Big capital entry. What awaits the market after the launch of the bitcoin trust from BlackRock

Investment company BlackRock launched a private spot trust for bitcoin investments. The service is available to BlackRock's US institutional clients. An announcement on the company's website says that the launch of the fund is intended to satisfy a significant customer interest in investment products based on the first cryptocurrency, despite the sharp downturn in the digital asset market. BlackRock also calls bitcoin the oldest, largest and most liquid crypto asset.

“Undoubtedly, the entry of such a major player will have a positive impact on the crypto market,” said Andrey Podolyan, head of trading platform Cryptorg, adding that the company is likely to expand its package of services around crypto assets. “Eventually they will start offering portfolio investing. Every altcoin added to such a portfolio will grow strongly,” the expert predicts.

In the same announcement, Blackrock reports that the company is tracking the progress of initiatives aimed at assessing the sustainability of bitcoin mining using renewable energy sources. BlackRock highlights two nonprofit organizations, Energy Web and RMI. Both work to accelerate the energy transition and provide certification programs. The mention from BlackRock led to a 40% rise in the Energy Web project's EWT token. The market capitalization of EWT, previously not even on CoinMarketCap's top 200 list, surpassed $30 million in a few hours. At the time of publication, the token is trading at $3,92.

In addition to launching the trust, BlackRock is working in four areas at once around digital assets and related ecosystems. These are private blockchains, stablecoins, crypto assets and tokenization.

According to Sergei Khitrov, founder and head of Listing.Help, the participation of a BlackRock-level player will spur the continued adoption of the industry by traditional investors, and consequently increased trading volume as well as a possible rise in the price of crypto assets. “This is a signal to other large investment firms from the traditional financial market as well. If previously they were limited to criticism of volatility and possible unreliability of cryptocurrencies, now the market flagship is moving towards digital assets, setting an example for other players,” the expert believes.

News background

On August 4, BlackRock and cryptocurrency exchange Coinbase entered into a partnership that will give BlackRock institutional investors who use the Aladdin crypto platform direct access to digital assets. With Coinbase Prime's paid extension, institutional investors will be able to trade cryptocurrency, store it and receive brokerage and analytics services.

On August 11, Cathie Wood, head of investment fund ARK Invest, suggested that big companies' entry into the crypto sphere could significantly boost the bitcoin exchange rate. Wood's research reported that typically companies looking to use cryptocurrencies allocate about 2.5% of their portfolio to them. In the case of BlackRock, that amount could be about $1 trillion, which would double the price of bitcoin.

Crypto analyst and host of the InvestAnswers YouTube channel with 440 000 subscribers James Altucher believes that a partnership between cryptocurrency exchange Coinbase and asset manager BlackRock could push the bitcoin price up to $773 000. According to him, if BlackRock invests 0,5% of its assets in BTC with a multiplier of 21x, the capitalization of the first cryptocurrency will grow by $1,05 trillion. This would add $75 000 to the price of bitcoin, raising it to $99 000. According to the analyst, if BlackRock allocates 1% of the funds, it would add about $2,1 trillion to the market capitalization and $150 000 to the bitcoin price. If the asset manager invests 5%, the BTC price could rise to $773 000 in the next three to five years.

Regardless of the amount allocated, bitcoin purchase by BlackRock will affect the first cryptocurrency exchange rate because transactions will be conducted on spot markets. This means instant direct purchase of assets with immediate delivery. As Podolyan explains, spot purchases also affect the futures market in one way or another, because if there is a price skew in one of the markets, arbitrage traders and bots will quickly equalize the price. “By analogy with the Grayscale fund, it can be judged that every purchase or even mention of buying BTC or another asset can lead to a sharp rise in its price,” the head of Cryptorg explains.

BlackRock's spot trust is fundamentally different from, for example, Grayscale's bitcoin trust. In the case of Grayscale, users buy an investment product (shares) that only tracks the price of bitcoin, but is not associated with a direct purchase of the asset.

Acceptance stage

BlackRock is one of the world's largest asset management and investment firms (more than $10 trillion under management). The fund's shares are trading on the New York Stock Exchange (NYSE) under the ticker BLK. As of August 12, the share price is $728, up 0,54% overnight.

The company's attitude toward bitcoin and cryptocurrencies has changed over time. Back in 2017, BlackRock CEO Larry Fink called bitcoin an “index of money laundering” and said he hadn't heard anyone at BlackRock show interest in the crypto market.

Despite the high-profile statements, demand from BlackRock's customers has forced the company's management to change its attitude toward the first cryptocurrency. In March of this year, Fink already said publicly that his company was exploring the growing importance of digital assets and stablecoins and how they could be used to benefit customers. On April 13, Larry Fink announced BlackRock's interest in cryptocurrencies and plans to expand in that market. That same month, the company joined a group of investors in Circle, an issuer of USDC stablecoin. In addition, Fink said that his company intended to become a major staplecoin reserve manager.

All of these events, however, did not stop PayPal co-founder Peter Thiel from including Larry Fink on bitcoin's “enemies list” during a speech at the Bitcoin 2022 conference.

The launch of the spot trust will allow even more institutional investors to join the cryptocurrency space, which could be a defining event for the market to move forward. Institutional investors are interested in crypto instruments, believes Andrey Podolyan. “You can make money on it not only because of growth opportunities, but also because of good fees,” the expert adds.

Analysts of the market associated the growth of most crypto assets in 2020-2021 with the arrival of institutionalists. At that time, large companies such as Grayscale Investments, ProShares, Valkyrie Investments and VanEck entered the market. However, these were all either futures or derivative products. Prior to the launch of the BlackRock trust, no company had yet managed to make a spot product in the crypto market. “The very moment of the product release from BlackRock is also important: the main cryptocurrency has already corrected by 65% from its all-time high (ATH),” comments Sergei Khitrov. According to the expert, even after such a fall, the BlackRock management sees the prospects of the digital asset market and expects the bull market to continue.