BlackRock's latest investment opens the door to Wall Street for digital assets
Image Source: Wall Street Journal

BlackRock’s latest investment opens the door to Wall Street for digital assets

Five years ago, BlackRock CEO Larry Fink referred to bitcoin as an “index of money laundering.” Since then, the world’s largest asset manager has generally avoided digital assets, even as it manages $10 trillion in client assets.

When Fink suggested in his annual letter to shareholders, published in late March, that Russia’s invasion of Ukraine could speed the adoption of digital currencies, many saw it as a sign that the financial behemoth is finally warming up to crypto.

BlackRock's latest investment opens the door to Wall Street for digital assets
Image Source: The Wall Street Journal

In addition to managing the primary cash reserves of USD Coin (USDC), a $50 billion digital asset pegged to the value of the US dollar and available on blockchains such as Ethereum, Solana, Algorand, Stellar, Avalanche, and Flow, BlackRock has entered into a broader strategic partnership with Boston-based Circle, one of the USDC’s primary issuers.

Circle announced this together with a $400 million funding round led by BlackRock, Fidelity Management and Research, Marshall Wace LLP, and Fin Capital yesterday. Circle plans to go public by the end of the year via a $9 billion SPAC transaction.

While BlackRock declined to comment on the specifics of the transaction, it stated on today’s Q1 earnings call that it is examining additional options.

This partnership is the first to involve BlackRock, Inc.’s balance sheet in a digital assets engagement. Previously, the asset manager was credited with cryptocurrency exposure through a 7.3 percent stake in MicroStrategy, the largest corporate holder of bitcoin with nearly $5 billion in the cryptocurrency, and a few dozen contracts of CME bitcoin futures, which are USD cash-settled contracts based on a once-a-day reference rate of the US dollar price of Bitcoin.

The collaboration, according to Circle CEO Jeremy Allaire, would “research strategies to deploy USDC in traditional financial markets.” Even though the collaboration has been in the works for more than a year, Allaire did not indicate how much of the stablecoin’s reserves BlackRock oversees or any other terms of the agreement.

These technologies could help Circle and BlackRock increase their revenue. Circle expects its USDC reserves to generate $438 million in income in 2022, rising to $2.2 billion in 2023, according to financial documents provided with the announcement of the amended SPAC transaction in February.

USDC, which was formed four years later by Circle and Coinbase, was also lambasted for its opacity in declaring its reserves, specifically the volume and creditworthiness of the commercial paper and corporate bonds that backed the asset. However, in August of last year, it modified its risk strategy and announced that it would only back the asset with physical cash and treasuries. It has also applied to become a national bank.

With BlackRock’s support, stablecoin aims to become the go-to digital asset for traditional financial institutions and investors.

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