How Bitcoin Transformed BlackRock from 'Skeptic' to 'True Believer'

As early as 2017, BlackRock CEO Larry Fink called Bitcoin "the index of money laundering." He has also repeatedly criticized cryptocurrencies, calling them "something that customers don't want to invest in at all."

Now, he says he is a big believer in bitcoin. His firm, BlackRock, manages the fastest-growing bitcoin fund and has partnerships with some of the digital asset industry’s biggest players.

Larry Fink ’s big shift at BlackRock lends legitimacy to bitcoin and signals Wall Street’s growing eagerness to capitalize on a market long considered the Wild West.

Through its low-cost and popular spot ETF, BlackRock has opened the door for mainstream investors to buy and sell Bitcoin as easily as investing in stocks.

“We think a core part of our mission is to provide choice and opportunity, and that’s an important topic for our clients,” BlackRock Chief Operating Officer Rob Goldstein said in an interview.

Bitcoin’s resilience also played a role in this decision. The coin has experienced ups and downs since its launch, however, after each crash, another boom cycle begins, attracting more investors.

Today, Bitcoin is back to all-time highs, approaching $73,000, something that seemed impossible 16 months ago when the cryptocurrency exchange FTX collapsed and Bitcoin hovered around $16,000.

Industry critics said they were surprised by BlackRock’s embrace of cryptocurrencies because the company faces reputational risks in offering clients exposure to the volatile asset.

John Reed Stark , former head of the U.S. Securities and Exchange Commission's ( SEC ) Office of Internet Enforcement, said companies such as BlackRock were clearly attracted to the "fee game."

“The irony is that it’s supposed to be decentralized, but it’s more decentralized than a Wall Street giant that’s taking fees from every possible angle and peddling things that no one understands,” he said.

BlackRock currently charges an average fee of about 0.19% on its Bitcoin ETF assets. The fund has reached the fee waiver threshold, where investors pay 0.12% for the first $5 billion in assets or the fund's first year, after which the fee rises to 0.25%.

BlackRock insists it has studied the crypto industry for years to develop its digital asset strategy and give clients what they want.

Bitcoin’s rebound after the 2022 cryptocurrency crash has reinforced BlackRock’s belief in sticking with the strategy, according to people familiar with the matter.

BlackRock has been a big part of Bitcoin’s latest rally. Among the nine spot Bitcoin ETFs launched in January, its iShares Bitcoin Trust leads in net inflows. In fact, the ETF is the fastest ETF ever to absorb more than $10 billion in assets.

Many mainstream investors began buying Bitcoin in June when BlackRock joined the race for a spot Bitcoin ETF because the asset manager had a near-perfect record of getting ETF applications approved, and a court ruling forced the SEC to reconsider a competitor's application, which further strengthened people's confidence in the application's approval.

Dennis Kelleher, president and CEO of Better Markets, an organization that advocates for regulation of the financial sector, said it was not surprising that BlackRock had quickly become a leader in the bitcoin market.

“BlackRock has unmatched market penetration, an unrivaled distribution network and a massive marketing muscle, all attributes that provide false comfort to ordinary investors.”

BlackRock's view on cryptocurrencies is very different from that of its biggest rival, Vanguard . Vanguard, founded by legendary investor Jack Bogle, has said it has no plans to launch a spot Bitcoin ETF and will not offer crypto-related products on its brokerage platform. The asset manager, which manages $8.7 trillion in assets, called Bitcoin "more of a speculation than an investment" in a recent blog post.

In addition to the Bitcoin ETF, BlackRock has also formed partnerships with some of the largest cryptocurrency players. It holds a minority stake in stablecoin company Circle Internet Financial and manages more than $25 billion in reserves in the government money market fund that backs Circle’s USD Coin .

BlackRock has also partnered with cryptocurrency exchange Coinbase Global to provide users of the asset manager Aladdin’s software platform with direct access to cryptocurrencies through an integration with Coinbase’s institutional unit, and BlackRock also manages a private Bitcoin trust for professional clients. The trust has more than $250 million in assets, and most clients have since moved their funds to the new ETF, according to people familiar with the matter.

BlackRock's acceptance of Bitcoin is gradual. During the epidemic, Rick Rieder, the company's global fixed income chief investment officer, began to allocate Bitcoin futures in its funds. According to people familiar with the matter, Robbie Mitchnick, head of BlackRock's digital assets, also helped Fink become a Bitcoin believer.

2022 is the year when Fink’s stance on digital assets begins to change noticeably.

In a conference call in April of that year, he said his company was researching the cryptocurrency space extensively and was seeing growing interest from clients.

That same month, BlackRock participated in Circle’s $400 million funding round, and by the summer, BlackRock quietly launched Private Trust, its first spot Bitcoin product for U.S. institutional clients. The firm seeded the fund with its own money and scaled it with outside investors.

In the same year, BlackRock also established a partnership with Coinbase, which is also the custodian of its spot Bitcoin ETF, to allow institutional clients who own Bitcoin on the cryptocurrency exchange to use its software tool suite Aladdin to manage their portfolios and conduct risk analysis.

Today, BlackRock's cryptocurrency ambitions are no longer limited to Bitcoin. The asset management company has submitted a pending application to the SEC to launch an ETF that holds Ethereum , the second largest cryptocurrency by market value and the native token on the Ethereum blockchain. The regulator has a deadline of May to make decisions on multiple such applications.