How Larry Fink, Cathie Wood and the rest of Wall Street are cornering Bitcoin

On June 15, everything changed in crypto.

That was the day BlackRock, the world’s biggest investment firm with $9 trillion in assets under management, applied to US regulators for approval to sell a spot price exchange-traded fund for Bitcoin.

With the move, BlackRock sought to do what crypto players such as the Winklevoss twins and Grayscale could not — offer retail investors an investment product that was affordable to buy and easy to use.

For the last decade, the US Securities and Exchange Commission, citing the need to protect investors from fraud and market manipulation, had rejected every petition for such an offering.

But BlackRock, which filed its application under the auspices of its iShares unit, usually gets its way.

As a powerful steward for the trillions of dollars Americans put to work in the markets, BlackRock has a 99% success rate when it comes to applications for exchange-traded funds, or ETFs.

Game changer

The move couldn’t have been more welcome from investors eager to shake off a punishing bear market. Bitcoin jumped almost 20% over the next seven days and gained even more mojo in the fourth quarter to go up 164% on the year.

Bitcoin’s market capitalisation has snapped back to $856 billion, around the same level it was before the Terra blockchain network crashed in May 2022.

“BlackRock is like Godzilla,” Eric Balchunas, an ETF analyst at Bloomberg Intelligence, told DL News in November. “It’s changed the game.”

Now investors are counting the days before a Bitcoin ETF hits the market. On December 19, BlackRock satisfied a key demand from the SEC and agreed to offer cash redemptions to investors from its fund.

To be sure, Bitcoin was already rallying in the first quarter as iShares prepared its application. They weren’t the only providers with designs on the sector.

Soon enough, Fidelity Investments, Franklin Templeton, and WisdomTree were just a few of the dozen or so firms that applied for their own Bitcoin ETFs.

(Ark Invest, a St Petersburg, Florida-based fund provider that specialises in tech stocks and crypto, applied for ETF approval on May 5.)

Jaime Dimon had called Bitcoin a ‘hyped-up fraud’ and Charlie Munger said crypto investors were ‘idiots.’

At the same time, Citadel Securities and Charles Schwab joined Fidelity in launching a crypto exchange.

And JPMorgan Chase and Apollo Global Management continued to hire staff and invest millions in using blockchain technology to support activities in the capital markets.

What was going on?

Wasn’t crypto supposed to be dead after Sam Bankman-Fried destroyed FTX in a flurry of crimes and regulators warned investors the market was rife with fraud?

Racier and more volatile

Fink and company decided that a crypto winter was the ideal moment to capture a big chunk of an asset class that was up for grabs.

Yet something deeper happened as they papered regulators with ETF applications — Wall Street bestowed Bitcoin with a place in the Great American Diversified Portfolio.

Sure, the ersatz money was racy and volatile, but after 14 years it deserved to be traded in tandem with stocks and bonds and commodities.

That was the vibe, and it was striking given how intensely Bitcoin had been dismissed by the chieftains of traditional finance year after year. Jaime Dimon had called it a “hyped-up fraud” and Charlie Munger said crypto investors were “idiots.”

Larry Fink, the CEO of BlackRock, once labelled Bitcoin as “an index of money laundering.”

This summer, Fink changed his tune in a number of appearances on business cable news shows.

BlackRock wants to make crypto accessible and “much cheaper for investors,” Fink said, adding: “I do believe Bitcoin is digitalising gold, in many ways.”

That a financial figure of Fink’s stature would promote the idea that Bitcoin is a store of value like gold was a big moment.

The potential market for spot Bitcoin ETFs is around $150 billion.

He wasn’t alone.

Ray Dalio, the billionaire founder of Bridgewater, the biggest hedge fund in the world, also tempered his criticism of Bitcoin and mused it was “a younger generation’s alternative to gold.”

Early movers

Suddenly, Abby Johnson, the CEO of Fidelity, and Cathie Wood, the CEO of Ark Invest, didn’t look like outliers for being longtime champions of cryptocurrencies.

As the first mover on a Bitcoin ETF, Ark is at the front of the queue and the SEC would probably have to respond to its filing ahead of the others.

Ark’s May filing was its third attempt to gain approval.

Whatever qualms Fink and his peers may have about the crypto’s edginess, there’s no denying the opportunity. The potential market for spot Bitcoin ETFs is around $150 billion, according to Bloomberg’s Balchunas.

His argument is pretty straightforward — financial advisors manage about $30 trillion in the US, so it’s about 0.5% of that.

By the autumn, Wall Street had trained its designs on more than Bitcoin. In November, BlackRock’s iShares unit filed for a spot price Ether ETF. Fidelity and others quickly followed suit.

Expectations are high that BlackRock and its rivals will indeed win approval from the SEC.

The agency’s chair, Gary Gensler, has taken a hard line on the industry. But when it comes to Bitcoin, it’s become the exception rather than the rule.

In the raft of lawsuits the SEC has brought against Coinbase, Binance, Kraken, and other crypto players, Bitcoin rarely gets a mention.

There is a clear sign Grayscale is preparing for an ‘epic marketing war.’

It’s Ethereum staking, stablecoins, and other altcoins that have become the target of SEC, which is demanding they be registered like normal securities.

Unlike altcoins and stablecoins, there is no single issuer for Bitcoin. Largely managed by a blockchain network set into motion in 2009 by the mysterious Sataoshi Nakamoto, Bitcoin is an asset on autopilot.

Even its scarcity is pre-programmed.

Moreover, Gensler and lawmakers in Congress probably like the idea that BlackRock and other regulated entities are moving into the asset class in a big way.

Bitcoin may have been created as an alternative to central bank and fiat currency hegemony, but the establishment is now poised to absorb it.

There’s a 90% chance the SEC will approve a Bitcoin ETF by January 10, Balchunas and his colleagues estimate. If and when this happens, you can bet there’s going to be a lot of jostling among the 13 prospective issuers to attract investors.

Hawking crypto

There will be marketing campaigns, online advertising, and maybe even commercials during the Super Bowl — only this time, it’ll be stalwarts of the financial establishment hawking crypto, and not Bankman-Fried and his celebrity pals.

Grayscale recently hired John Hoffman, the former head of ETFs for the Americas at Invesco, to lead its distribution.

This is a sign the firm is preparing for what Balchunas called an “epic marketing war.”

And even though the anticipation for an ETF has probably been baked into BTC’s current price, it’s safe to say a new chapter will open for the $1.7 trillion crypto market.

With Wall Street’s embrace, Bitcoin will have truly gone mainstream.

Have a tip about the crypto markets? Contact the authors at adam@dlnews.com and ed@dlnews.com.