BlackRock Could Be Embracing Bitcoin as an Inflation Hedge Ahead of Fresh Stimulus

This week BlackRock, the world’s largest asset manager, made regulatory filings showing it now includes bitcoin futures among the derivatives that can be traded in two of its funds. That development, however small, is a big win for the digital asset […]

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key takeaways

  • BlackRock’s latest bitcoin development is probably more pragmatic than it is bullish on the digital asset, but no less important
  • The asset management giant could be seeking to use bitcoin futures as a hedge against expected inflation
  • There’s less career risk associated with bitcoin than there used to be, while demand for bitcoin has grown

This week BlackRock, the world’s largest asset manager, made regulatory filings showing it now includes bitcoin futures among the derivatives that can be traded in two of its funds.

That development, however small, is a big win for the digital asset in terms of mainstream adoption. But while many will read it as a sign of BlackRock’s bullishness on bitcoin, some say it’s more pragmatic than that; that the company isn’t looking to buy bitcoin and hold it over a long period of time, but that it’s seeking to offset risks that it could have in the short term.

BlackRock, which manages $7.8 trillion, is allowing investors in the BlackRock Global Allocation Fund and BlackRock Funds V to invest in cash-settled bitcoin futures, allowing investors to buy and sell bitcoin at a certain price at a certain time in the future and settle the contract in cash when it expires. The filings came less than a week after President Joe Biden unveiled his proposed $1.9 trillion stimulus package.

“They’re buying fixed income for some long period of time, and if we do see inflation, they’ll have a way to offset that for investors in the fund,” said Adam Blumberg, cofounder at Interaxis, a digital assets education and training company for financial advisors and investors. “They’re using bitcoin futures, knowing full well that when a contract expires they’ll get cash to offset any of the inflation and pass that on to investments.” 

The company didn’t explicitly say that in its regulatory filings and it hasn’t shared further details. In November, however, Rick Rieder, BlackRock’s chief investment officer of global fixed income and head of the global allocation team, said bitcoin could rival gold “to a large extent” and that digital assets are “here to stay.”

A spokeswoman for BlackRock declined to comment for this story.

Major financial institutions have historically rejected the very idea of bitcoin, which is about 12 years old now and in the midst of one of its major bull runs (the others were in 2011, 2013 and 2017) – each of which has brought new narratives and new market participants. The current rally, which began late last month, has been largely driven by institutional investors; Wall Street legends Paul Tudor Jones, Stanley Druckenmiller and Bill Miller recently endorsed the digital asset, for example. 

It’s more established now. As recently as a year ago, however, there was tremendous career risk for investment institutions trying to get bitcoin into their portfolios.

“There was kind of all downside and no upside,” said Travis Kling, founder & chief investment officer of Ikigai Asset Management, a multistrategy hedge fund investing in digital assets. “These are the types of investors that can rapidly shift the dynamic of career risk internally at investment institutions and can give the bitcoin bulls that may have been in place there for years what they need to actually get a bitcoin position of some size pass to through investment committees and into the portfolio.”

BlackRock bitcoin futures trading should in theory help reduce the digital asset’s volatility – one of the biggest barriers to its wider adoption – and increase liquidity. 

And ultimately, even more retail adoption too.

Big asset managers like BlackRock are “setting the tone for a much larger market for digital assets,” said William Trout, director of wealth management at Javelin Strategy. “Bitcoin is established enough now that asset managers are going to find a way to manufacture products to satisfy investor interest. In the U.S. in particular the interest is going to come from the asset managers that also provide technology support to retail advisors,” like Schwab, Fidelity or Pershing.

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