BlackRock Launches a Bitcoin Trust. What It Means for Crypto and the Stock.

Initially the trust will only hold Bitcoin, but some analysts believe BlackRock could expand to other cryptos, including Ether, the second largest token after Bitcoin.

“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,” the company said in a statement.

BlackRock’s Bitcoin product will face competition. The Grayscale Bitcoin Trust (GBTC), for one, has amassed $15 billion in assets. It trades like a closed-end trust, over the counter, and has long traded below its underlying net asset value, or NAV.

The private trust is BlackRock’s latest crypto foray. Last week, the company announced it was partnering with crypto exchange Coinbase Global (COIN) to provide users of BlackRock’s institutional management platform, Aladdin, access to Bitcoin.

“Institutions have struggled to access cryptocurrencies, but BlackRock’s partnership with Coinbase (COIN) would appear to create an institutional on-ramp that has the potential to bring crypto into the mainstream,” wrote Morgan Stanley analyst Michael Cyprys.

BlackRock’s view on digital assets has shifted materially over the last six to nine months, Cyprys added — from “skepticism, to acceptance, to investment.”

The shift may be motivated by the company’s efforts to revitalize its core offerings after a challenging second quarter. High inflation, weakness in equity markets, and rising interest rates weighed on earnings, which slid 30% to $7.36 a share , while total assets fell to $8.49 trillion, down 11% from a year earlier.

BlackRock typically charges a fee for institutional investors and custodians to connect to the Aladdin system — fees it could apply to crypto trading, especially as adoption grows. The company is likely to explore expanding to other cryptos as they roll the partnership out, analysts say. That could help accelerate Bitcoin adoption among institutional investors.

“The Bitcoin community has been talking about ‘institutions are coming’ for years,” wrote Frank Downing, analyst at Ark Investment Management. “It looks like they are finally knocking on the door.”

Ark, run by CEO Cathie Wood, has a stake in this too. Its ARK Innovation ETF (ARKK) has holdings in Coinbase, Block (SQ), and other crypto-related companies

Even so, it could be a while before even BlackRock sees significant uptake on institutional crypto ownership. When Bitcoin prices were near their peak in September 2021, only 3% of U.S. pensions and endowments owned digital assets, according to a Fidelity survey. That figure has probably declined as Bitcoin prices fell sharply, Morgan Stanley analyst Sheena Shah wrote. Some analysts say it will take some time to rebuild investor confidence to the point where institutional investors take the plunge.

Coinbase and BlackRock will also have to navigate a regulatory minefield, as scrutiny over crypto intensifies; the Securities and Exchange Commission is probing some of Coinbase’s business practices. Regulators may issue rules in the coming months for crypto token listings and exchanges. Several bills in Congress also aim to impose regulation on the industry.

In the long run, that could be beneficial — regulation of crypto could strengthen investor confidence in digital assets, Cyprys wrote.

As more institutional managers like BlackRock delve into crypto, it could help stabilize prices and support major tokens like Bitcoin. But it won’t happen overnight. Until then, institutional investors may still view the asset class with a wary eye.

BlackRock stock was up 0.6% to $730 on Thursday in mid-day trading. The S&P 500 was ahead 0.3%.

Write to Sabrina Escobar at sabrina.escobarbarrons.com