BlackRock’s Annual Letter: 3 Key Takeaways for Crypto Investors

On March 15 Black stone (BLK -0.04%) CEO Larry Fink released his annual letter to shareholders. This annual letter from the world’s largest asset manager may not get as much love as the one from Berkshire Hathawaybut it’s especially worth reading this year, given that Fink specifically addresses the Silicon Valley Bank crisis and the changing risk environment for investors worldwide.

BlackRock – which rose to prominence in the crypto sector last year with its much-hyped cryptocurrency exchange partnership Coinbase Global — also has something to say about the crypto sector. In a section of the letter called “Digital Assets,” Larry Fink hints at three big takeaways for crypto investors.

Bitcoin

As might be expected, Bitcoin (BTC 3.64%) is top of mind for crypto investors right now. At a time when the entire banking system seems to be melting down, Bitcoin has somehow emerged as a potential safe haven for investors trying to protect their savings.

Image source: Getty Images.

So it’s perhaps not surprising that Larry Fink mentions Bitcoin in his annual letter – but not for the reasons you might think. In fact, if you read between the lines, it’s almost as if he thinks investors are paying too much attention to Bitcoin, when there are many other exciting developments taking place in the crypto sector. For example, he specifically notes “the media’s obsession with Bitcoin.”

That said, a key theme going forward will obviously be the embrace of the crypto asset class by institutional investors. Bitcoin is going to be a key focal point of any new initiative for institutional investors as they increase their portfolio allocation to crypto. At one point, BlackRock was skeptical of Bitcoin, but crypto seems to have finally proven its worth as an asset class.

Asset Tokenization

This brings me to what Larry Fink and BlackRock are really excited about: asset tokenization. Sure, asset tokenization may not be as sexy as Bitcoin for the average crypto investor, but for the titans of Wall Street, this is a seismic shift in the way the financial world works. Asset tokenization refers to the process of converting a real-word financial asset into a digital asset that can be traded and stored on a blockchain. So you can have tokenized stocks and bonds, for example. According to BlackRock, asset tokenization makes the job of asset management much easier.

This can lead to many interesting investment ideas. For example, one of the best tokenization platforms in the world right now is tZERO, which is majority owned by the internet retailer Overstock.com. So investing in Overstock can be an indirect way to access the crypto sector.

Or, if you’re looking for direct access to the crypto sector, one investment target could include the Layer 1 blockchain Avalanche, which is at the forefront of tokenizing financial assets and putting them on the Avalanche blockchain. In 2022, a high-profile success story was Avalanche’s tokenization of a $4 billion healthcare fund from the private equity giant KKR.

Crypto payments

Finally, Fink touches on the topic of crypto payments, which he says is gaining momentum worldwide. Fink notes that the U.S. seems to be lagging behind other nations right now in embracing crypto as a payment method for online purchases. But BlackRock obviously seems to think there’s a world of opportunity here (especially in India and Brazil), and that could be huge for cryptocurrencies like Bitcoin and Litecoin which can be used for online transactions. According to a recent survey, more than 50% of the world’s online merchants could accept crypto payments in the next one to three years, so this is definitely a place to watch if you’re tracking long-term growth opportunities in the crypto space.

Where to invest in 2023

With the exception of Bitcoin and FTX, Fink does not mention a single other crypto in the nearly 9,000-word shareholder letter. So a simple reminder: Any of the investment ideas mentioned above are simply reading between the lines of what Fink actually wrote.

But there are certainly more provocative and exciting ideas out there for 2023, and a number of interesting investment angles to play. For example, in the case of asset tokenization, you can invest in the companies that perform the tokenization itself, or the blockchain platforms where these tokens will reside. The same applies to digital payments. You can invest in the companies that provide the tools and services for digital payment providers, or the actual cryptocurrencies used for these digital payments.

These are two areas I have targeted for further research and analysis to find the best crypto investment options.