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.