BlackRock chooses Coinbase to give clients direct Bitcoin exposure

Coinbase just received a major vote of confidence from BlackRock in a deal to bring bitcoin trading to institutional clients of the world’s largest asset manager.

The controversial cryptocurrency exchange announced today that it will offer bitcoin trading services to certain BlackRock clients. Specifically, the partnership will connect BlackRock’s proprietary investment software, known as Aladdin, to Coinbase Prime, a trading and custody service with 13,000 institutional clients. Institutions must be clients of both to access crypto trading.

“Our institutional clients are increasingly interested in gaining exposure to digital asset markets and are focused on how to effectively manage the lifecycle of these assets,” said Joseph Chalom, global head of strategic ecosystem partnerships at BlackRock. “This connection with Aladdin will allow clients to manage their bitcoin exposures directly within their existing portfolio management and trade flows for a holistic view of risk across asset classes.”

For BlackRock, this tie-up is the latest in its journey into the digital asset ecosystem and a bit of a turnaround. Five years ago, BlackRock chairman Larry Fink called bitcoin an “index of money laundering.”

That changed back in March, however, when Fink’s annual shareholder letter, issued amid the heaviest fighting between Russia and Ukraine, highlighted that the chaos caused by Moscow’s invasion could accelerate the adoption of digital currencies. Many in the industry interpreted this statement as clearing the way for further crypto involvement at the $10 trillion firm, the world’s largest asset manager.

In fact, the very next month, the company launched a Blockchain and Tech ETF (NYSE Arca: IBLC ) that seeks to track “the performance of an index composed of US and non-US companies involved in the development, innovation and use of blockchain and crypto technologies. “

For Coinbase, this partnership could not come at a better time. Considered a watch for broader crypto sentiment, the stock is down 57% in 2022 at the time of writing, underperforming even Bitcoin, which has fallen 52%. However, the stock has jumped as high as 40% today on the news.

Coinbase is scheduled to report second-quarter earnings on August 9, and analysts are already bracing for another difficult quarter. For Q1 Exchange posted a $430 million loss, its first as a public company, and has cut employees and frozen hiring. Ahead of earnings, investment firm Cowen Group downgraded estimates for the company’s performance, forecasting a loss of $246 million on an Ebita basis, driven mainly by a reduction in retail transaction revenue to $693 million from $797 million a year earlier. The consensus is for a quarterly loss of $157 million.

Additionally, the company appears to be squarely in the sights of the Securities and Exchange Commission, which recently charged a former employee with insider trading for front-running nine token listings. Implicit in the use of the term insider trading is the belief within the SEC that the tokens under investigation were in fact securities. Coinbase has long insisted that the hundreds of tokens are not securities, which it is not allowed to list based on current regulations. Should this be proven otherwise, either through an enforcement action or in court, the company would likely be required to either delist multiple tokens or register with the SEC, pulling it further under the regulator’s enforcement umbrella.