Larry Fink doubles back on Bitcoin

Aug 12, 2022

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Five years after calling Bitcoin an " index of money laundering ," BlackRock's Larry Fink is getting laser eyes.

BlackRock on Thursday announced it was launching an investment trust for qualified investors (read: wealthy, institutional) that will track the price of Bitcoin. It's the latest in a series of maneuvers that has put BlackRock, an $8.5 trillion investment firm that assisted the Federal Reserve in consecutive financial system meltdowns, in a position to exert tremendous influence in markets that its top executive once derided as criminal.

In April, BlackRock entered a strategic partnership with Circle to explore how its dollar-pegged stablecoin USDC — a key element of crypto's market infrastructure — could be put to work in capital markets. The firm entered a separate partnership with Coinbase last week that linked BlackRock's portfolio management system to the crypto exchange's institutional investment platform.

Whatever concerns Fink expressed in the past, BlackRock is making its move even as the SEC , CFTC , banking regulators and law enforcement crack down crypto businesses following a market collapse that erased roughly $2 trillion of value in a matter of months.

"Despite the steep downturn in the digital asset market, we are still seeing substantial interest from some institutional clients in how to efficiently and cost-effectively access these assets using our technology and product capabilities," BlackRock said in a statement announcing the investment trust.

To be clear, those investors are interested even though Washington hasn't come up with a uniform set of rules for crypto marketplaces. Given BlackRock's deep pockets and considerable sway, that raises the question — what steps will it take to influence or shape conversations around crypto rulemaking or legislation?

That's hard to answer. BlackRock didn't respond to requests for comment.

Despite whatever access BlackRock's name might afford its crypto partners, the firm is unlikely to "enter the fray" when it comes to Washington policy battles around specific products like stablecoins or central bank digital currencies, said Dante Disparte, Circle's chief strategy officer and head of global policy.

Still, some crypto-friendly investment managers say they're hopeful the new investment trust will boost the industry in its battles with market regulators over digital asset investment funds — including a Bitcoin ETF.

The SEC has repeatedly rejected Bitcoin exchange-traded fund proposals from firms like Grayscale Investments, Fidelity Investments and SkyBridge Capital on the grounds that the vehicles couldn't protect investors from fraud or manipulation. ETFs linked to Bitcoin futures contracts have been approved.

"One of the biggest, most established traditional finance players has made a major entrance into crypto space (and possibly the bitcoin ETF sweepstakes, too, as a trust can be converted into an ETF)," said SkyBridge Founder and Managing Partner Anthony Scaramucci — who briefly served as former President Donald Trump's communications director in 2017. "This is a positive development for the current regulatory environment."

A Bitcoin ETF might be beside the point at this stage, said Steven McClurg, co-founder and CIO at digital asset fund manager Valkyrie Investments. (Like every other Bitcoin ETF application, Valkyrie's attempt to convert its Bitcoin trust into an ETF was blocked by the SEC).

"As more institutional products enter the ecosystem, a Bitcoin ETF becomes less relevant," McClurg said. "Most institutional investors do not use ETFs for market access."

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Driving the Day

University of Michigan consumer sentiment and inflation expectations survey data out at 10 a.m.

COMMUNITY REINVESTMENT ACT — Our Victoria Guida: " Banks are pressing their regulators to dial back a proposal to overhaul anti-redlining rules, arguing that it would be hard to comply with and could limit credit access to some of those who need it most. The long-awaited proposal, which would be the first reform of the landmark Community Reinvestment Act since the 1990s, would expand the scope of areas where banks face community lending requirements. Large lenders would have to provide credit to lower-income people not only in areas around their physical branches but also in places where they have a concentration of mortgage and small business loans."

HEY, SPEAKING OF BLACKROCK — Bloomberg's Sridhar Natarajan and Eric Martin: " Another BlackRock Inc. executive is joining the Biden administration , adding to the close ties between the Wall Street heavyweight and the seat of power in Washington. Eric Van Nostrand, a BlackRock managing director who was head of research for sustainable investments and multi-asset strategies, is exiting to join the Treasury Department."

ALL GAS — POLITICO's Timothy Cama: "Gasoline prices fell below $4 per gallon nationally today, a new milestone in the nearly two months of daily declines. AAA said the national average gas price is $3.99, a drop of 2 cents from yesterday. That's a big drop from the June 14 peak of $5.016 but still much higher than a year ago, when it was $3.185."

EBB BETS, YIELD — Reuters's Patturaja Murugaboopathy: "U.S high-yield bond funds are attracting heavy investments, a turnaround from the selloffs of the first half of this year, as investors bet that the Federal Reserve will limit future interest rate hikes to try to avert an economic slowdown."

OH, MELVIN — From WSJ's By Juliet Chung, Susan Pulliam and Dave Michaels: "The U.S. Securities and Exchange Commission is looking into Melvin Capital Management risk controls and investor disclosure after the hedge fund was crippled by the meme-stock rally last year, said people familiar with the matter."

Economy

RENTS IN CRISIS — Bloomberg's Maria Paula Mijares Torres and Jonnelle Marte: "Rental costs in the US are soaring at the fastest pace in more than three decades, surpassing a median of $2,000 a month for the first time ever and pushing rents above pre-pandemic levels in most major cities … While the affordability crisis in the US is not new, it has snowballed over the past year as people returned to big cities and some areas short on housing supply saw a boom of new residents."

— "New York City rents hit an all-time high in June, reaching $3,500 a month as prices skyrocket from pandemic lows," WSJ's Peter Champelli

LABOR MARKET — LA Times's Noah Bierman, Don Lee: "Even as experts acknowledge the newfound excitement around labor, they caution that unions, which have suffered decades of declining membership, are unlikely to turn the tide. Unions' moment of opportunity could already be slipping away . Republicans are poised to gain seats in the November elections. And a potential recession could wipe away the rare leverage workers have held in the tight labor market that emerged in the wake of the pandemic."

SPAC-LE OVER THE HOLES — Bloomberg's Bailey Lipschultz: "The 'SPAC King' Chamath Palihapitiya is asking investors for more time to complete a pair of blank-check deals as the industry is plagued by a regulatory crackdown and broader malaise."

WHO'S FEELING THE CORPORATE MINIMUM TAX — WaPo's Kevin Schaul: "More than 250 companies in the S&P 500 averaged more than $1 billion in pretax income over the last three years, according to a Washington Post analysis of Calcbench data. Of those, 84 paid less than 15 percent in income tax globally ."

Crypto

DECENTRALIZED — WSJ's Caitlin Ostroff and Dustin Volz: "The U.S. sanctioning of a prominent cryptocurrency platform this week exposed technical gaps in the government's ability to prevent criminals, national adversaries and extremist groups from using the services to launder money and finance their operations, analysts said."

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STABLE(?)COINS — Yale School of Management's Program on Financial Stability's Steven Kelly for FT: "The three biggest stablecoins — Tether's tether, Circle's USDC, and Paxos and Binance's BUSD — are currently in a safety-measuring contest … [The issuers' disclosures highlight] the problem that underlies the stablecoin story. They can only import stability, not manufacture it, making them a net drain of stability from the financial system."

Jobs Report

Former Deputy Assistant Treasury Secretary and Director for International Financial Markets Matt Swinehart is joining the economic policy advisory firm Rock Creek Global Advisors as a managing director.

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Fly Around

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