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 embattled 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 customers. Institutions must be clients of both to access the crypto trading.
“Our institutional clients are increasingly interested in gaining exposure to digital-asset markets and are focused on how to efficiently manage the operational lifecycle of these assets,” said Joseph Chalom, global head of strategic ecosystem partnerships at BlackRock. “This connectivity with Aladdin will allow clients to manage their bitcoin exposures directly in their existing portfolio management and trading workflows for a whole-portfolio view of risk across asset classes.”
For BlackRock, this tie-up is the latest in its journey into the digital-assets ecosystem and a bit of an about-face. Five years ago, BlackRock’s chairman Larry Fink famously called bitcoin an “index of money laundering.”
However, that changed back in March, when Fink’s annual shareholder letter, issued during the heaviest fighting between Russia and Ukraine, highlighted that the havoc 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 “results of an index composed of U.S. and non-U.S. companies that are involved in the development, innovation, and utilization of blockchain and crypto technologies.”
For Coinbase, this partnership could not have come at a better time. Seen as a bellwether for broader crypto sentiment, the stock is down 57% in 2022 as of this 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 Q2 earnings on August 9, and analysts are already bracing for another difficult quarter. For Q1 the exchange posted a $430 million loss, its first as a public company, and has culled staff and frozen hiring. In anticipation of the earnings, investment firm Cowen Group downgraded estimates for the company’s performance, anticipating a $246 million loss on an Ebita basis, driven primarily by a reduction in retail transaction revenue to $693 million from $797 million a year earlier. Consensus is for a $157 million quarterly loss.
Additionally, the company appears to be directly 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 its 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 de-list several tokens or register with the SEC, drawing it further under the regulator’s enforcement umbrella.