supplies essential plumbing to the global investment industry, will give clients of the world’s biggest asset manager direct access to crypto. The first token available will be bitcoin, but others may come later.

The tie-up marks a victory for Coinbase, which has came under intense pressure since its direct listing last year as a result of tumbling crypto prices and falling trading volumes. It also shows how, despite the turbulence in crypto markets this year, some institutional investors are more actively considering allocations in digital tokens.

“Our institutional clients are increasingly interested in gaining exposure to digital asset markets and are focused on how to efficiently manage the operational lifecycle of these assets,” said Joseph Chalom, global head of strategic ecosystem partnerships at BlackRock.

Coinbase’s shares initially rose as much as 44 per cent after the Wall Street open, before cutting their gain to about 15 per cent. However, the shares remain down more than 60 per cent in 2022.

The BlackRock pact was a “major confidence booster and a much-needed positive for Coinbase after a brutal year,” said Dan Ives, an analyst at Wedbush Securities.

Coinbase in June abandoned its growth plans and cut a fifth of its workforce — more than a thousand people — because of the downturn in crypto markets. Adding to its woes, US prosecutors last month charged a former employee and two of his associates with insider trading.

David Trainer, chief executive of investment research firm New Constructs, said he was sceptical of the Coinbase-BlackRock venture. “The idea that institutions need more access to crypto seems far-fetched to us, as any institution that has wanted access could get it through other channels,” he said.

Coinbase said it would provide clients of BlackRock with “crypto trading, custody, prime brokerage and reporting capabilities”, adding that the tie-up was “an exciting milestone for our firm”.

BlackRock’s Aladdin system is one of the most widely used pieces of technology in the financial services industry, linking investors to markets and measuring risk. It is used by asset managers, banks, insurers, pension funds and corporations.

The deal marks a stark contrast to the position once held by BlackRock chief executive Larry Fink on crypto. Speaking at an Institute of International Finance meeting in October 2017, he said: “Bitcoin just shows you how much demand for money laundering there is in the world. That’s all it is.”

However, on a second-quarter earnings call this year, Fink said the asset manager was still seeing interest from institutional clients about trading crypto. It had been studying the digital assets ecosystem, “particularly in areas that are relevant to our clients, including stablecoins, crypto assets, tokenisation, permissioned blockchains”.

In April, alongside asset managers including Fidelity and Marshall
Wace, BlackRock announced a minority investment in Circle, a global
internet payments and treasury infrastructure group that is the issuer
of the stablecoin known as USDC.

A stablecoin is a type of cryptocurrency pegged to an asset such as the US dollar and acts as a bridge between traditional and crypto markets. BlackRock became the primary manager of Circle’s USDC cash reserves, with assets invested entirely in short-term US treasuries.