The REAL Reason Why Blackrock is Buying Bitcoin

Summary

In this transcript, Robbie Mitchnick, Head of Digital Assets at BlackRock, discusses the firm's journey into Bitcoin and the broader cryptocurrency space. Mitchnick highlights BlackRock's strategic approach, beginning with studying the technology and asset class, and evolving over six to seven years. He emphasizes the importance of client demand, regulatory progress, and the maturation of market infrastructure. BlackRock's entry into the Bitcoin market through ETFs and other investment vehicles reflects a careful, client-focused strategy, with an eye on long-term portfolio construction and risk management. Mitchnick also addresses the misconceptions around Bitcoin's correlation with other asset classes and its role as a diversifier in investment portfolios. The conversation touches on the future of Bitcoin on Wall Street and the potential convergence of traditional finance and blockchain technology.

Takeaways

• 🚀 BlackRock's journey into Bitcoin started 6-7 years ago with a careful study of the technology and asset class.
• 🛠️ The development of infrastructure and institutionalization, along with regulatory progress, laid the foundation for BlackRock's moves in the Bitcoin space.
• 💡 Persistent and growing client interest, despite market cycles, was a significant driver for BlackRock to enter the Bitcoin market.
• 🏦 BlackRock's decision to engage with Bitcoin was not influenced by concerns over their win-loss approval record.
• 🤝 Partnerships with firms like Coinbase and the launch of a private Bitcoin fund were crucial steps in building capabilities for asset management within the crypto space.
• 💪 The successful launch of the Bitcoin ETF in 2023 was fueled by clear client demand and the company's long-built capabilities.
• 📈 Investors are increasingly choosing Bitcoin ETFs as a more accessible, lower-cost, and convenient solution for Bitcoin exposure.
• 💰 The diversity of investor types and their varied rationales for utilizing the ETF have been surprising and broad, ranging from small to ultra-high net worth individuals and institutions.
• 🌐 The market for Bitcoin is expected to continue evolving with the entry of new types of allocators and practices such as rebalancing.
• 📊 Correlations and the role of Bitcoin as a potential diversifier or hedge within institutional portfolios are key topics of current debate and education.
• 🔍 Achieving small wins and maintaining a discerning approach are essential strategies for institutions just beginning to explore the Bitcoin and broader crypto space.

Q & A

How did BlackRock come to the decision to get involved with Bitcoin?

BlackRock's decision to get involved with Bitcoin was not a sudden one. It was a journey that started six to seven years ago with studying the technology and the emerging asset class. The company observed the evolution of infrastructure, institutionalization, and the regulatory climate. Most importantly, they noted a consistent and enduring interest from their client base, which expressed frustration with the lack of efficient, secure, and convenient exposure solutions to Bitcoin. This, combined with the capabilities that BlackRock built over the years, led to their current position in the Bitcoin space.

What was BlackRock's approach to integrating Bitcoin into their offerings?

BlackRock took a measured approach to integrating Bitcoin. They began by studying the technology and asset class. In 2021, they started working with Coinbase Prime to integrate their trading and custody services into BlackRock's Aladdin investment solution. In 2022, they launched a private Bitcoin fund, which was a critical step in developing their capabilities as an asset manager. By 2023, they had laid the groundwork to offer a Bitcoin ETF, driven by clear client demand.

How has the regulatory climate for Bitcoin evolved according to BlackRock?

According to BlackRock, the regulatory climate for Bitcoin is not perfect but has come a long way, particularly in the last three to four years. This improvement in the regulatory environment has been a significant factor in BlackRock's decision to move into the Bitcoin space.

What was the driving force behind the creation of BlackRock's Bitcoin ETF?

The driving force behind the creation of BlackRock's Bitcoin ETF was the consistent and enduring interest from their client base. Clients were increasingly frustrated by the lack of efficient, secure, and convenient exposure solutions to Bitcoin. This, combined with the capabilities that BlackRock had built over the years, led to the launch of the ETF.

How has the Bitcoin ETF been received by different investor types?

The Bitcoin ETF has been received by a broad range of investor types, from small-dollar investors to ultra-high-net-worth individuals, wealth advisory, and institutional clients. The demand has come from various use cases and rationales, reflecting the diversity of interest in Bitcoin exposure.

What are some of the misconceptions about Bitcoin's role in portfolio construction?

One of the misconceptions is referring to Bitcoin as a 'risk-on' asset. This term implies correlation to equities and fixed income, which is not accurate for Bitcoin. Bitcoin is a risky asset due to its volatility and uncertainty, but it has a fundamentally different macro variable driving it, which is its correlation with real interest rates. Educating institutional investors about this distinction is a key part of BlackRock's engagement with them.

How does BlackRock view the future of Bitcoin in relation to cycles and market volatility?

BlackRock believes that cycles in Bitcoin are here to stay due to its reflexive nature. The price movements of Bitcoin influence and are influenced by its perceived success and adoption. While volatility may decrease over time, the cycles of bull and bear markets are expected to continue even in an increasingly institutional environment.

What is BlackRock's strategy for educating clients about Bitcoin?

BlackRock focuses on educating clients about the unique characteristics of Bitcoin and its role in portfolio construction. They discuss the importance of understanding correlations, the macro variables driving Bitcoin, and how it functions as an asset class. This education journey is a significant part of their client interactions and is designed to demystify Bitcoin and foster informed investment decisions.

What advice does BlackRock have for other institutions looking to engage with Bitcoin?

BlackRock advises other institutions to start small and aim for wins that build familiarity, expertise, and credibility with the technology and asset type. It's important to be discerning and ensure that projects are well-executed. Additionally, everything should be considered from the institution's standpoint rather than individual passions, to ensure strategic and risk considerations align with the institution's goals.

How has the involvement of traditional financial institutions like BlackRock impacted the perception of Bitcoin?

The involvement of traditional financial institutions has brought Bitcoin closer to the mainstream financial system. It has provided a familiar and convenient way for investors who were previously uncomfortable with digital asset rails to gain exposure to Bitcoin. However, there is still a place for both traditional and digital-native investment exposures, and BlackRock sees a future where the best of both worlds converge in the next generation of financial infrastructure.

What has been the most surprising aspect of BlackRock's Bitcoin ETF for the team?

The most surprising aspect for BlackRock's team has been the breadth of investor types that the ETF has resonated with and the variety of rationales for wanting exposure to the ETF. They did not expect such a wide range of use cases and reasons from different investor segments, which has been a significant revelation for them.

Outlines

00:00

🚀 Introduction to BlackRock's Bitcoin Involvement

This paragraph introduces Robbie, the head of digital assets at BlackRock, who has been instrumental in understanding the value of Bitcoin and advocating for its integration within the firm. It outlines BlackRock's journey with Bitcoin, starting from studying the technology and asset class about six or seven years ago. The decision to get involved with Bitcoin was not sudden but a result of evolving infrastructure, institutionalization, regulatory climate, and consistent client interest. The conversation also touches on the internal decision-making process at BlackRock and the development of capabilities over the years, leading to the current state of their Bitcoin involvement.

05:02

💡 ETFs and Client Demand

In this paragraph, the discussion focuses on BlackRock's ETFs and the significant client demand that led to their creation. It highlights the company's stellar track record with ETFs and the decision-making process behind launching a Bitcoin ETF. The conversation delves into the client base's reaction to the ETFs, the reasons for the rapid capital inflow into these funds, and the different investor types attracted to Bitcoin access through these ETFs. The paragraph also discusses the role of BlackRock as a trusted name in the industry and its impact on various pools of capital, such as pension funds and sovereign wealth funds.

10:04

📈 Market Dynamics and Portfolio Construction

This section explores the market dynamics and the role of Bitcoin as a part of portfolio construction. It addresses the concept of Bitcoin as a 'digital gold' and the challenges in understanding its correlation with other assets. The conversation emphasizes the importance of education and the need for traditional investors to understand the unique characteristics of Bitcoin. It also discusses the potential future of Bitcoin on Wall Street and the expected convergence of traditional finance and cryptocurrency-native systems.

15:06

🗣️ Public Communication and Client Interaction

The focus of this paragraph is on the public communication strategy of BlackRock, particularly regarding its involvement with Bitcoin. It highlights the significance of Larry Fink's statement on Bitcoin as a flight to quality and the impact of such public endorsements. The conversation also touches on the responsibilities of BlackRock as a thought leader and the importance of a measured and thoughtful approach to communicating complex topics. The paragraph concludes with a discussion on the role of correlations in portfolio management and the implications for institutional investors.

20:07

🛠️ Advice for Institutions Considering Crypto

In the final paragraph, Robbie offers advice to other institutions considering involvement in the cryptocurrency space. He emphasizes the importance of starting with small wins to build familiarity and credibility, being discerning in project selection, and maintaining an honest broker stance, focusing on the institution's perspective rather than personal passion for crypto. The conversation also reflects on the surprises encountered during BlackRock's journey, such as the diverse range of investor types interested in the Bitcoin ETF and the various rationales behind their interest. Lastly, Robbie provides tips for engaging with traditional financial institutions.

Keywords

💡Digital Assets

Digital assets refer to content or data that is stored digitally and possesses value. In the context of this video, the term is closely associated with cryptocurrencies like Bitcoin and blockchain technology. Robbie Mitnik, as head of digital assets at BlackRock, delves into the intricacies of integrating these assets into the mainstream financial landscape, highlighting BlackRock's journey in understanding and adopting Bitcoin as a legitimate investment class.

💡Institutional Investors

Institutional investors are entities like pension funds, insurance companies, and investment banks that make substantial investments in various markets. The video emphasizes Robbie Mitnik's expertise in dealing with these investors, particularly in the context of exploring and integrating Bitcoin into BlackRock's offerings, illustrating a significant shift in how traditional financial institutions perceive and engage with digital currencies.

💡Bitcoin

Bitcoin is a decentralized digital currency without a central bank or single administrator. In the video, its role as an emerging asset class that has garnered attention from institutional investors like BlackRock is examined. The discussion includes BlackRock's strategic approach to incorporating Bitcoin into their asset management portfolio, reflecting a broader institutional acknowledgment of Bitcoin's potential as an investment.

💡ETFs (Exchange-Traded Funds)

ETFs are marketable securities that track an index, commodity, bonds, or a basket of assets. Robbie discusses BlackRock's move to create a Bitcoin ETF, emphasizing the firm's confidence in Bitcoin's viability as an investment and its strategic decision to package it in a familiar investment vehicle, thus making it more accessible to a broader range of investors.

💡Regulatory Climate

The regulatory climate refers to the current state of laws and regulations governing a particular industry or sector. In the video, it is highlighted as a significant factor that has evolved to facilitate the institutional acceptance and integration of digital assets like Bitcoin into mainstream financial products and services.

💡Client Demand

Client demand in this context refers to the interest and preference expressed by clients of BlackRock in incorporating digital assets into their portfolios. The video details how consistent and growing client interest in Bitcoin and other digital assets has been a critical driver for BlackRock to develop investment solutions like Bitcoin ETFs.

💡Portfolio Construction

Portfolio construction is the process of selecting the optimal mix of investments based on the investor's goals, risk tolerance, and investment horizon. The video explores how Bitcoin's inclusion in BlackRock's investment strategies plays a role in diversifying portfolios, reflecting a shift in how traditional portfolio theories are applied to include digital assets.

💡Market Cycles

Market cycles refer to the periodic fluctuations in market prices through phases of bull markets, bear markets, and recovery. Robbie touches on the nature of Bitcoin's market cycles and how understanding these fluctuations is vital for institutional investors considering digital assets as part of their investment strategies.

💡Technology Integration

Technology integration in this context refers to how BlackRock incorporates blockchain and cryptocurrency trading and custody technologies into its existing systems. The video illustrates BlackRock's partnership with Coinbase Prime as an example of integrating advanced technology to manage digital asset investments effectively.

💡Risk Management

Risk management involves identifying, assessing, and prioritizing risks followed by coordinated efforts to minimize, monitor, and control the probability or impact of unfortunate events. The transcript shows how BlackRock considers the volatile and uncertain nature of Bitcoin and other digital assets in its risk management strategies, ensuring that their integration into investment portfolios aligns with the firm's and its clients' risk tolerance levels.

Highlights

BlackRock's journey into Bitcoin started 6-7 years ago with studying the technology and asset class.

The evolution of infrastructure and institutionalization in the Bitcoin space has come a long way in the last few years.

BlackRock's client base consistently showed interest in Bitcoin, even through market cycles.

In 2021, BlackRock began working with Coinbase Prime to integrate their services into the Aladdin investment solution.

BlackRock launched a private Bitcoin fund in 2022, a critical step in developing capabilities as an asset manager.

The Bitcoin ETF was introduced in 2023 with massive and clear client demand.

Investors are choosing BlackRock's Bitcoin access over direct investing due to lower costs and convenience.

There are three main investor buckets for BlackRock: end investors direct, wealth advisory, and institutional.

Large pools of capital, such as pension and sovereign wealth funds, are engaging in discussions with BlackRock about Bitcoin.

Bitcoin is considered a risky asset, but its correlation with equities and fixed income is low, making it a potential diversifier.

Bitcoin's macro variable is its correlation with real interest rates, which have driven asset performance recently.

The Bitcoin community has mistakenly embraced the idea of Bitcoin as a 'risk-on' asset.

BlackRock is focused on Bitcoin and Ethereum, with little interest in other cryptocurrencies.

The market for Bitcoin ETFs and institutional investment is expected to continue growing, but cycles of boom and bust are likely to remain.

BlackRock's entry into the Bitcoin market was a deliberate and measured process over many years.

Larry Fink's public statements on Bitcoin as a flight to quality reflect BlackRock's institutional perspective.

BlackRock's advice for other institutions is to seek small wins and be discerning in their approach to new technologies.

The variety of investor types and rationales for using the Bitcoin ETF has been a surprise to BlackRock.

Transcripts

all right next up uh we have Robbie

mitnik uh who is the head of digital

assets at Black Rock um Robbie is uh by

far I think one of the smartest

institutional investors um and uh

operators that has figured out uh some

of the value proposition of Bitcoin and

then done immense work internally at

Black Rock to uh to get them on board

and uh we we'll see if he was part of

the Larry Fink orange pill but uh Robbie

come on

up all right how did Black Rock decide

that you guys wanted to get into the

Bitcoin

game uh well we didn't just wake up one

day and make that decision um I think

that you know you look at our journey it

goes back really now uh six seven

years and it starts with studying the

technology and this emerging asset class

in a very measured way out of the gate

right and I think if you look

at the state of what it was then versus

what it's

become that really uh Paints the picture

of how we ended up making the moves that

we did right in terms of the state of

infrastructure and

institutionalization you know that has

come a very long way

particularly in the last three or four

years right the state of the regulatory

climate it's not perfect obviously but

that has come a long way and then most

importantly for us uh the level of

interest that we had from our client

base that was consistent and enduring

even through the bull and bare Market

Cycles we saw that very clear pattern

that our clients were increasingly

interested in this and increasingly

frustrated

by uh the availability of efficient

TurnKey convenient secure exposure

Solutions uh with which to get into this

space and when you put all those

together and you add sort of the the

capabilities that we built over multiple

years then you get to where we are today

so take me inside the organization um

you all do this work at some point

there's kind of a zero to one decision

hey we we should do something in the

space um

ETFs you all have a stellar track record

I think at uh the time of filing it was

575 and one um is there a fear that I

don't want to be the one to be the

second you know 575 and two or why ETFs

and kind of how did you build the

confidence to say hey look we think

actually we can get this through with

the with the

Regulators uh well there's certainly a

lot of things that we considered in that

decision but I can tell you that one

thing that we never considered was what

will it do to our uh win loss approval

record um you know it came down to if

you think about some of the things that

we did that laid the foundation right uh

starting in 2021 we began working with

with coinbase with coinbase prime to uh

integrate from a technology capability

standpoint their Prime brokerage trading

custody into our Aladdin investment

solution so that crypto uh specifically

Bitcoin

uh out of the gate uh could uh be part

of the whole portfolio for the Aladdin

clients that that that chose it to be uh

and then in

2022 we uh launched a private Bitcoin

fund right which was really important in

term one that was all you could do from

a regulatory standpoint at that time but

two in terms of developing the

capabilities as an asset manager in the

space that was limited to our largest

institutional clients in the the us but

it was a really critical stepping stone

then you get to uh start at

2023 and that's when we started to put

uh the pieces in place to take that next

step and and deliver the ETF which at

that point we had uh massive and clear

client Demand right that they were

frustrated with how difficult it had

been to get exposure you had some

clients who had tried to get exposure in

this space and they' you know been

subjected to High fees high risk

underperformance the price of Bitcoin in

many cases all three uh or maybe even

worse they missed it entirely which was

you know Bitcoin is the top performing

asset in the world the last decade and

seven in the last 10 years and they

missed it because they didn't have the

the wrapper the format in a convenient

accessible

way once you get the approval um I was

pretty bullish on the ETFs I thought hey

this is going to be uh quite exciting I

did not think we would see the inflows

that we saw as quickly as we saw did you

all think this would happen and what has

been your kind of reaction or or you

know analysis as to why so much Capital

has flowed so quickly into these uh

funds yeah it's been uh it's been an

interesting couple of months um you I

think investors are resoundingly

choosing ibit for uh Bitcoin access

whether that's uh you know new investors

to the space who weren't willing to do

it when it had the frictions that you

know for some Bitcoin direct investing

uh incurred uh or investors who are

already in the space but are choosing

this as a uh you know more efficient

lower cost uh more accessible convenient

exposure solution so you put those

together it's been obviously a lot but

when we think about our um you know

business in our client base you have

really kind of three buckets you could

you could put it in right one is uh end

investors direct and that channel you

know right out of the gate you know has

been very strong obviously a lot of

interest in demand right from small

dollar up to ultra high net worth type

uh players then you have wealth

advisory which um you know many of those

uh home offices are are wealth advisory

Partners they're still undergoing their

diligence processes right so for a lot

of these firms it's it's not approved at

all or it's not approved other than on a

unsolicited basis where the the client

has to ask the advisor can't propose it

um so that's still you know pretty early

days and then on the institutional side

we're having lots of great conversations

a lot of sort of research and diligence

and education happening but that's early

they they just operate on a longer time

scale and so it'll be interesting to see

you know as the months and quarters

unfold how those other channels start to

come on now one of the things I think

folks are very excited about Black Rock

is there's a trusted name and there's a

lot of relationships and um some of the

pools of capital that previously have

not participated you know very large

Pension funds Sovereign wealth funds uh

you can kind of go down the line of

these pools um any insight into what

those conversations look like so far are

they open to learning more are they you

know hey guys I don't want to talk about

this where are those like kind of larger

pools of capital

currently yeah I think I think that

there is a really really important uh

discussion debate analysis going on of

how to think about this from a risk and

portfolio construction perspective and I

would say that the um Bitcoin and you

know crypto industry broadly has not

done a good job at all of speaking the

language of traditional investors right

and one of the I think most confusing

unhelpful things that happened in the

postco era was um you had people sort of

accept this idea that Bitcoin was a risk

on asset whatever that even means right

it's kind of devoid of of

fundamental uh basis that concept to

begin with but um Bitcoin is a risky

asset right it is volatile it has a lot

of uncertainty but risk on is a

different thing right it implies

correlation to equities fixed income

what have you um and what happened was

Bitcoin has one in our view uh

fundamental macro variable where it is

highly correlated with

equities and that is it is massively

short real interest rates right it is

short nominal rates and it is long

inflation expectations and real interest

rates is nominal rates less inflation

expectations so it's massively short

real interest rates

and real interest rates drove every

asset Under the Sun between 2020 and

kind of early 2023 right they collapsed

therefore a lot of assets including

Bitcoin rocketed and then they surged as

fed started hiking and inflation

expectations rolled

over and so the Bitcoin and Community

sort of embraced this idea that it was a

risk on asset which um I think was

problematic for two reasons

uh one because it was actually

counterproductive to them but two more

importantly it's fundamentally it's

probably wrong right if we think about

long-term

fundamentals and what it means to be a

global decentralized scarce

non-sovereign asset a lot of those

fundamentals paint you know Mike was

talking about some of these Dynamics and

challenges the US fiscal situation and

otherwise they paint a very different

conclusion in terms of how to think

about it versus other assets on a

long-term basis so what's happened is

those institutional investors they get

kind of this digital gold

hypothesis but then they look at the

past data from you know 2020 to 2022 and

they go well you know long-term

correlation was low but then it spiked

so you know how do we think about this

in portfolio construction so that's the

kind of education Journey that we're

on now you guys just um I think put in

application uh or announced a new type

of fund um that is going to partner with

securitise um tell us a little bit about

what's the general idea there um and

should we expect Black Rock to now go

from Bitcoin you know kind of building

this fund On ethereum and Here Comes

everything else and as Mike said you

know dog with hat is going to be the

next uh fund you guys launch like how do

you think about what that fund is and

then kind of like the long taale of

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that um crypto Twitter would would love

to believe that dog with hat ETF is

coming next I actually don't know what

dog with hat even is didn't get that

reference but um you know that answers

that

question what what I can say is that um

for our client

base it is Bitcoin overwhelmingly number

one their

focus a little bit in

ethereum and very very little everything

else and when you think about it in

terms of you know various metrics and

dimensions I mean Bitcoin 52% of the

market cap of the whole asset class

ethereum but 17ish today maybe 18 and

the next that is even sort of investable

is like three right uh and so there just

Worlds Apart there in terms of you know

track record liquidity product Market

fit investor narrative Clarity all these

things right so that's where um I think

there's some misplaced uh speculation

that there's going to be a longtail of

of others from us and that's really not

where we're focused now as large pools

of capital come in whether it is

actually you know the pension Sovereign

weals Etc or just a lot of capital flows

into the ETFs um it feels like the

ground under underneath the Bitcoin

Market is shifting a little bit there's

new types of allocators um things like

rebalancing which is you know basically

blasphemy in the Bitcoin Community uh

now come into play and so do you expect

volatility to dampen do you expect the

end of the kind of the fouryear cycles

and the big boom and bust how do you see

the market moving forward given these

ETFs and other institutional

players yeah it's a great question I

certainly don't think um we've seen the

end of Cycles uh in Bitcoin I think you

know by its

nature um there's reflexivity in it

right which is and that's and that's

hard for a lot of traditional investors

to wrap their heads around as you think

about it you know if you think about a

stock the stock price goes up but now it

looks more expensive on a PE basis or or

what have you uh and it goes down it

looks cheaper on a PE basis um with

Bitcoin when the price goes up the

probabilities of success and adoption in

some sense is as digital gold are also

changing when and when bad things happen

the price goes down those probabilities

you know are also changing so you create

reflexivity and um that just reinforces

the idea that you're you're going to

have these Cycles I think that they're

still here to stay so people need to be

wary of you we'll have bull markets

we'll have bare markets too uh even in

this sort of POS institutional World um

and then what becomes interesting is how

do you think about the direction of

volatility right because volatility over

time has has pretty steadily come down

so maybe that continues to come down uh

certainly returns going forward uh will

come down it's not going to return 124%

a year uh over the next decade like it

has uh the prior decade so these are the

kinds of conversations that we're having

we're getting lots of questions from our

investors and that's a big part of the

education Journey now um when Black Rock

decided to do this uh it struck me as

literally the executive team the CEO all

the way on down there's got to be a lot

of Buy in to get to this point um I was

shocked when Larry thinkink went on

television and said people are buying

Bitcoin because it is a flight to

Quality um I joked with friends uh I may

have tweeted and said it's almost like

he's the chief marketing officer of

Bitcoin um put aside the honorary title

so so you came up with that title yes I

came up with that title not you um but I

I certainly didn't to talk a little bit

about um you know this idea of Black

Rock going out and talking about it

because you guys could have just filed

an ETF right but but actually having

Larry or others from The Firm talk about

this and this idea of flight to Quality

it's very different right if a bitcoiner

goes and says that people okay whatever

but when a firm that frankly has built

their reputation on helping investors

find quality assets and allocate for the

long term has done a very good job of

doing that says it it has a different

weight to it and so how do you guys

think about you know maybe internal

thoughts versus you share with clients

versus kind of you know Public

Communication around

this yeah I think you know when you have

topics that are novel and complex our

clients expect us to be a thought leader

and a thought partner with them right so

so that comes with the territory and and

that's what you know made our digital

assets Journey over six seven years be a

a very deliberate measured process right

because we understood the know the

import of our weight and our voice and

to get to a point where we are today

that took a lot of study and experience

and

education um and you know the things

that that we say come from a a measured

thoughtful place right it's not by

accident one of the things you and I

have talked about recently is

correlations and I think this is one

very misunderstood um but also two uh

sometimes it can be hard for people to

do the work to really understand what

what the facts are there and so how do

you all think about correlations inside

of these portfolios and maybe positives

or negatives based on those

analysis yeah I mean I think it's

probably the single most important uh

debate right now in thinking about

Bitcoin where you know historically

bitcoin's long-term average correlation

been uh close to zero slightly slightly

positive but close to zero but it's had

periods where it's spiked similar to to

gold gold has had periods as well where

it spiked actually if you put their

correlation charts in the time series uh

they look remarkably similar um but

that's a really important thing for

institutional investors when they think

about portfolio construction because

they're trying to understand in a small

allocation is this risk additive to the

portfolio or actually is it potentially

a diversifier or even a hedge right so

that's a really critical conversation it

also is important for um you know and

investors to understand because it's the

reason that um you know Bitcoin is

generally not appropriated in a large

concentration in a portfolio because in

a large concentration its

volatility becomes a huge driver of risk

but in a more modest concentration than

the fact that generally it's been

uncorrelated and has different

fundamental drivers that's where you

know potentially becomes a a a different

source of return and and even in some

cases a diversifier so that's a big part

of the education

journey is there a like average

allocation size you're seeing from

clients or uh a range that you're

actually seeing them put out there and

and I always joke that you know when

people ask me I'm like scared to say

anything other than 1 to 5 per. right

like that just seems like okay you say

that you're not crazy um but I've seen

you know many uh large institutions talk

about much higher percentages in some

cases and so like what are you actually

seeing people do yeah I think I mean

obviously it depends on investor

archetype and circumstances and and all

those factors but you know I could say

anecdotally what we're seeing is kind of

the normal range um for those clients

who are allocating whether we're talking

about in in you know financial advisors

on behalf of their clients or large

institutions it tends to be kind of in

that one to 3%

range and then where are we going with

Bitcoin and Wall Street right on one

hand um I think a lot of people who

bought Bitcoin early like the fact that

it was outside the system um Black Rock

other financial institutions creating

ETFs and people buying that uh brings it

a little bit closer into the system but

maybe 10 years from now like what does

Bitcoin on Wall Street look like and

what are these asset managers doing and

and what are maybe the changes to the

market or or even to the

players yeah well I think um you know

that there's some irony in the fact that

with uh the Bitcoin ETF and IIT we took

a Crypton native investment exposure and

we put it in a traditional Finance

rapper and with tokenization we're

taking traditional Finance investment

exposure and we're putting it in a crypt

native rapper and that may seem

contradictory but it it's really not

because across our client base there are

those who are uh not comfortable yet

with digital asset rails but they want

those investment exposures and they want

that in a you know convenient familiar

wrapper and we have clients who are

comfortable and fluent on uh blockchain

infrastructure interacting with digital

assets and they want traditional

investing exposures in that format

because it's digitally native Global

programmable instantly transferable Etc

and that uh dichotomy will persist for a

while but eventually I think we expect

there will be some convergence that

looks like sort of the best of the old

system and the best of this new

technology fused into to a Next

Generation infrastructure set in in

finance and I'm not going to ask you for

a price prediction um but you have been

working on this for a while you your

team is out of Black Rock do you have

advice or maybe lessons learned from

going through that process inside a

large Organization for those that work

at other institutions that may say hey

look I you know we're not doing

something or we're just starting our

process what are some of the things that

you thought were important and and you

look back like hey I'm glad we did this

as part of the research analysis and

then also maybe things that you

personally or people on your team

probably would share with them if they

want to be part of that group to to go

and talk it inside of their

corporation yeah I'd say two things

maybe um one is you have to look for

opportunities to get small wins so you

may have Ambitions of you know what what

you would hope an org might do but you

don't start there you build familiarity

and expertise and trust and credibility

uh with smaller prizes but demonstrated

successes that help people get

comfortable with with the technology and

and in this case you know a new asset

type um but you have to be be careful

because it's not throw everything at the

wall and see what sticks right you want

to have a high win rate where the

projects that you advocate for are

effective and well executed because

there's lots of orgs that became

disillusioned with blockchain and crypto

because they took a try everything

approach and got bogged down in a lot of

bad ideas that went nowhere so be

Discerning and have some early wins and

the second piece is you have to be an

honest

broker you don't work for

crypto you work for your institution so

everything when you think about um you

know strategy and ideas and risks that

that may be taken have to be from the

standpoint of the institution not an

individual who happens to be passionate

about Bitcoin or crypto and wants to see

you know this come forth in the

world and my last question for you is um

through that whole process what have you

been surprised by the amount of inflows

the type of people buying the ETF maybe

something internally like like just what

surprised you uh because I think it

would really I help us identify like the

difference between expectations and what

ended up happening and and so like those

surprises is probably are pretty

informative as

well you know I think the biggest

surprise has just been the breadth of

investor types that um the the ETF has

resonated with and the uh level of

variation in rationals for wanting the

ETF so we talk about you know small

dollar all the way up to ultra ultra

high net worth we talk about wealth

advisory

institutional and Myriad use cases and

rationals for well I used to hold this

way and now I prefer to hold through the

ETF because X or because why or because

the there's just been way more of those

than I think we ever

expected and for those that would like

to work with black rock what is your

suggestion so that you don't get

harassed when you get off stage maybe

you share that so we could save you some

time well I think one of the things

that's um important to understand

working with large traditional Finance

institutions is it's kind of similar to

to what I was saying a moment ago in a

in a different context which is you kind

of have to build your way up to it right

we're not going to be someone's first

large traditional Finance large Asset

Management client right there's sort of

a track record that gets built over time

you look at the partners we've worked

with in this space so it's you know

coinbase or Circle or securitize they

all started in places and built that

credibility long before before we

ultimately you know entered the

Partnerships that we

did Robbie mitnik everyone thank you so

much