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BlackRock Sees Sovereign Wealth Funds, Pensions Coming to Bitcoin ETFs

May 1, 2024
    Financial institutions are holding diligence and research conversations, with BlackRock playing an educational role, said Robert Mitchnick, the firm’s head of digital assets.BlackRock has been talking about bitcoin to these sorts of institutions for several years.While becoming the biggest spot bitcoin ETF would be an impressive milestone, BlackRock says it isn’t really focused on the size competition with Grayscale’s GBTC.
As a seasoned crypto investor with a background in traditional finance, I find the recent developments in the digital asset space particularly intriguing. The ongoing conversations between financial institutions and BlackRock, the world’s largest asset manager, regarding Bitcoin (BTC) is a significant step forward for the industry.As a researcher studying the inflows into spot bitcoin exchange-traded funds (ETFs), I would caution against being misled by the recent interruption in these inflows after 71 consecutive days. This current pause is likely to be short-lived and may be preceded by renewed interest from a new category of investors, according to Robert Mitchnick, the head of digital assets at BlackRock, the world’s leading asset management firm.
As a researcher, I’ve noticed that in the upcoming months, financial institutions like sovereign wealth funds, pension funds, and endowments are likely to begin trading spot Exchange-Traded Funds (ETFs) related to Bitcoin (BTC). This shift indicates a renewed interest in the topic of investing in Bitcoin. Our firm is observing a resurgence of conversations surrounding Bitcoin allocation and how best to incorporate it into portfolio construction strategies.

Several firms, including pension funds, endowments, sovereign wealth funds, insurers, other asset managers, and family offices, have been actively engaging in due diligence and research processes regarding Bitcoin. BlackRock has been facilitating this conversation from an educational standpoint for quite some time.

As a crypto investor, I’m excited about the growing demand for Bitcoin ETFs following their approval in January. Over $76 billion has been amassed across these products, and while some RIAs have started offering BlackRock’s IBIT ETF on an unsolicited basis, the next significant move is anticipated to be the unrestricted availability of Bitcoin ETFs to clients of major wealth advisory firms like Morgan Stanley.

AUM Horse Race

There’s been significant attention on social media regarding the assets under management (AUM) of exchange-traded funds (ETFs) in the digital asset space, specifically comparing Invesco QQQ Trust (IBIT) with Grayscale’s Bitcoin Trust (GBTC). IBIT currently manages approximately $17.2 billion, while GBTC handles around $24.3 billion as of the latest data. This comparison is particularly noteworthy due to GBTC’s status as an incumbent in the market, having been uplisted to an ETF.

As a crypto investor, I’d put it this way: A significant portion of the IBIT assets originated from Grayscale product substitutions. Additionally, there could be outflows from costlier international cryptocurrency offerings in Canada and Europe contributing to the fund. Furthermore, some bitcoin futures ETFs might have been rolled over into spot products, thereby adding to the IBIT assets.

Some Bitcoin investors prefer to keep their holdings in brokerage accounts instead of dealing with the complexities of custody and tax reporting that come with directly owning Bitcoin on exchanges. Mitchnick mentioned this point. However, BlackRock’s primary goal isn’t to become the largest Bitcoin ETF provider; instead, they are more focused on educating their clients about Bitcoin investment opportunities.

Backing Ethereum

Last year in November, BlackRock applied for a exchange-traded fund (ETF) based on ethereum (ETH). Subsequently, their CEO, Larry Fink, expressed optimism regarding the prospects of tokenization – the process by which conventional assets get converted into digital form and stored on blockchains.

But an ether ETF raises the question of how BlackRock would go about educating clients, given the complexity of the Ethereum blockchain ecosystem. Moreover, why would investors want exposure to another crypto ETF if the Sharpe ratios of their portfolios had already been boosted by a spot bitcoin ETF? The ratio measures the return from an investment adjusted for its risk.

As a crypto investor, I see immense potential in the digital asset sector for enhancing the financial gains of my clients and capital markets. My perspective is centered around three key areas: cryptoassets, stablecoins, and tokenization. Each of these pillars intertwines with one another, making it crucial for investors to grasp this connection. The insights and strategies we develop in each domain influence and enrich our understanding of the others.

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2024-05-02 14:11