Coinbase and BlackRock have been discussing multiple initiatives and structured products for the better part of 15 months. Not just 2018 or over the summer, as some have reported. Both firms have established working groups that have been ‘passing notes’ that lends strategy and expertise to one another. BlackRock by way of their engagement with regulators and the leaders in establishing the ETF asset class; and Coinbase as the de facto leader in the crypto movement and asset class.
That ‘back and forth’ work has come into focus and a specific structured product is nearing completion and could be filed with the SEC as the calendar moves forward in 2019. This much we are sure of based on industry conversations and ‘on background’ conversations.
What we aren’t certain of, and have been unable to ascertain from those conversations, is the nature and set up of a Coinbase ETF. Will it include multiple coins listed on Coinbase? Will it include more than what is listed on Coinbase? Will it be a largely ‘institutional grade’ ETF with financial barriers to entry that will only allow accredited investors to afford the product? Or will it only be a Bitcoin and Ethereum based product?
Here is a wild card that really piqued our interest – could Coinbase put together a product that includes it’s freshly minted stablecoin $USDC in the allocation of assets within the ETF? Could Coinbase be considering a stablecoin ETF all unto itself?
These are all theories that were postulated and discussed with us over the past month. Whatever the eventual asset mix of a Coinbase ETF submission looks like, it is nearing the finish line and only awaiting the perfect time for submission.
A Long Year Of Research And BlackRock Relationship Building
Throughout the past year, Coinbase has engaged in conversations with BlackRock’s blockchain group in order to leverage the firm’s expertise at launching exchange-traded products. An early pioneer of the ETF market, BlackRock is renowned for its popular, low-cost iShares family of ETFs.
As Coinbase pursues an asset specific crypto ETF, it would join numerous other firms also looking to launch their own, including rival exchange Gemini, Bitwise Asset Management, and VanEck. Several firms have seen their ETF applications rejected by the Securities and Exchange Commission (SEC).
Sources stated that the Coinbase ETF would also likely track a number of coins other than Bitcoin. A Bitcoin ETF has been viewed as a next step in gaining legitimacy as an asset class and could lead to the entrance of more institutional money into crypto markets.
Coinbase’s ETF would need to address the same market transparency and manipulation issues that persuaded the SEC to shoot down 9 ETF proposals. Nevertheless, Coinbase’s conversations with BlackRock support the idea that crypto’s appeal is growing among traditional Wall Street circles.
All well and good and certainly within the scope of establishing a relationship that would favor an ETF approval for Coinbase in the future. But it goes much further than that, and we spoke to a source at BlackRock, on the condition of anonymity who gave us a look behind the scenes as to what is being ‘hatched’ in the Coinbase/BlackRock laboratory:
“The relationship between the two firms has been longstanding, a little more than a year, and has included talks on structured products ranging from credit cards, insurance, ETF’s, IRA’s, mutual funds, hedge funds, and even a possible Coinbase IPO. This isn’t just an ETF story meant to fit the current crypto narrative and what is or isn’t going to happen with the SEC. This is long-term planning with the assumption that approvals will come and adoption will continue to push forward. Coinbase values the breadth and depth of our (BlackRock) brand and has remained cozy and complimentary every step of the way.”
“It is clear that Coinbase aims to be the ‘Fidelity of Crypto’ via its retail operations and focus on compliance, custody, and growth of its institutional offerings. And that type of branding and growth is something that we have immense interest in going forward. Forget about what Larry (Larry Fink, BlackRock CEO) has said publicly about crypto and Bitcoin in particular. That is just smoke amongst a sea of questions marks as to where regulators come down and how the shape of cryptos form around it. At some point, there will be clear language and visibility (November?) and then the two firms could announce several initiatives.”
COULD A COINBASE ETF BE A PRECURSOR TO A $10B VALUATION?
Coinbase just recently executed a $300MM capital raise that valued the firm at $8B and that number created serious buzz in the tech venture capital space. Could a Coinbase ETF approval push that valuation even further? It isn’t that hard to begin connecting the dots as to why Coinbase would choose a partner as revered and lionized in traditional finance as BlackRock for precisely that purpose. In fact, with an ETF approval (or several) Coinbase’s value could stretch significantly beyond the $10B number.
COINBASE REMAINS UNPOPULAR AMONGST CRYPTO DIEHARDS
Coinbase, while somewhat unpopular amongst crypto diehards, has been making choices that seek to establish itself as the first brand amongst the masses that eventually find their way into the crypto space as the regulatory and depth of financial infrastructure builds itself around the globe.
Which makes their relationship with BlackRock all that much more important. BlackRock is THE worlds leading financial institution via the pure mass of assets managed (+6 Trillion). Coinbase is making a very, very shrewd move by keeping themselves close to a firm that wields enormous influence in Washington D.C. and on Wall Street.
If you are going to pursue a serious structured product initiative, there simply is no other firm better suited to assist in navigating the regulatory waters than BlackRock. Whatever your opinion of Coinbase may or may not be, in terms of customer service and as a digital asset exchange, their ability to make shrewd moves based on their brand awareness connected to the bull run of 2017.