BlackRock’s latest investment paves the way for digital assets on Wall Street

Five years ago, BlackRock chairman Larry Fink was famous called bitcoin a “money laundering index”. In the years since, the world’s largest asset manager, which manages some $10 trillion in client funds, has largely stayed away from digital assets.

So when Fink wrote in his annual report letter to shareholders, published in late March, that the devastation caused by Russia’s invasion of Ukraine could accelerate the adoption of digital currencies, many interpreted it as a sign that the financial giant is finally getting ready for crypto.

Now, BlackRock will become the primary cash reserve manager of USD Coin (USDC), a $50 billion digital asset pegged to the value of the US dollar. It is taking on the role in a $400 million funding round announced yesterday by Boston-based Circle, one of USDC’s top issuers. Following the raise, with additional participation from Fidelity Management and Research, Marshall Wace LLP and Fin Capital, Circle plans to make its public debut via a SPAC deal, valued at $9 billion, by the end of this year. .

Talk to Forbes, CEO of Circle, Jeremy Allaire, did not reveal the percentage of stablecoin reserves that BlackRock will manage or details of the partnership, but said that he will “explore ways to apply USDC to traditional capital markets. “. Allaire shared that the relationship has been developing for almost a year.

Such implementations could help generate additional revenue for Circle and BlackRock. In financial documents released with the announcement of the revised SPAC deal in February, Circle waits its USDC reserves to generate $438 million in revenue in 2022, rising to $2.2 trillion in 2023.

BlackRock declined to comment on specifics of the deal, but according to today’s first-quarter earnings call, beyond cryptocurrencies and stablecoins, the company is also exploring asset tokenization and blockchains allowed. In June it was reported that BlackRock was looking to hire a blockchain manager.

This partnership is also notable as it is the first digital asset engagement that involves the balance sheet of BlackRock, Inc. itself. Previously, the asset manager was credited with gaining crypto exposure through a 7.3% stake in MicroStrategythe largest bitcoin-holding company with nearly $5 billion worth of cryptocurrency, and a few dozen bitcoin futures CME, cash-settled contracts in USD based on a daily bitcoin price benchmark rate in US dollars. But these investments were made through BlackRock’s subsidiaries or funds that manage client assets.

The deal is also a major sign of approval for the USDC. Its market capitalization has grown from $4 billion at the start of last year to more than $50 billion today, but has yet to catch up with Tether’s $82.5 billion. Despite the lack of transparency regarding the size and composition of its reserves and its regulatory oversight, Tether has managed to maintain its position as the preferred stablecoin among crypto investors largely thanks to its early arrival in 2014.

The USDC, launched by Circle and Coinbase four years later, has also been criticized for its opacity in reporting its reserves, particularly regarding the size and creditworthiness of commercial paper and corporate bonds which underlie the asset. However, last August it adjusted its risk strategy and pledged to back the asset only with physical cash and treasury bills. It also applied to become a national bank.

Now, with backing from BlackRock, the stablecoin hopes to find a place as a go-to digital asset for financial institutions and traditional investors.

The collaboration is “potentially a huge step forward in how digital dollar currency can work not just in the realm of digital assets, but increasingly in traditional finance as well,” Allaire said.