The crypto market is on fire.
Over the past week, the price of bitcoin has climbed 7.4%, currently trading at $24,523, and the price of ethereum has climbed 16.8% to just under $1,900. . Most altcoins follow the suit of the majors. XRP
Meanwhile, last week America’s largest crypto exchange, Coinbase
PIECE OF MONEY
The news marks a huge leap forward in institutional adoption of bitcoin, which has sparked a wave of bold calls.
Dan Tapiero, the founder of 10T, a nearly $1 billion crypto fund, predicted that Blackrock would open the floodgates of capital in crypto and push its price to seven figures: “5% change in [Blackrock] assets is $500 billion higher than [today’s bitcoin] value today. A catalyst for a path to $250,000+ [bitcoin] becomes clear,” he tweeted.
Yet bitcoin and other major cryptos simply followed the stock market on the news. Why is crypto so indifferent to such a large institutional vote of confidence?
Let’s see what this partnership really means.
In short, Coinbase will provide Blackrock’s “Aladdin” customers with direct access to bitcoin. For the first time, most institutional investors will be able to hold, trade and trade actual cryptocurrency instead of derivatives.
Aladdin is Blackrock’s flagship asset management platform that serves as the “dashboard” for some of the world’s largest fund managers. In 2020, it was administering a crazy $21.6 trillion, which is about 7% of all assets worldwide.
But while coming to Aladdin theoretically opens the door to institutional trillions of dollars, bitcoin’s slow reaction suggests big investors won’t be rushing to back the crypto truck, especially in light of recent events.
“This has been a terrible year for crypto, with a few trillions of dollars of value wiped out and the liquidation of several major hedge funds and exchanges, not to mention the resulting collateral damage in the non-fungible token, or NFT, space.” Bloomberg columnist Jared Dillian wrote.
“More and more people are now questioning the viability and usefulness of the blockchain technology that underpins crypto,” he added.
Remember, the Blackrock-Coinbase partnership wasn’t the only institutional win for bitcoin this year.
As I wrote in Meanwhile in the Markets, last April Fidelity announced that it would become the first asset manager to offer bitcoin in 401(k) plans. Considering that savers hold over $12 trillion in 401(k), even a small allocation could blow any cryptocurrency through the roof.
But much like bitcoin’s addition to Aladdin, 401ks will likely be more of a long-term, gradual tailwind than a short-term boost.
It has to do with the fact that most of that $12 trillion in 401(k) is placed in “target date funds” and none of these funds allocate even a portion of their portfolios to bitcoin, because bitcoin is still too volatile. and unregulated.
“It’s something to watch but a way out,” David Ireland, a fund manager at SSGA overseeing $150 billion in target date assets, told CNBC. “It’s certainly not a hard no, but there’s a lot more I think to understand here.”
We’re getting there
Bitcoin’s string of positive news shows it has a real shot at becoming a legitimate alternative asset class, deserving of significant allocation in institutional portfolios.
That said, it would be naïve to expect billions of institutional dollars to pour into crypto overnight.
While institutions can theoretically deploy this money, in reality they cannot due to legal and reputational risks. So, until there is a solid regulatory framework that governs crypto, most fund managers won’t splurge on bitcoin.
As Dillian wrote, “The best thing for the crypto world would be the last thing it wants to see: regulation. I say this as someone who generally takes a dim view of regulation. Getting rid of all the scams and pump and dump schemes would make crypto a safer place to invest.
We are getting there.
Since June, the Senate has crafted landmark cryptography legislation called the Responsible Financial Innovations Act. For their part, EU watchdogs are imposing their own set of crypto rules that would come into force in 2023.
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