BlackRock Partners with Coinbase for Crypto Market Expansion

(Bloomberg) – BlackRock Inc. is partnering with Coinbase Global Inc. to make it easier for institutional investors to manage and trade Bitcoin, bringing the world’s largest asset manager to a cryptocurrency market hammered by the falling prices and government investigations.

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Coinbase jumped 15% to $92.61 at 1:20 p.m. in New York. The partnership with BlackRock brings some relief to the largest US crypto-trading platform, whose stock had lost more than two-thirds of its value this year through Wednesday.

Core BlackRock clients will be able to use its Aladdin investment management system to oversee their exposure to Bitcoin as well as other portfolio assets such as stocks and bonds, and to facilitate funding and trading on the Coinbase exchange, according to a statement Thursday. The partnership with Coinbase, the largest US crypto-trading platform, “will initially be focused on Bitcoin,” BlackRock said.

BlackRock’s move deepens the involvement of traditional Wall Street financial players in crypto and related technologies, even after those assets collapsed this year. Bitcoin lost about half of its value in 2022, while the collapse of the Terra ecosystem and hedge fund Three Arrows Capital raised questions about market resilience and sparked increased regulatory scrutiny.

Read more: Terra co-founder’s home raided as Korea widens crypto probe

Coinbase is facing an investigation by the United States Securities and Exchange Commission over whether the company let Americans trade digital assets that should have been registered as securities. BlackRock chose to partner with Coinbase because of its scale in the market and its role in providing trading, custody, prime brokerage and reporting services. The services will be available to customers of both companies.

Regulatory risks from the partnership are manageable because it starts with Bitcoin, which has clearer regulatory status in Washington than other digital assets, said Oppenheimer & Co. analyst Owen Lau, who has the equivalent of a buy rating on Coinbase shares.

The partnership is “a validation of the future of blockchain and digital assets and also a validation of Coinbase’s reputation,” Lau said in a phone interview. “It’s a big plus for the industry and also for Coinbase.”

See also: Coinbase’s BlackRock pact bolsters crypto’s status and burns shorts

The announcement shows that sophisticated investors are becoming more comfortable with the crypto market.

“Our institutional clients are increasingly interested in exposure to digital asset markets and focused on how to effectively manage the operational lifecycle of these assets,” said Joseph Chalom, Global Head of Strategic Partnerships at ecosystem at BlackRock, in the press release.

Institutional investors accounted for about three-quarters of the $309 billion trading volume on Coinbase in the first quarter, the company disclosed in May. Coinbase customers include hedge funds, corporate treasuries, and asset managers.

“The Coinbase partnership between BlackRock and Aladdin is an exciting step for our business,” Brett Tejpaul, Head of Coinbase Institutional, and Greg Tusar, Vice President of Institutional Products, said in a separate statement. “We are committed to driving the industry forward and creating new access points as institutional crypto adoption continues to rapidly accelerate.”

For BlackRock, this partnership is the next step in a broader strategy to expand into digital assets. Chief Executive Larry Fink said in March that the company is exploring the growing importance of digital assets and stablecoins and how they can be used to help customers. The following month, the company joined a group of investors in Circle Internet Financial, the issuer of USD Coin, and said it would seek to serve as the lead manager of the stablecoin’s liquidity reserves.

(Updated stock price in second paragraph, Oppenheimer analyst starting in sixth.)

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