Coinbase shares surge on tie-up with BlackRock

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Shares in Coinbase surged on Thursday after the crypto exchange announced a tie-up with BlackRock, the world’s largest asset manager, that will make it easier for institutional investors to buy and sell bitcoin.

Coinbase said it would connect to Aladdin, BlackRock’s investment technology platform. The platform, which supplies essential plumbing to the global investment industry, will allow BlackRock customers direct access to crypto, it said. The first token available will be bitcoin.

Coinbase shares initially rose as much as 30 per cent before settling 17 per cent higher on Nasdaq in New York.

Dan Ives, an analyst at Wedbush Securities, said the tie-up was a “major confidence booster and a much-needed positive for Coinbase after a brutal year.”

The company has struggled as valuations in the crypto market tumble and customers trade less frequently. In June it abandoned its growth plans and cut a fifth of its workforce — more than a thousand people — as the downturn in cryptocurrency trading volumes and prices rocked the industry’s biggest participants.

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Before Thursday’s boost, Coinbase shares had lost two-thirds of their value in the past year. Adding to its woes, US prosecutors last month charged a former employee and two of his associates with insider trading.

David Trainer, chief executive of investment research firm New Constructs, was more sceptical of the venture. “The idea that institutions need more access to crypto seems farfetched to us as any institution that has wanted access could get it through other channels,” he said.

Coinbase said it would provide clients of BlackRock with “crypto trading, custody, prime brokerage, and reporting capabilities”, adding that the tie-up was “an exciting milestone for our firm.”

BlackRock’s Aladdin system is one of the most widely used pieces of technology in the financial services industry, linking investors to markets and measuring risk. It is used by asset managers, banks, insurers, pension funds and corporations.

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

The deal marks a stark contrast to the position once held by BlackRock chief executive Larry Fink on crypto. Speaking at an Institute of International Finance meeting in October 2017, he said: “Bitcoin just shows you how much demand for money laundering there is in the world. That’s all it is.”

However, on a second-quarter earnings call this year, Fink said the asset manager was still seeing interest from institutional clients about trading crypto. It had been studying the digital assets ecosystem, “particularly in areas that are relevant to our clients, including stablecoins, crypto assets, tokenisation, permissioned blockchains.”

In April, alongside asset managers including Fidelity and Marshall
Wace, BlackRock announced a minority investment in Circle, a global
internet payments and treasury infrastructure group that is the issuer
of the stablecoin known as USDC.

A stablecoin is a type of cryptocurrency pegged to an asset such as the US dollar and acts as a bridge between traditional and crypto markets. BlackRock became the primary manager of Circle’s USDC cash reserves, with assets invested entirely in short-term US treasuries.

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