Larry Fink suddenly likes bitcoin because BlackRock investors suddenly like bitcoin

In October 2017, as bitcoin hit a then-record high of $5,800, BlackRock's CEO Larry Fink believed bitcoin was “an index of money laundering,” saying, “Bitcoin just shows you how much demand for money laundering there is in the world. That’s all it is.”

Seven years later, BlackRock’s chief has reversed his stance. From Fink’s CNBC interview on July 15:

I believe Bitcoin is a legitimate financial instrument that allows you to have uncorrelated, non-correlated returns. I believe it is an instrument that you invest in when you’re more frightened, an instrument when you believe countries are debasing their currencies by excess deficits…

When you want to hedge hope, bitcoin is not an instrument for hope. I look at it as a vehicle in which you’re expressing your financial acumen when you’re more frightened of the world, more frightened of your existence.

A couple of notes on Fink’s comments. First, he’s not wrong about bitcoin being used as an investment instrument when countries are debasing their currencies. Bitcoin trading volume recently hit a 20-month high in Argentina, for example, where the annual inflation rate is 276%.

However, the idea that bitcoin is 1) uncorrelated or 2) an asset to “hedge hope” is simply not backed by data. Bitcoin has historically traded in line with tech stocks, and its long-running correlation with the Nasdaq 100 is 0.805 (where 1.0 would be perfectly correlated, and -1 would be inversely correlated). Additionally, in March 2020, when financial markets collapsed during the onset of the Covid pandemic, bitcoin’s price fell by more than 50%, hardly the performance you would expect from a “hope hedge.” Bitcoin has, historically, traded like a high-beta tech stock, not an uncorrelated hedge.

My $0.02? Fink’s new-found bullishness toward bitcoin has less to do with his opinion on the cryptocurrency’s investment potential, and more to do with his clients’ increasing appetites for bitcoin.

BlackRock is the world’s largest asset manager, with more than $10 trillion in assets under management. In 2023, BlackRock’s revenue, largely derived from management fees, was $17.8 billion. As the world’s largest asset manager, part of BlackRock’s job is to provide investors with investment solutions that meet their demands.

In July 2018, nine months after Fink referred to bitcoin as an index of money laundering, he told Bloomberg, “I don’t believe any client has sought out crypto exposure.”

It seems that had changed by 2022, when BlackRock partnered with Coinbase, allowing institutional clients using its Aladdin investment management platform to access bitcoin through Coinbase’s institutional platform: Coinbase Prime. At the time of the announcement, BlackRock’s Global Head of Strategic Ecosystem Partnerships, Joseph Chalom, said (emphasis ours):

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. This connectivity with Aladdin will allow clients to manage their bitcoin exposures directly in their existing portfolio management and trading workflows for a whole portfolio view of risk across asset classes.

In January 2024, the SEC approved spot bitcoin ETFs, allowing investors to have exposure to bitcoin without directly holding it, and, more importantly, allowing asset managers such as BlackRock and Fidelity to offer bitcoin vehicles to their investors.

In the six months since, BlackRock’s “iShares Bitcoin Trust'' has grown to $18.2 billion in assets, making it the biggest bitcoin ETF on the market. The asset manager is charging a 0.25% management fee, giving Fink a $45 million reason to speak more fondly of the cryptocurrency.

Maybe Fink’s thoughts on bitcoin’s viability as an investment have changed, maybe they haven’t. But there’s no denying that bitcoin’s viability as a revenue stream for Fink’s company has improved over the last few years.