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Cryptocurrencies

BlackRock partners with Coinbase in crypto market expansion

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BlackRock Inc. is partnering with Coinbase Global Inc. to make it easier for institutional investors to manage and trade Bitcoin, taking the world’s largest asset manager into a cryptocurrency market hammered by plunging prices and government investigations.

Coinbase surged 15 percent to $92.61 at 1:20 p.m. in New York. The partnership with BlackRock provides some relief for the biggest US crypto-trading platform, whose stock had lost more than two-thirds of its value this year through Wednesday.

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Top BlackRock clients will be able to use its Aladdin investment-management system to oversee their exposure to Bitcoin along with other portfolio assets such as stocks and bonds, and to facilitate financing and trading on Coinbase’s exchange, according to a statement Thursday.

The focus of the partnership with Coinbase, the biggest US crypto-trading platform, “will initially be on Bitcoin,” BlackRock said.

BlackRock’s move deepens the involvement of Wall Street’s traditional financial players in crypto and related technologies, even after this year’s meltdown in such assets.

Bitcoin has lost about half of its value in 2022, while the collapse of the Terra ecosystem and hedge fund Three Arrows Capital have raised questions about the resilience of the market and prompted increased regulatory scrutiny.

Coinbase is facing a probe by the US Securities and Exchange Commission into whether the company let Americans trade digital assets that should have been registered as securities.

BlackRock chose to partner with Coinbase because of its scale in the market and role in providing trading, custody services, prime brokerage and reporting capabilities. The services will be available for clients of both companies.

The regulatory risks from the partnership are manageable because it’s starting with Bitcoin, which has clearer regulatory status in Washington than other digital assets, said Oppenheimer & Co. analyst Owen Lau, who has the equivalent of a buy rating on Coinbase shares.

The partnership is “a validation of the future of blockchain and digital assets and also a validation of Coinbase’s reputation,” Lau said in a phone interview. “It’s a big plus for the industry and also for Coinbase.”

The announcement shows sophisticated investors are growing more comfortable with the crypto market.

“Our institutional clients are increasingly interested in gaining exposure to digital-asset markets and are focused on how to efficiently manage the operational life cycle of these assets,” Joseph Chalom, BlackRock’s global head of strategic ecosystem partnerships, said in the statement.

Institutional investors accounted for about three-quarters of the $309 billion in trading volume on Coinbase in the first quarter, the company disclosed in May. Coinbase clients include hedge funds, corporate treasuries and asset managers.

“The Coinbase partnership between BlackRock and Aladdin is an exciting milestone for our firm, Brett Tejpaul, head of Coinbase Institutional, and Greg Tusar, vice president of institutional product, said in a separate statement. “We are committed to pushing the industry forward and creating new access points as institutional crypto adoption continues to rapidly accelerate.”

For BlackRock, the partnership is the next step in a wider strategy to expand into digital assets. Chief Executive Officer Larry Fink said in March that the firm was studying the growing importance of digital assets and stablecoins and how they can be used to help clients.

The following month, the company joined a group of investors in Circle Internet Financial, the issuer of USD Coin, and said it would seek to serve as a primary manager of the stablecoin’s cash reserves.

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