How BlackRock, the World's Largest Asset Manager, Took Crypto Mainstream - Ep. 735
01:08:08 Share

Obviously, I had very high conviction in what this could be and how big an unlock it would be to be able to have a mainstream accessible turnkey, convenient Bitcoin exposure vehicle. But this has certainly exceeded even my fairly optimistic expectations. And as a firm, we had pretty optimistic projections, but

I don't think anyone's ever going to put down as their base or even maybe their bull case that year one is going to rewrite the record book on inflows into the ETF category.

Hi, everyone. Welcome to Unchained, your no-hype resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto nine years ago, and as a senior editor at Forbes, was the first mainstream media reporter to cover cryptocurrency full-time. This is the November 15th, 2024 episode of Unchained.

Polkadot is the original and leading layer zero blockchain with over 2000 plus developers. And the Polkadot 2.0 upgrade will be a massive accelerator for the ecosystem. Join the community at polkadot.network slash ecosystem slash community.

FBTC is the fastest growing Omnichain BTC asset this summer. Join FBTC points inspired campaign where you can hold FBTC to earn sparks, lucrative yields and token drops all on your Bitcoin. Today's guest is Robbie Michnik, head of digital assets for BlackRock. Welcome, Robbie. Hey, Laura. Thanks for having me on.

Yeah, excited to chat with you. This is a very exciting time for the industry. Just to let people know, we're recording Tuesday afternoon. So if any relevant news breaks Wednesday or Thursday, it will not be included in this show. But there's a lot to talk about. The election has been huge for iBid and for the whole crypto market generally. iBid saw record volumes and inflows around the election. And on Monday, the Bitcoin ETFs had their sixth largest day in trading volume ever, $7.2 billion worth. iBid

IBIT also surpassed BlackRock's gold ETF in terms of net assets. So, Robby, what do you think is driving all this activity? Yeah, well, it's a good thing you had that disclaimer about a few days lag because the rate that things are changing, who knows what will happen by the 15th, three days from now. But obviously, it's been a pretty frenetic week or a couple of weeks. Certainly, a lot of the run up in Bitcoin and in crypto generally in the last week has been

reaction to the U.S. election and the implications of that. And I think that part of what we're seeing as well is for maybe the first time this year where you've had a massive wave of new inflows into the ETFs and new demand buying,

There isn't really a structural offset on the sell side, which is different from what we've seen for most of the year where you've had sort of the series of four different major bankruptcy liquidations that were constantly sort of on the other side of the market from a sell perspective.

And so at this moment in time, you know, like I mentioned during the election and post the election, who is driving all this activity? Are you seeing new types of investors jumping in or is it just that existing investors are more optimistic or what do you think it is?

Yeah, so if you think about our investor base from an iShares perspective and really it's three segments, it's an investor's direct, it's wealth advisory, and it's institutional. So that an investor direct channel, which can include everything from small dollar retail to ultra high net worth, in some cases, billionaires net worth that have plowed into iBid pretty much from the get-go in record-breaking numbers.

The other two segments have been on a more gradual pace, certainly. Most of the wealth space today is approved on an unsolicited basis. So clients can request it, but advisors cannot choose on their own to put Bitcoin or iBit in portfolios.

And that still has not, frankly, fully evolved. I think there's a couple of our large wealth clients who have now made the step to allow advisors, what we call solicited advisors, to actually put Bitcoin or put iBit in portfolios. But the vast majority still are not there yet. So that has not meaningfully changed. And then institutional actually changed.

has been a noticeable change over the last week where a number of folks who we've been on sort of a gradual education journey with over the course of 2024 who are studying the asset class, but not yet sort of making a decision over whether to allocate. We've seen certainly an uptick in interest from those folks. And we'll see, you know, just how far that goes in terms of where institutional adoption moves in the next couple of months.

So the last few years have been pretty bad for the industry in the U.S. with Senator Elizabeth Warren and SEC Chair Gary Gensler politicizing crypto and preventing there from being common sense SEC rulemaking on crypto. And here we have now Trump and J.D. Vance. They're going to become the first crypto president and vice president. And then we also have 290 pro-crypto officials who will be in this next Congress.

So what can the crypto industry expect from BlackRock when it comes to digital assets under what is shaping up to be a very different administration? Yeah, I think it's a little bit too early to say just what the shape of the regulatory approach in this next administration is going to be. I think that industry will need to be

A little bit patient probably would be my guess where, you know, obviously a lot of crypto folks have been pleased with the results of the election. But it's worth noting that digital asset regulation and the need for that was actually one of the few things on a short list of objectives that a bipartisan Congress would have opportunity to work on.

And so I think actually now that it is going to be Republican trifecta, there'll probably be a bunch of things higher on the priority list, frankly, than digital asset regulation. I think, you know, that that is going to get taken up, but it may take a little bit more time.

Well, so even in the absence of knowing kind of what the specifics are, are there any types of developments that you would expect to see in digital assets broadly? And it doesn't just have to be for BlackRock, but kind of in the wider industry, like, I don't know if there are any particular use cases or opportunities that you think have not yet been capitalized upon, but are ripe for, you know, burgeoning now. Yeah, I think one thing, obviously, there's been sort of this state of

a little bit for most crypto assets other than Bitcoin and ETH. I think SEC has made very clear that Bitcoin and fairly clear that ETH are commodities, not securities. The sort of longer tail of assets, there's a lot more uncertainty there. Hopefully, when these regulatory frameworks do come in, some of that uncertainty will be lifted. I think that'll be beneficial to

that exist today, but also to future projects as they're considering how to go about issuing their own tokens and what types of investors are eligible to buy those and how those should be structured, etc. You can also look at things like

We've seen a lot of discussion around banks being able to offer a crypto custody. SAB 121 made that very difficult, obviously. There's been deliberation around that. It certainly seems like the direction of travel on that is to have that

that rule will go away, which will open the gates for banks who want to provide custody services in this space. And we think that's a great thing. Obviously, iBit and Ether are custodied with Coinbase, which is the largest crypto custodian in the world and who we have a great relationship with and a very high conviction in. It's just generally good for the ecosystem as it starts to mature to have a number of really high quality institutional custodians in the space. So we think that's a good thing.

So let's backtrack now to how BlackRock got to be in this position. About a year and a half ago, BlackRock surprised everybody with its Bitcoin ETF filing, and it's continued to surprise people with just how involved it's been getting in crypto. But before we dive into all of that, why don't you tell us about your start? How did you get into crypto? Yeah, well, I was, frankly, got very lucky. Sort of right time, right place a little bit. I was

a business school student in 2016 and ended up catching a break and ending up with an internship at a company that I hadn't heard of. Frankly, you know, most people at that time hadn't heard of, which was Ripple. So I did an MBA internship that summer of 2017 at Ripple, which, as you can imagine, was quite eye-opening, particularly the timing around that. I interviewed a

There in April of 17, XRP was at two cents. I started two months later in June, it was at 28 cents. And a couple months after I'd left to finish business school, it had hit $3. So just a total massive emergence onto the consciousness of

America and the world, this whole crypto space and Ripple in particular was a darling of that third bull market. So that was eye opening for me. I knew after that that I needed to find a way to be in this space. I felt there was an opportunity at the time when I was at Ripple. I noticed that there was not a lot of discourse around.

of any sort of rigor around what any given crypto asset was worth, how to think about it economically, fundamental valuation, those sorts of dynamics. And so there's an opportunity for me with the background that I had to try to address that. And I did that with a paper that I co-authored with a GSB professor of mine, Susan Attey.

And that helped sort of pave the way to where I ended up here at BlackRock as the first full-time employee working in the blockchain and digital asset space starting that summer of 2018, just as the third cycle was in its waning phase. And it's been a pretty fun journey since then, these last six plus years. We've done a lot in this space. Obviously, iBit gets a lot of headlines, but we think about digital assets across three pillars being crypto, stablecoins, and tokenization.

And we've done some pretty significant stuff in each of those three pillars, frankly. Yeah. And I'll ask you more about that in a little bit. But I did want to also ask just what so you talked about, obviously, the price during that 2017 period, which, yes, that, you know, I also was covering that and wrote about in my book. And yeah, that was also kind of eye opening for me. But what about crypto, like aside from that, that price section captivated you?

Well, I think the fundamental breakthroughs that this technology provides are pretty amazing, right? In terms of the ability to move an asset, move value for the first time anywhere in the world at near zero cost in a near instantaneous way. And that didn't exist before blockchain and crypto. And I think, you know, so my initial excitement was

was around, in particular, payments-type use cases for blockchain and crypto. I think over time, I came to appreciate more deeply the significance of Bitcoin as a global, decentralized, non-sovereign, scarce, fixed-supply asset that today, frankly, is

the most publicly accessible global market in the world, which is a pretty amazing thing. It's the only asset in the world that someone can tap into with a smartphone on any one of the seven continents at any particular point in time. There's no other asset where that's true. And also to see what Bitcoin could represent as a potential hedge is

against some of the economic, political, and geopolitical risks that exist all over the world. You know, the perennial challenges that many economies have had around inflation, currency debasement, monetary instability, certainly some of the issues around authoritarianism and the way that that typically attacks people's access to their money.

and this idea of a largely censorship resistant form of money for dissidents, activists, refugees, et cetera. That was very captivating for me. And so it's been a journey of a lot of learning and evolution as frankly the facts have changed in this space. Narratives have changed, facts have changed, but there's been a few constants and those two are really the underpinning of my conviction in this space.

BlackRock CEO Larry Fink has had a famous turnaround on Bitcoin. This summer, he said it was a legitimate financial instrument that allows you to have uncorrelated returns. But back in 2017, he called it, quote, an index of money laundering. And some people, I think, think that you are the person who orange-pilled Larry Fink. And I wondered if there was anything you could tell us about what got him to see Bitcoin in a different light.

Well, 2017 is a long time ago, right? And I think that Larry deserves a ton of credit for, you know, we talk at BlackRock a lot about being students of the markets and students of technology. And Larry's the ultimate embodiment of both those things. And he deserves a lot of credit for spending the time and studying this space deeply. And when you pair that with

his deep existing knowledge around geopolitics and financial history, it came very naturally to him. And so he's become, I think, a really insightful commentator on this space as a result. And in a recent interview, I heard you make a distinction between risk assets and risk on assets. And you said that you believe some analysts have misclassified Bitcoin. Can you elaborate on that?

Yeah, well, Laura, frankly, it's hard to overstate just how significant this muddled perception has been in terms of uptake and understanding of Bitcoin by sort of the traditional finance hitherto skeptics.

unquestionably, Bitcoin is a risky asset. It's volatile. It's relatively new. The path of its adoption and regulatory standing, et cetera, are uncertain. And there's plenty of risk in it in a standalone basis. But that is a different thing from being a risk-on asset. This idea that certain assets have properties that they should all move together, that's

And when you think about Bitcoin and the nature of its risks, they are quite distinct from the risks that drive equities, bonds, other asset classes. And so...

What we would expect is those fundamentals to mean Bitcoin over the long term is generally going to behave in a mostly uncorrelated way. Historically, it has with some periods where it spiked. And on certain risk factors, it actually may be

inversely exposed versus what traditional so-called risk assets, equities and the like are. Now, why is this so significant other than me just being kind of pedantic, arguing that point? It's that what I think has happened for a lot of investors, but it happened a little bit later than probably they wish it did, is the light has gone on about this distinction.

And when it does, it tends to shift the conversation from, is this thing too risky for us, whether it's me, the individual or my institution or my wealth advisory firm to perhaps, is it actually risky not to own any of this? Right. That's a question increasingly that a lot of our clients are starting to ask because

And when you think about the risk factors that exist in the world today that are increasingly on investors' mind from inflation, debt deficits, risks of currency debasement, debt monetization, the unraveling of the geopolitical order that has stood and delivered a stability and prosperity for many decades, war in multiple parts of the world, concerns about US political dysfunction, et cetera, all of those things

for the most part, are not great for traditional so-called risk-on assets. But Bitcoin, because of its nature as a scarce, global, non-sovereign, decentralized asset, is somewhat detached from

from those traditional risk factors. Again, it certainly has its own risk factors. It is a risky asset undeniably on a standalone basis, but that's a very different thing from being a so-called risk asset. And I think as that narrative starts to reclarify,

It's going to be helpful to a lot of investors. But today, the industry has done not a great job of explaining that dynamic. Okay. Yeah. And I definitely will ask you more about that in a moment. But I did also then just want to ask about what kind of led up to that moment in June of 2023 when BlackRock filed for the Bitcoin ETF? Because there is so much speculation about what happened then. Can you give us some of the backstory?

Some of it, as you could probably guess, didn't happen out of the blue. There was a lot of years of thoughtful preparation and laying of foundations that went into that. And you look at some of the steps that we took well in advance of that time. They maybe painted the picture of what was going on. But, you know, we had...

Coming to the space, I think, in a pretty meaningful way with our first partnership with Circle and the stablecoin space, and then shortly thereafter, our partnership with Coinbase to integrate Coinbase Prime into Aladdin, our Aladdin investment management system that not only BlackRock, but many of the largest buy side firms run on to make Bitcoin a

function as a part of a whole portfolio for any clients or for any users of Aladdin who wanted to be able to trade, settle, custody it, et cetera, to have that work pretty seamlessly. So we built that with Coinbase Prime. That was in 2021 and 2022. And then shortly after we made that public, we also launched a private Bitcoin trust that summer of 2022, which in many ways was a precursor to what we ultimately did

with the ETF. And so, you know, we had the benefit of having this plan. Thankfully, it didn't get out to the world till the morning of June 15th, 2023, when we were filing it that evening. And that put us in a good position having built over the course of multiple years, the foundations to be able to offer a BlackRock and an iShares quality product to investors.

And obviously, we're looking at this moment where I think, shoot, I'm just realizing I pulled this stat earlier. And now I'm forgetting if it works for all the ETFs. I think it's all of them are at about 90 billion, I think right now.

an aum is that that's about right yeah and i just was curious to hear a comparison between what your either personal or you know what blackrock's projections were for and flows over various periods of time and like how that's actually compared to what you know has happened yeah i think you know i was pretty optimistic obviously i had very high conviction in in what this could be and how big an unlock it would be to be able to have

a mainstream, accessible, turnkey, convenient Bitcoin exposure vehicle. But this has certainly exceeded even my fairly optimistic expectations. And as a firm, you know, we had pretty optimistic projections. But, you know, I don't think anyone's ever going to put down as their base or even maybe their bull case that year one is going to rewrite the record book on Bitcoin.

inflows into the ETF category. There's been a lot of ETFs over a lot of years, but some amazing products and a lot of assets gathered. So we would never have expected to be quite this robust.

And, you know, I think it's important to remember and to sort of stay humble about it. This is still really early. You know, we have a long way to go in terms of continuing to be a great partner from an education perspective for our clients, particularly for the wealth advisory segment and for investors.

institutional. So, you know, you won't see a lot of sort of champagne popping or anything like that around here right now. We're pretty focused on the opportunity at hand and the very significant number of client discussions that we're having. And did you have a dollar figure that you were projecting? And it could be for any time period. Well, I think what people often use in this space in multiple ways is

is gold as an interesting analog, right? There's comparisons from a fundamental properties perspective, from an investment narrative perspective, from the perspective of giving access to a hitherto difficult instrument for most investors to get access to. So people talk a lot about Bitcoin's market cap as a percentage of gold, as sort of an interesting relative value consideration. We also definitely looked at

Bitcoin ETFs potential as a category relative to where the gold ETPs are. And that informs some assumptions. But I think, you know, even the most optimistic scenarios wouldn't have put the numbers where they are right now for year one. Okay.

Well, we also saw that pension funds, endowments, sovereign wealth funds, you know, the state of Wisconsin, there were just all of these entities that ended up investing in IBA like pretty, you know, soon out of the gate. Was that surprising to you? Or did you kind of know that there was this pent up demand or? Well, we had good visibility into it because we had the Bitcoin private trust dating back to the summer of 2022. So we'd had conversations with a lot of our institutional clients about that.

that product

only peaked at about $270 million in assets. I bet surpassed that in about its first four hours of life. But what we saw was that there were a lot of institutional clients that we had who were very curious about this, were still a little unsure about how to think about it from a risk return perspective, how to think about it in a portfolio, and also just private fund access is a little bit

more limited or more constrained than just being able to buy an ETF in the very convenient ways that those are accessible. And so once the ETFs launched, you sort of had an initial pipeline and a dialogue with institutional investors who'd already been in the mix, seeking education, asking interesting questions from years prior.

What are the most common questions you've been getting about either iBid or Bitcoin from clients? And how have those questions evolved over time? So the number one question today, which and the top question has certainly evolved over time. But the number one question today and over the last year, unquestionably, is about this risk on versus risk off dynamic. And what about the correlation, which, of course, is important.

is related. I just did a number of client discussions overseas with large institutional investors over the last couple weeks, and there's not one meeting where that question doesn't come up. Seems like this thing's digital gold, we get it. Why does the correlation sometimes spike every single meeting? And I think that is a reflection of the fact that the industry has not done a good job of educating and telling this story.

And I think there's a fairly simple explanation for that, Laura, which is if you think about various business models in the space, if you're publishing research or you're a prime broker or you're an exchange, you're sort of incentivized to encourage people to trade a lot. Right. And the problem is in Bitcoin or in crypto, there's not a whole lot of fundamental news flow on any given day that's going to drive trading activity.

And so what we've seen is publications related to these sorts of businesses, they tend to look to traditional financial markets and macroeconomic data to provide a constant stream of news flow.

on which to drive trading. Now, even though one could say that Bitcoin is a very plausible portfolio diversifier and risk hedge, no one with a straight face would say on any given day, Bitcoin should be down when the stock market is up or up when the stock market is down. On a daily timescale, that just makes no sense, right? So the only thing that you could plausibly claim is that it should move together.

And even though that's sort of dubious on fundamentals, it's more plausible on a day in, day out timescale. So there you have, I think, the foundations of this idea of Bitcoin as a risk on asset, despite the lack of real good fundamental coherence to that. I think unwittingly, that's caused a huge amount of confusion, right?

and impaired interest and understanding in some of these more traditional investor segments for whom if this thing is "risk on" and it's levered NASDAQ beta, then there's a very high hurdle to want to allocate to that in a portfolio. There's a really high hurdle in terms of underwriting the investment thesis, the adoption drivers, the fundamental trajectory of various use cases if it is in fact

a uncorrelated diversifier and a potential hedge of some of these global risk factors, then that equation flips on its head completely. In a moment, we'll talk about BlackRock's strategy and place in crypto. But first, a quick word from the sponsors who make this show possible.

FBTC is an Omnichain BTC asset contributed by Mantle Network and Ant Alpha Global. Launched in early July, FBTC's TVL has already passed $125 million and became the fastest-growing BTC asset this summer. FBTC's points-inspired campaign, Sparkle, has officially started, with lucrative and sustainable yields, plus points and token airdrop from Babylon, Mantle's new token Cook, and more.

FBTC is the BTC solution you've been waiting for. Visit fbtc.com slash ongoing hyphen campaign today. Back to my conversation with Robbie. So you had briefly mentioned earlier in the show that the main focus areas are crypto assets, stable coins and tokenization.

And I wondered if you could sort of flesh out for me how you see those areas building upon each other for your strategy going forward. And just generally how you see BlackRock's position in crypto, given that it's a centralized entity in this world where the philosophical basis is decentralization. Yeah, well, I think what we bring and what centralized entities in this space have brought for a long time is choice.

There are many participants in this space who deeply value decentralization and self-sovereignty, and they have the ability to choose to participate in the ecosystem in that way, to do self-custody. And there are others for whom that's a scary prospect.

They are excited by this technology. They're excited by the promise of the space. They believe in the investment case around Bitcoin or other assets, but they don't feel confident in engaging in a self-sovereign way and doing self-custody and not having any centralized intermediaries to rely on. So I think as this space evolves, you're going to continue to see that combination of offerings that exist in the space. I think that's completely healthy.

And for that piece about how crypto assets, stable coins and tokenization, you know, those are your three focus areas. Like, do you see them coming together in any specific way? Like, why are those the three? Yeah, well, I think there's certainly some interactions between them. You know, today, stable coins have been a critical part of the crypto ecosystem, a critical enabler of

why the trading ecosystem and increasingly DeFi can function in such a high-powered, flexible, efficient way. It's pretty remarkable. But we're excited about stablecoins going beyond just the crypto trading ecosystem today and actually seeing significant potential adoption around cross-border payments and even capital market settlements.

That brings us to the third piece being tokenization. Tokenizing real-world assets, we think, is still very early, but definitely an exciting story and an opportunity that's all about expanding investor access and lowering costs.

And tokenization, too, interplays with stablecoins because to really maximize the value of tokenized real world assets, you need a digital cash instrument as the plumbing through all phases of the investment, lifecycle, subscriptions, redemptions, dividends, interest, margin, collateral, etc. And so...

The pieces increasingly, I think we will see converge more and more over time. I think more consumer financial applications will offer both crypto and tokenized assets. But for now, you know, this strategy served us quite well of having a clear and largely distinct focus on each of these three pillars.

All right. So now let's talk about the Ethereum ETF launches. Obviously, that has sort of been interesting to watch. I was curious for your thoughts on the performance of those Ether ETFs against BlackRock's expectations for them. Yeah, well, I think if you compare them to the Bitcoin ETFs, it looks pretty underwhelming. If you compare them to ETF history writ large, they're pretty amazing for Ether to have hit

a billion in AUM after about seven weeks. That's a really, really strong ETF launch. Today, it's creeping up on $2 billion after just shy of four months. So that's pretty strong as well. But there's no question that these are not of the scale that the Bitcoin ETFs have been.

That's not something we would have frankly expected either because you just look at sort of market cap as a proxy. At the time these launched, Ether was around 25% of the market cap of Bitcoin. So that's sort of a baseline in terms of a ratio. But then the reality is,

Because there is no concept of staking around Bitcoin, that has enabled these ETPs to be incredibly efficient, desirable exposure vehicles for many categories of investors.

When we think about Ethereum and the fact that there is staking to be earned, staking rewards to be earned for those who hold Ether directly, it makes the ETFs a little bit less of a sort of silver bullet optimal vehicle. For many who look at this and say, you know, Ether is an asset with, you know, 60% plus volatility and historical returns of,

just shy of 100% annualized. Do I really care about foregoing a couple percent in staking yield? And they're very happy to own the ETFs in a convenient turnkey, low cost way.

But that's not for everybody. So that's what we've seen, I think, some of the delta. And there's also just the fact that Ethereum doesn't have nearly, I would say at this point, the investment thesis narrative clarity that Bitcoin does for a lot of investors. Bitcoin is sort of that digital gold, global monetary alternative vein versus Ethereum explaining the bet around Bitcoin.

technology innovation using blockchains is a little bit more of a nuanced argument that doesn't resonate as easily in quite the same way. Yeah. Well, but how do you pitch it? Like, you know, do you have ways of simplifying it or what do you think typically works for that crowd?

Well, it revolves around that fundamental idea, which is that a bet on Ethereum is a bet on technology innovation around blockchains and on Ethereum's ability as the clear leader in that category to maintain its moat and continue to exploit its network effects advantage to hold on to or even expand its leadership position. Right. And

Then you talk about, okay, so what are some of the most compelling use cases within Ethereum? Today, we see it as Ethereum.

first and foremost, stablecoins, tokenization of assets, and DeFi applications. And so as we take clients through that in the education journey, we dive into some of the dynamics around those use cases, which we happen to think are the most exciting. There's obviously a broader number of use cases around Ethereum and some of these smart contract blockchains in general that are also interesting. But that tends to be where we focus and where our clients are most interested

In March, BlackRock announced the Biddle Fund, an on-chain tokenized money market fund with Securitize. And the Biddle token has a value of a dollar but offers dividends based on the USD yield. And this fund uses the Ethereum blockchain rather than, as one might have thought in years past, a private blockchain. And I wondered why BlackRock decided to not use a private blockchain but a public one, and in particular, why it chose Ethereum for settlement. Yeah, well, we had been...

exploring tokenization for many years prior to this. And when we first started exploring, like just about every large stratified institution, we did so in a private blockchain context. And that led to, I think, some really valuable learning and experience. And one of the things that came out of that was also a conviction that

Ultimately, where this space was going was on public blockchains from the access and network effects and interoperability in particular that they enable. And so we developed conviction around that thesis and around the opportunity to deliver a stable value yield generating instrument. And so we

It's still early days in our tokenization journey, but I think it's been a pretty promising early start. And what other types of real-world assets do you think are ripe for tokenization? Well, it's not a long list today. That's the interesting thing, right? There's lots of folks who believe that the long-term state is that just about every security and asset type will be tokenized. And I certainly think that's plausible. The question is, how do we get from

a few things, including these stable value yield funds and tokenized cash, which is what stable coins really are, to cross that chasm and get to that future state with all the disruption, transformation, and potential efficiency that that generates.

When we're in a state where very few traditional finance participants are on blockchain and digital asset rails, are interacting with crypto wallets and digital asset custodians and getting used to settlement over public blockchains,

It's hard for them to realize the value prop of tokenization in various other asset classes where they exist or they participate today in a traditional market context on those rails. And so we started where we did. I think there's a lot of opportunity to build out around that.

What comes next? We'll see. But I don't think you'll see two, three, four, five, seven new tokenized products from us in 2025. The market's not there yet.

And BlackRock has been getting involved in DeFi. It submitted a bid to MakerDAO, now called Sky, which opened a competition to invest $1 billion in tokenized U.S. Treasury offerings. It also applied to a call that Athena had put out to invest its reserves into real world assets. And these seem kind of like baby steps for BlackRock to be getting involved.

involved in DeFi. But, you know, I imagine that there's kind of some level of compliance hoops that you had to go through. So I was wondering how hard it was for BlackRock to get to a place where you could participate in DeFi at this level and kind of generally where you think BlackRock's participation in DeFi could go. Yeah, well, we follow our process, right? And so it doesn't matter whether it's TradFi or

centralized crypto organizations or DeFi and DAOs. There are certain principles and diligence processes that we undertake from an AML and KYC perspective in particular, and with a couple of entities that you note, that same process is what we follow to ultimately develop comfort around it.

And what do you see as kind of the future for BlackRock participating in DeFi? Like, do you see it, yeah, being kind of a bigger vision than this?

DeFi is a really interesting one because the potential for it is so immense. I think everybody who spent time around it recognizes that and the incredible efficiency and flexibility that becomes possible in the creation of various financial applications that

you know heretofore have have relied on traditional rails and large centralized institutions it's pretty remarkable but for those who think that you know a more pro-crypto congress automatically means sort of perfect clarity for d5 i think there's going to be some some disappointment there because the truth is it is not easy to figure out how this ought to be regulated it's a new paradigm that doesn't have

lot of the parallels to our traditional regulatory system that would make it easy to figure out what a fair and balanced approach to regulation would be. You don't have centralized actors to necessarily hold accountable or to regulate. The idea of how you carry out obligations around AML and KYC is a little bit unclear. I think

That is definitely going to be a threshold issue for traditional finance institutions to participate at scale. It's obviously going to be a priority for regulators as well. I don't think anyone has quite solved that issue yet. So I think it's going to create some really

intellectually fascinating discussions as the industry and policymakers collectively come together to figure out what the right approach to regulating DeFi is. And probably our participation in it in a meaningful way is going to be predicated on that coming together.

Okay, so I have no idea if this question is very out there, but we are seeing obviously Coinbase launched its own layer two, Kraken is going to as well. There's just a number of these projects that are coming online or already have. And I just wondered, would BlackRock ever spin up its own L2? No plans at this time.

Okay, okay. I knew it was a little out there, but all right. So let's talk about something else that's coming down the pike relatively soon. Options on Bitcoin ETFs got approved in the last couple of months. And first of all, I wondered when you thought they would launch. But then also when they do launch, how do you expect they'll impact the trading and price of both Bitcoin ETFs and also spot Bitcoin? Yeah, so that's still in the regulatory process. SEC did approve iBit options in September 2020.

And now it continues to work through the process, including CFTC review. But we're optimistic that those will be forthcoming relatively soon. And I think it's a great unlock for the space. It ultimately will make markets more efficient in this space. And in particular, will allow flexibility for different investor types to customize the nature of their exposure to Bitcoin. Because what is Bitcoin today is a highly volatile asset.

with significant positive skew, which is interesting. Historically, Bitcoin's been positively skewed. Most investment assets are actually negatively skewed. And what that means is that the right tail of its distribution is fatter than its left tail has had these periods where it goes up quite exponentially in a short period of time. But certainly, it's a volatile asset.

And what options enable is a customization if an investor says, I'm willing to forego some of that upside potential in order to hedge my downside better. I want to see Bitcoin generate yield for me. So I want to write calls to generate a little bit of yield.

yield income on top of my base exposure in exchange for, again, potentially foregoing a little bit of that upside. So there's a lot of combinations that you can work with, with options to tailor risk return and yield exposures for various, in particular, institutional investor types. And I think that will help folks get comfortable coming into this space.

So as you've alluded to several times in this interview, it remains to be seen really what crypto regulations will look like under a new administration. But since we do have this new SEC regime coming in, what are some things that would be at the top of BlackRock's wish list for this more crypto friendly SEC? Yeah, I think, you know, two things in particular that that would be a positive, you know, we hope there'll be a path.

to making it possible for in-kind creation of redemptions to happen in the ETF. So obviously today, all the ETFs, both Bitcoin and Ether, it's all cash-based trading. But in-kind is a great option for some investors. And also we think ultimately it could make this market more efficient. So we hope there'll be a path to figuring that out.

And we also think stablecoin legislation, regulatory clarity for stablecoins has been something that's been pending for quite a while. We think that would be really constructive for the space to be able to develop that regulatory clarity

Obviously, the whole stablecoin industry has been built up around the U.S. dollar and U.S. treasuries, even in the absence of that regulatory clarity. But having that come into place, I think will really help stablecoin use cases flourish and more parts of the financial ecosystem and more users will get to benefit from the incredible efficiency that stablecoins offer from a payment perspective.

And earlier we were talking about how the ETH ETFs do not offer the staking yields. And a lot of people are assuming that this will finally happen under this new SEC. And I wondered, first of all, how long you thought that would take? And then also, I wanted to understand what would need to happen for the ETFs to be able to offer that.

Yeah, so it's not a simple problem. And I think we would probably put people to sleep if we walk through the technical minutia of the various hurdles from a legal structuring and tax perspective that need to get navigated. But I don't think that folks should assume that even if you had

a very supportive approach from a regulatory standpoint that that just automatically unlocks staking in ETH ETFs. There's a number of hurdles associated with that. And maybe that'll happen sometime in the coming years, but I certainly don't think it's a slam dunk.

Alright, yeah, well, we'll have to wait and see. So obviously, I think also a lot of people are assuming there will be more crypto ETFs coming online. And I wondered either which crypto assets BlackRock is eyeing or if you don't want to tell us that then at least which ones you think are likely to be next on the list generally?

For now, nothing is envisioned. We see Bitcoin, obviously, as being uniquely in a category of its own. We see ETH with Bitcoin as sort of being in a group of two, certainly from a market cap and maturity, liquidity, et cetera, perspective. That's the case. That said, there are some interesting projects out there who we've interacted with in other contexts,

around our explorations in this space, including, you know, from a tokenization perspective. And it's probably too early to say, you know, what will come next. I think from an investor interest standpoint, it's overwhelmingly still Bitcoin and a little bit ETH.

But obviously, this space evolves pretty quickly. All right. So I know this is probably not exactly your purview at BlackRock, but we are, of course, seeing that there are a lot of companies that have effectively used Bitcoin on their balance sheets to bolster their own treasuries. And I wondered, would BlackRock ever consider something like that?

Well, we seeded our own funds, right? We seeded the Bitcoin private trust and we also seeded iBit and Ether. So, you know, there's some pretty modest, frankly, holdings that way, but it's not a discussion that's active beyond that. Okay. And then I'm sure you've seen a lot of people on Twitter are constantly asking whether or not BlackRock would ever provide proof of reserves for the ETFs. Is that something under discussion? Yeah.

Well, it's something that seems to be talked about in some parts of Twitter who have no interest and are not investors in the ETFs. Frankly, it's not something we hear at all about from our client base in the many discussions that we've had with clients around this for the same reason that most of those investors are used to a model where you have

asset manager who is an issuer of an ETF and there's a custodian and an annual process there's there's an audit and they know that there's a daily reconciliation process between the issuer the fund admin and and the custodian and that's the case here too so it's frankly not something that we're hearing a lot of other than you know in some parts of Twitter maybe okay okay

Yeah, I saw people asked me to ask you that. I thought, you know what, might as well. But in a similar vein, now that Trump has been elected and the GOP will control Congress, I'm sure you've seen that Senator Cynthia Lemus is likely to propose her idea for a strategic Bitcoin reserve. And I wondered what you thought of that idea. Well, it's an interesting idea. It certainly has made some headlines. I think

A lot of the discussion about the election and its impact on crypto or Bitcoin has been from a policy perspective, and that's well-founded. Obviously, policy is important. I do think, though, it's sort of underplayed some of the other elements that investors would be well-suited to think about from an impact of government, particularly U.S. government perspective.

You know, policy is one for sure. I would say the second that's really important for Bitcoin is economic policy and what that means or doesn't mean for debt deficits, inflation risks, risks of inflation.

of currency debasement or debt monetization. That's an analysis you could undertake in any country in the world too, but those are really important things. Obviously, the things I just mentioned are not good things for those economies, but they're often seen as catalysts for Bitcoin.

And then the third part is around just general stability or disorder, right? Where there are fears of political instability, geopolitical instability in the US or abroad.

those are generally also seen as potential catalysts in Bitcoin by its scarce, decentralized, non-sovereign nature. And so when I look at the various forces from a political standpoint, whether it's in the US or elsewhere, they're going to affect the price of Bitcoin. Policy is one part of it, but I think those other two are really important things to watch. And I'll just add, I think

I hope that when people, particularly people who hold a lot of Bitcoin, think about that dynamic, they can decouple what they think may happen from what they hope happens because

You know, pity the fool who fantasizes about being a Bitcoin billionaire in a smoldering world. Right. I don't think any of us should cheer for economic chaos, currency debasement, inflation, geopolitical disorder or any of those things, even though they happen to be potential catalysts for Bitcoin.

What we emotionally hope might happen and what we think or fear may happen are two different things. And we invest behind the latter. But, you know, I think all of us should be cheering for peace, prosperity, you know, sound economic management, geopolitical harmony, all those things. And, you know, if those don't come to pass, that's why a lot of people increasingly are looking at Bitcoin.

And last question, you know, we've seen obviously that now we have this kind of major catalyst to the markets and we have this incoming administration that's quite different from the previous one. And given kind of what you know about where investors' interests are and kind of who is entering this market, I wondered if you could give a projection for how you thought this next year would unfold.

you know, with all these different things that we talked about coming online, the options, you know, perhaps new ETFs or regulatory clarity, like where do you think this market is headed? You want a price prediction? I didn't want to ask that, but go ahead. Yeah, you know, I'm not going to give you that. Well, it's interesting, right? 2024, January to October, actually was a pretty rough year for Bitcoin ex the ETFs. If you think about it,

You had interest rates higher for longer than a lot of people expected. People expected rate cutting to happen sooner than it did. That was a headwind for Bitcoin. You had four major bankruptcy liquidations spanning back over a decade that all came to fruition in 2024 and were certainly a headwind on the market with some pretty significant selling pressure.

And yet Bitcoin was up even going into the election last week. And I think certainly the outsized growth in access that the Bitcoin ETFs in the US provided was a big part of that, that sort of counterbalanced those negative forces, played it to a draw or frankly, a slight uptick because Bitcoin was up 50% or so year to date prior to November. And so when we look at 2025,

These dynamics obviously have evolved. I think certainly markets can be watching what happens from a policy perspective in the US, but I think it'll be important to watch those other factors that I just described as well. I think that's going to have a major role in where Bitcoin goes from here. All right, Robbie. Well, where can people learn more about you and your work?

Sure. Well, iShares.com is the best place for that. You learn all about our products. Obviously, I bid in ETH there, but also the many hundreds of iShares ETFs.

that BlackRock has launched over the years. Perfect. Well, it's been a pleasure having you on Unchained. Thank you, Laura. It's been fun. Thanks so much for joining us today. To learn more about Robbie and BlackRock's entry into the crypto market, check out the show notes for this episode. Don't forget, next up is the weekly news recap, today presented by WonderCraft AI. Stick around for this week in crypto after this short break.

Polkadot is the original and largest layer-zero blockchain with over 2,000+ developers. The anticipated Polkadot 2.0 upgrade will be a massive accelerator for the ecosystem, upgrading the infrastructure with 8x higher transaction throughput and twice as fast block times, tailored core time for the needs of every protocol, trustless bridges to multiple chains, and revised tokenomics with a token burn to reduce inflation. Perfect for GameFi and DeFi to build, grow, and scale.

Get your Web3 ideas to market fast. Think big, build bigger with Polkadot. Join the community at polkadot.network slash ecosystem slash community.

Welcome to this week's Crypto Roundup. In today's recap, we cover FTX's $1.8 billion lawsuit against Binance and a spree of legal actions to recover funds, BlackRock's expansion of its crypto fund across multiple blockchains, and Ether ETFs turning positive for the first time since launch. We also dive into Ethereum's Beamchain proposal and the mixed reactions it sparked.

SEC Commissioner Hester Peirce's concerns about the agency's readiness for pro-crypto policies, a JITO protocol outage that temporarily spiked Solana fees, and how Trump's victory is reigniting discussions about a wave of crypto IPOs. Thanks for tuning in to the Weekly News Recap. Let's begin.

FTX sues Binance and others in spree of lawsuits FTX, the bankrupt crypto exchange, has filed a series of lawsuits, including a high-profile $1.8 billion claim against Binance and its former CEO Changpeng CZ Zhao. The lawsuit alleges that FTX's Alameda Research fraudulently transferred funds to repurchase Binance's stake in FTX in 2021 while insolvent. Binance has dismissed the claims as meritless.

The suits are part of a broader legal effort by FTX to recover assets for creditors. Other lawsuits target Anthony Scaramucci's Skybridge Capital for $67 million and Storybook Brawl's developers for $25 million, as well as a prominent exploiter known as "Humpy the Whale," who FTX has accused of siphoning $1 billion from it via token manipulation.

FTX is also pursuing funds from non-profits tied to effective altruism and political advocacy that receive donations from FTX. The estate aims to recover over $2 billion through these actions to compensate creditors of the defunct exchange.

Meanwhile, U.S. prosecutors have filed to seize $17.9 million in crypto, tied to alleged bribes Sam Bankman-Fried paid to Chinese officials in 2021 to unfreeze $1 billion in assets. 18 states and DeFi funds sue SEC over crypto regulation.

Eighteen Republican attorneys general, along with the DeFi Education Fund, have filed a lawsuit against the U.S. Securities and Exchange Commission, alleging the agency has exceeded its authority in regulating digital assets. The suit, filed in the Eastern District of Kentucky, names SEC Chair Gary Gensler and the agency's commissioners as defendants. The plaintiffs argue the SEC's approach to digital assets, classifying nearly all cryptocurrency transactions as "investment contracts,"

violates state regulatory authority and lacks congressional approval. They seek a court declaration that digital asset transactions are not inherently investment contracts and an order preventing the SEC from enforcing registration requirements on platforms handling such transactions. The case challenges the SEC's use of the Howey Test to classify digital assets as securities, claiming it fails to account for distinctions between assets and ongoing obligations.

Bitfinex hacker sentenced to 5 years in Bitcoin laundering case Ilya Lichtenstein, the hacker behind the Tennessee theft of approximately 120,000 Bitcoin from the crypto exchange Bitfinex, has been sentenced to 5 years in federal prison. The U.S. District Court in Washington, D.C., handed down the sentence following his guilty plea to conspiracy to commit money laundering.

His wife and co-conspirator, Heather Morgan, is scheduled for sentencing next week. Lichtenstein orchestrated the hack using advanced techniques to transfer 119,754 Bitcoin, worth billions today, into wallets under his control. To cover his tracks, he erased access logs and credentials from Bitfinex's system.

He and Morgan laundered the stolen funds through a series of sophisticated methods, including darknet markets, cryptocurrency mixers, and chain-hopping, converting Bitcoin into other digital assets. The Justice Department credited the IRS, FBI, and Homeland Security for their investigative work. Prosecutors also confirmed a formal forfeiture process for seized assets, marking a significant recovery in one of the largest crypto thefts in history.

BlackRock expands fund across multiple blockchains. BlackRock, the world's largest asset manager, has taken its $500 million USD institutional digital liquidity fund, Beetle, multi-chain. In partnership with tokenization firm Securitize Markets, the fund is now available on Aptos, our

Arbitrum, Avalanche, Optimism's OP Mainnet, and Polygon POS, expanding beyond its initial launch on Ethereum earlier this year. The beetle fund allows institutional investors to earn yields on tokenized US treasuries.

Annual management fees vary by blockchain, with Aptos, Avalanche and Polygon set at 20 basis points, while Ethereum, Arbitrum and OP Mainnet have higher fees at 50 basis points. "Real-world asset tokenization is scaling," said Carlos Domingo, CEO of Securitize, adding that these new blockchains will enhance the efficiency of the beetle ecosystem.

This expansion comes as tokenized treasuries continue to grow rapidly, with $2.4 billion in circulation, an increase of 200% so far this year. Native tokens of the added blockchains, including OP, APT, and AVAX, saw modest price increases following the announcement.

Ether ETFs turn positive. For the first time since their launch in July, Ether exchange-traded funds have achieved positive cumulative net flows, totaling $241 million as of Thursday. This turnaround follows a six-day streak of inflows, including record-setting days of $146 million on Wednesday and $296 million on Tuesday, according to data from Farside.

The shift comes as Ethereum's price climbed to a three-month high of 3,515. Bitwise further bolstered market interest by announcing the acquisition of Ethereum staking firm Attestant. The acquisition could position the crypto asset manager to introduce an ETH ETF that incorporates staking rewards, a feature currently absent from existing offerings.

Commenting on the broader market outlook, Jim Huang, COO of Firon Capital, told Unchained that post-election, you see the broadening out of market gains beyond BTC into ETH, ALTI, L1s and DeFi.

Huang added that expectations for clearer crypto regulations and institutional adoption are no longer a pipe dream. Ethereum's Beamchain proposal faces mixed reactions. At the DEVCON conference in Bangkok, Ethereum Foundation researcher Justin Drake unveiled Beamchain, a proposed redesign of Ethereum's consensus layer.

The ambitious five-year plan aims to enhance transaction finality, integrate zero-knowledge technologies, and consolidate upgrades into a single significant fork. Drake described the initiative as "a dashing opportunity to execute multiple improvements all at once." While the proposal received applause at the event, prominent Ethereum community members subsequently expressed concerns.

Critics such as Ethereum builder Martin Kobelman dismissed the plan as a "big refactoring" that optimizes Ethereum's internal code without delivering external innovations. Similarly, Jose Maria Macedo of Delphi Digital argued that Beamchain's timeline and scope fall short of making Ethereum Layer 1 more competitive. Others, such as EigenLayer engineer Bowen Li, voiced frustration with the lengthy development timeframe. "We may reach Mars before Beamchain goes live," Li commented.

Meanwhile, core developer Peter Szilagyi warned against implementing multiple changes to the consensus layer all at one time, instead advocating for incremental upgrades in order to maintain system stability. Hester Peirce questions SEC's readiness for pro-crypto shift SEC Commissioner Hester Peirce expressed concerns about the agency's preparedness for clearer cryptocurrency regulations under a Trump administration.

Speaking on the Block and Order podcast, Purse warned, What I worry is going to happen is we will get a more open mind toward developing good rules. And then when they say, OK, so what should those rules be? No one knows what to do. After Unchained published this story, Purse responded on X, writing that my point was simply that people inside and outside the agency need to be thinking now about what good crypto regulation looks like.

Trump has promised to provide regulatory clarity and create a crypto advisory council within his first 100 days of his new administration, and has also pledged to fire SEC Chair Gary Gensler as soon as he takes office. While these changes could expedite policy shifts, SEC rulemaking is inherently slow, often requiring years to implement.

George Mason University's J.W. Verrett suggested an interim SEC chair could issue a concept release to gather industry input and speed up reforms. On the podcast, Pierce also called for clearer NFT regulations, urging issuers to engage with the SEC to test boundaries and improve clarity. JTO outage temporarily increases Solana fees.

JITO, a leading Solana-based MEV protocol, experienced a temporary system-wide outage early Wednesday, causing transaction priority fees on the Nublock chain to spike. JITO Labs attributed the disruption to high demand potentially overloading its Block Engine server. The issue was resolved within an hour, with the team stating all systems were fully operational and secure shortly after the problems arose.

During the outage, priority fees surged approximately 25 to 30 times, with the median fee peaking at $0.001, according to Compass Solana. Jito's co-founder told The Block the issue was isolated to the protocol's bundle delivery system and did not affect Solana's overall network performance. The downtime followed record-breaking demand for Jito, which processed 15 million transaction bundles the previous day. A full postmortem is expected from Jito Labs.

Trump's win sparks talk of crypto IPO surge. The election of Donald Trump has reignited discussions about cryptocurrency firms going public, as his administration promises a pro-crypto regulatory environment. Trump's campaign commitments, including establishing clearer regulations for crypto, have fueled optimism among industry leaders that an IPO wave could follow his inauguration.

Ram Ahluwalia, CEO of Lumida Wealth, expects stablecoin issuer Circle and blockchain analytics firm Chainalysis to be among the early IPO candidates. Circle, the company behind the $37 billion market cap USDC stablecoin, has long expressed interest in going public. Its previous IPO attempt through a SPAC deal fell apart in 2022 amid market turbulence. But CEO Jeremy Allaire remains committed to the goal.

Experts caution, however, that not all crypto companies are suited to be public companies. Quinn Ho of GSR noted that firms must demonstrate stable profitability and manage the complexities of being publicly listed. Infrastructure companies such as Anchorage Digital and NYDIG may be better positioned, given their relative stability,

Ho said. And that's all! Thanks so much for joining us today. If you enjoyed this recap, go to unchainedcrypto.substack.com, that is unchainedcrypto.substack.com, and sign up for our free newsletter so that you can stay up to date with the latest in crypto. Unchained is produced by Laura Shin, with help from Matt Pilchard, Juan Aranovich, Megan Gavis, Pam Majumdar, and Margaret Correa. The weekly recap was written by Juan Aranovich and edited by Nelson Wang. Thanks for listening!

Unchained is now a part of the Coindesk Podcast Network. For the latest in digital assets, check out Markets Daily five days a week with host Noelle Atchison. Follow the Coindesk Podcast Network for some of the best shows in crypto.