Coinbase And BlackRock Cozy Up On Bitcoin Bandwagon

Key takeaways

• Coinbase and BlackRock announced a new partnership Thursday to allow BlackRock clients to trade and manage crypto in-house
• The partnership combines services from Coinbase Prime and BlackRock’s Aladdin, both of which serve institutional investors
• Coinbase stock soared as high as 44% in intraday trading before closing up 10%
• The news is a breath of fresh air for investors who see the deal reviving crypto after a tough year

Shares of cryptocurrency exchange Coinbase Global spiked as high as 44% in intraday trading Thursday. The stock – which remains down almost 65% for the year – finally closed up 10% for the day.

The spark behind the beleaguered crypto platform’s sudden rise: a new partnership between Coinbase and BlackRock.

Coinbase Prime: crypto trading at scale

In recent years, Coinbase has played a crucial role in developing and strengthening crypto markets. One of its more advanced offerings is Coinbase Prime, a full-service platform that helps institutional investors with crypto activities like:

• Trading
• Custody
• Prime financing
• Staking and staking infrastructure
• And data reporting

Coinbase Prime’s goal is to walk institutional clients through crypto transactions from end to end. The platform also offers advanced security, insurance and compliance to ensure institutional investors can access crypto markets at scale.

Coinbase Prime currently boasts some 13,000 institutional clients, including hedge funds, corporate treasuries and other financial institutions.

Now, Coinbase can count BlackRock among them.

Coinbase and BlackRock pair Prime and Aladdin

New York-based BlackRock is the largest investment management firm in the world, claiming some $10 trillion in assets under management. The new Coinbase-BlackRock partnership will pair Coinbase Prime with Aladdin, BlackRock’s end-to-end investment management platform for its institutional investors.

Aladdin offers big-time investors a suite of software tools to help manage their extensive portfolios. Under the terms of the partnership, Aladdin users will now enjoy direct access to crypto activities via Prime. Coinbase Prime will allow institutional investors to manage crypto trading, custody, prime brokerage and reporting in-house.

For now, both companies confirmed that the partnership will launch with bitcoin. It’s unclear when they plan to add other crypto or digital offerings.

Coinbase and BlackRock: big news on both sides

The partnership marks a major, not-quite-sudden shift for BlackRock, whose chairman Larry Fink has previously shamed bitcoin as an “index of money laundering.”

But in recent years, BlackRock has slowly delved into web3, including by introducing bitcoin futures into some products and services. In March, Fink wrote a letter to shareholders stating that BlackRock was investigating “digital currencies, stablecoins and the underlying technologies.”

Then in April, BlackRock said it would seek to serve as a primary manager of USD Coin’s cash reverse. And in mid-June, chief investment officer of global fixed income Rick Reider stated that he believes cryptos like bitcoin are “durable assets” that will see higher prices in a few years.

When it comes to the Coinbase-BlackRock partnership, BlackRock’s Global Head of Strategic Ecosystem Partnerships noted that the firm’s institutional clients are “increasingly interested in gaining exposure to digital asset markets.” The partnership, he explained, will “allow clients to manage their bitcoin exposures directly in their existing portfolio management.”

On Coinbase’s side, the firm published a blog post detailing a few points on the merger. The company noted that the Coinbase-BlackRock partnership represents an “exciting milestone” for the firm and institutional crypto adoption. Coinbase also stated that it’s “honored with partners with an industry leader” and looks forward to “furthering Coinbase’s goal of providing greater access and transparency to crypto.”

Coinbase perks up after BlackRock announcement

On Thursday, shares of Coinbase surged after the crypto exchange announced the upcoming partnership. Even after dropping from a 44% gain to a “mere” 10%, the sudden leap added nearly $2 billion to the company’s market cap.

That’s particularly notable as the gains occurred on a day when major digital assets like bitcoin and ether moved lower. (Historically, Coinbase and bitcoin have maintained a tight correlation since Coinbase launched.)

That said, while shares remain down nearly 63% YTD, they’ve seen some recent activity. Namely, short selling. Currently, over 20% of Coinbase’s tradable shares are sold short, reflecting investors’ belief that the firm’s stock price will continue dropping.

But this week’s activity has taken a bite out of more than a few short sellers’ potential profits – and provided a much-needed signal for crypto enthusiasts that Coinbase’s status as a crypto giant remains solid.

What the Coinbase-BlackRock partnership means for crypto

Throughout 2022, crypto assets have slumped as investors fled to safer pastures amid rising interest rates, geopolitical turmoil and worries of an impending recession. The broader asset sell-off further bashed crypto and related asset prices.

Many investors also turned skittish following the collapse of the Terra ecosystem in the spring. A recent slew of breaches – including this week’s attacks on Solana and Nomad – have prompted questions about the resilience and stability of crypto markets.

These adverse conditions seem to have hit Coinbase particularly hard, as the firm’s stock plunged nearly 65% YTD as of Thursday. The crypto winter cause Coinbase trading volumes to dwindle low enough that the firm announced a hiring freeze and laid off 18% of its staff this summer. And recently, reports surfaced that Coinbase is being probed by the SEC for allegedly permitting improper trading of unregistered assets.

But the latest news may just breathe new life into a sector battered by global events and investor nerves. Moreover, the maneuver underscores how traditional Wall Street firms are preparing to expand deeper into crypto and the underlying technologies. Many investors believe that such institutional adoption is just what crypto needs to boost prices, stability and maturation of the asset as a serious investment.

Owen Lau, an analyst at Oppenheimer & Co., summed up the situation. “After this validation, it is possible that Coinbase will be able to partner with more traditional financial industries. It shows that even with the size of BlackRock, they are going to partner with a crypto-native company, rather than building their own capabilities.”

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