Bitcoin
BlackRock (BLK) Sees Sovereign Wealth Funds (SWF) and Pensions Coming to BTC ETFs
Don’t be fooled by the first breakout of inflows into spot bitcoin exchange-traded funds (ETFs) after 71 days in a row. The current lull will likely be followed by a new wave of a different type of investor, said Robert Mitchnick, head of digital assets at BlackRock, the world’s largest asset management firm.
In the coming months, financial institutions such as sovereign wealth funds, pension funds and endowments could begin trading spot ETFs, Mitchnick said in an interview. The company is seeing “a restart of discussion around bitcoin,” which revolves around the topic of allocation to bitcoin (BTC) and how to think about it from a portfolio construction perspective.
“Many of these interested companies – whether we’re talking about pensions, endowments, sovereign wealth funds, insurance companies, other asset managers, family offices – are having ongoing due diligence and research conversations, and we’re playing a role from an education standpoint. ,” said Mitchnick. And the interest isn’t new: BlackRock has been talking about bitcoin to these types of institutions for several years, he said.
Pent-up demand for the long-awaited ETFs has seen more than $76 billion accumulated in these products since their approval in January. So far, some registered investment advisors (RIA), a reasonably sized subset of wealth advisors, are already offering the BlackRock IBIT ETF, but only on an unsolicited basis. The next step is expected to be the unrestricted offering of bitcoin ETFs to clients of large wealth advisory firms. like Morgan Stanley.
Much social media focus has been on the ETF assets under management (AUM) horse race, and in particular the comparison between IBIT and Grayscale’s GBTC, which could be considered a holder because the existing BTC fund was elevated to an ETF. At last count, IBIT stood at US$17.2 billion and GBTC at around US$24.3 billion.
A portion of IBIT’s current assets come from Grayscale Replacements. Other sources could be outflows from higher priced international products in Canada or Europe, and some of these come from bitcoin futures ETFs being recycled into spot products.
There are also bitcoin holders who prefer to hold the cryptocurrency in a brokerage account and not have to worry about custody, tax reporting complexities and other challenges associated with holding bitcoin on an exchange, Mitchnick said. And while becoming the largest spot bitcoin ETF would be an impressive milestone, BlackRock isn’t really focused on that competition so much as educating its clients, he said.
Black stone asked for an ether (ETH) ETF in November last year, followed by CEO Larry Fink talking about the potential of tokenization, the representation of traditional assets 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. Furthermore, why would investors want exposure to another crypto ETF if their portfolios’ Sharpe ratios had already been boosted by a spot bitcoin ETF? The index measures the return on an investment adjusted for its risk.
“When we think about this space, we see the potential for digital assets to benefit our clients and capital markets, with a focus on three areas: cryptoassets, stablecoins and tokenization,” said Mitchnick. “And these pillars are all interrelated. This is something very important for people to understand. And the work we do in each of them informs our strategy and our insights for the others.”
UPDATE (May 2, 12:45 UTC): Change “probably see” to “could see” in the second paragraph.