BlackRock’s Bitcoin Journey w/ Robert Mitchnick & James Seyffart

all right guys uh my name is James saford um I write research about the asset management industry in the last couple years I've spent uh a lot of time writing about uh digital assets and digital assets ETFs um Robbie here is uh famously known as the guy that orange pilled Larry thinkink to some people so we're going to get into that a little bit but to to break the ice I guess uh can you tell me how much Bitcoin do you hold or a Larry how big how big are Larry's personal bags uh believe it

or not I've never asked him that question can we let's dive in here a little bit like let's get a background on you like how did you get involved in the digital assets Bitcoin space what was your journey like personally well I um started in this space in 2017 uh frankly by pretty uh fortuitous circumstances that ultimately led me to uh Black Rock in August of 2018 where there was an opportunity to come in and help them figure out this whole blockchain and digital assets World um and the rest is kind of History it's been

uh six years now uh it's been a pretty fun uh Journey obviously you know as a firm um we've come a long way and um built a number of solutions not just you know ibit ibit most famously but uh across crypto stable coins tokenization um you know what we've done in this space all kind of in the name of bringing greater access uh for our clients yeah I noticed you you left off the part where you you actually worked at Ripple for a little bit for this audience you're a reformed coiner I guess we could

say um can you can you talk about so you you joined in 2018 in my mind that I go back to like Larry fin CEO of Black Rock he famously called Bitcoin an index of moneya laundering he was famously against the whole space but he hired you to do digital assets so like what was that process like from 2018 where even in 2021 he was saying relatively negative things about the space to being one of the most full-throated endorsers uh biggest names uh be believing in Bitcoin and digital assets more broadly can you just were

you really the guy that orange peed Lor Larry think or is it more a general larger process um well I you know I think Larry deserves a lot of credit for the time that he spent studying this space being curious and open-minded which which he absolutely was right and you know when you think about Bitcoin uh there's very few people who the first time they ever hear about it they immediately say that's the thing right there's there's some exceptions but um for most people it takes some time and study and I think you know if

you look at Larry's case um i' I've often said that if you are a student of financial history and geopolitics or you are a technologist Bitcoin tends to come more easily uh and Larry is very much both those things right so that I think partly explains um you know how he's become a really really insightful uh kind of thought leader in the space yeah I would say uh I'm actually one of those people my first experience was uh college roommate in 2011 put mining software on my computer and and it broke my computer I'm convinced

so I didn't I didn't start taking it more seriously it took me five six years after that before I started thinking it actually had real potential um but I guess like can you talk a little bit about what the conversations were like internally like was there was there a group of you internally that were bullish on the space Wanted Black Rock to enter the space and obviously from my own personal experience there's like this divide within even Bloomberg in my company there's people that are full-throated believers there people that are kind of neutral and there

are people that are vehemently anti so I guess like what was that conversation like and what were Larry's reservations and what were what were black Rock's reservations before you guys really started getting into the space yeah I think in early days the greatest opportunity lay in thinking about how we use this technology right how could this technology make our business make our financial ecosystem more efficient how could it serve clients and how could we play a role in providing clients Solutions and products in the space and then over time a number of critical factors kind

of uh came together to support the major uh moves that we ultimately made one was you had generally increasing not obviously full-blown Clarity from a reg standpoint but but from a regulatory standpoint around the world and in the US it became increasingly clear that there was view this was an asset class technology that was here to stay right and that was an important shift second you had a great buildout of infrastructure of institutional grade infrastructure particularly starting in 2020 that ultimately was necessary for players like us to get comfortable participating and building products that we

felt would be of a black rock or an i shares quality standard the third piece was our clients continued to be more and more interested and you know we're very very client-led firm and so that signal of client demand uh was kind of the the final piece that helped push us over the top yeah I will say uh it's this obviously has been a huge success for you ibit uh I mean the the Bitcoin ETFs in general were the biggest ETF launch in history ibit is arguably as an individual fund the the most successful launch

we've ever seen in history they are uh it's a big part of Black Rock as a firm not just like I think it's 20 over 25% of your flows this year have come from this ETF it's the second most successful fund so far in 2024 behind the S&P 500 ETF and not that far behind I think you're about 20 billion dollars in inflows or 17 billion in inflows I guess what is that like internally like I I assume like I said there's probably some people that aren't huge Believers in Bitcoin and they're seeing this like

drive a lot of the narrative you're getting a lot of media coverage um can you just talk about like what this product has meant for Black Rock as a whole yeah I think obviously um it's exciting when you launch something and it meets and even exceeds the very high demand expectations that uh we had for it um I think the interesting thing though James it's very early that's what a lot of people don't realize is if you think about our uh ey shar's business and the three main channels uh that we ultimately have as as

sort of client segments the first is end investors direct and that spans you know everything from small dollar retail to to even you know High net worth ultra high net worth uh investing on their own accord then you have wealth advisory and then you have institutional and of those three the first being an investors direct came storming out of the gates J January 11th they showed up the demand was immense it has continued in many respects for uh the last 6 months with pretty robust flows but when we talk about wealth advisory and institutional those

are much longer Journeys and we're still you know only partway down that track so when it's institutional there's a major you know education diligence research type effort that happens when you have a new asset class emerge like this uh they're going through that process we're playing a role in supporting them um on that Journey but that's I would say it's early days you know there's a few big institutions we've allocated but they're the minority so far for sure and then wealth advisory um you know one way to think about wealth advisory you can be fully

restricted and there's a couple platforms where these ETFs are still fully restricted not many but a few then where a lot of them are is called unsolicited and unsolicited means that a client can specifically request I want to own that ETF and uh the platform will you know make them sign some disclosures that they know what they're doing and they'll place the trade but where most of the wealth advisory space in the broader trafi landscape is is what we call solicited and solicited means that the advisor is actually directing what assets are held and uh

effectively none of the large wealth advisory platforms today have yet gotten to that point of offering ibit or the other Bitcoin ETFs on a solicited basis that's a journey that many of them are on typically that takes multiple years for new ETF to get to that solicited status um many of the largest platforms are accelerating their efforts to do so but we still actually haven't had the first major platform get there so there's another wave coming is what you're saying I mean if if I had uh a Satoshi for every time I saw an article

or a tweet or a rumor that Morgan Stanley was about to approve these things a solicited basis I'd have a lot of money so like you're saying a couple years but you think they're accelerating like give us a rough timeline and that the firms to be clear the firms we're talking about here are the Morgan Stanley of the world the ubs's the meril lynches these big wirehouse wealth platforms that are only working on an unsolicited basis but like do you think fourth quarter is on the table for some of these are you thinking more into

2025 like where where do you think a timeline if you had to throw a dart at a board and guess when when do you think the earliest that it could happen for one of the big wirehouses um I I won't get into specific names and timelines obviously but um you know certainly uh this year is is uh is likely okay and then so these Wealth Advisors you you do have some wealth advisor specifically the smaller more independent type Wealth Advisors have already allocated they don't have to go through this long process they don't have hundreds

of billions of dollars that they're worried about allocating to the wrong thing the ones that you do have access to how much Insight do you have to what they're doing and if you do have any insight like how are they pitching it to their clients what what type of allocation are they doing are they doing 10% allocations is it more like 5% 2% like what are you guys seeing in your conversations and you guys are having thousands of meetings a year with these types of advisers so if anyone would know it'd be you yeah I

think and and that's that's right we are um particularly that raia channel registered independent advisers um l lot and lots of conversations the last 6 months around this um and you know there's no kind of uh clear number that a particular firm or adviser is using but I would say in that advisory space the most common allocation of those who are allocating is probably in the 2 to 3% range all right makes sense let's get into black Rock's view or maybe even just your own personal view on bitcoin the asset I mean like I tend

to say it a lot like a risk on asset it's an aspiring store value Asset it's aspiring to be a riskof asset and at times it has shown to be riskof but like how One what is the house View and two how are your salespeople how are you guys pitching it to advisers like is it a diversifier is it an alternative uh get let's get into that a little bit Yeah well I actually think that this is probably um one of the most muddled conversations in this space and um in some ways it's a massive

own goal that the Bitcoin uh you know sort of punditry commentary Community has scored on itself uh in defining Bitcoin or allowing Bitcoin to be defined in some circles as a quote risk asset and the reason I say that one uh I think it's fundamentally inaccurate and two uh it's massively unhelpful which we can get into uh in a second but first uh the thesis on it so if you look at bitcoin's trading history what you'll see is that and this is on a fundamental basis as well there's one macro risk factor where Bitcoin is

highly exposed and highly correlated to so-called risk assets and that is that Bitcoin is massively short real interest rates right you think about that that makes sense in the same way that gold is short real interest rates same way that Emerging Market currencies are short US dollar real interest rates and also in the same way that uh technology type longdd uh Investments which their payoff is in part envisioning a future state where growth happens are short real interest rates right but outside of that there's actually uh very little fundamentally that Bitcoin has been correlated on

and that's why when you look at at it over a longer Horizon over its history that long-term average correlation is a lot closer to zero right when we think about other fundamental drivers of risk and return they're very different from equities or fixed income or other traditional assets this is a non-sovereign scarce decentralized asset and to the extent it has risks of course it has risks it is itself a risky asset on a standalone basis right but those risks are about uncertainty over future adoption regulation the development of a still early ecosystem right they're very

different from banking crises or political disorder or inflation deficits debt currency debasement all those types of fears and risk factors that exist out there in traight world so in fact when you think about Bitcoin as an asset that uh has no counterparty isn't dependent on any one country's fortunes and is uh ultimately a scarce a asset that's why you've started to see this shift where people look at Bitcoin as a potential flight to safety asset in some of these other Dynamics so when people use this risk on riskof framework all that Nuance gets lost and

I think that Nuance is really important you heard it here first it's not a risk asset Accord according to Robbie mitchnick I guess one of the other things I often hear and I tend to believe and I when I talk to advisors uh which I do a decent amount is this volatility is actually more of a feature than a bug particularly for people that are rebalancing so if you have a Target allocation like you said that 2 to 3% range if it goes up 100% they're going to sell some of it but if it dips

a lot they're going to buy and that can smooth out returns for portfolio over the longer term I guess like are you seeing that rebalance we've seen some volatile days we saw a lot of people said that these ETF holders were going to run at the first sign of of of uh of bearishness that we had Bitcoin go down 25% and not only did they not run they poured in they they bought the dip so I guess are you talking to advisers that are like trying to figure out when they should be buying and selling

these things how much of that's going on well I guess to the first part before we we'll come back to volatility um it's been quite remarkable the degree to which these ETF holders so far have been of a very long-term Buy and Hold nature right if you think about since January there have been some pretty big pullbacks in Bitcoin ibid has had one day of negative Flows In 6 and a half months right and in fact on a lot of the down days we've seen net buying where our investor base is is uh so-called buying

the dip U of course that you know that'll change over time I'm sure we'll see in the second half or you know in the years to come we'll see lots more negative uh flow days that's just natural right but um pretty striking uh how consistent and long-term the investor base has been on the volatility Point uh I would take the other side of that I think obviously there are Traders and hedge funds who love the volatility in this space but for your typical institutions for your wealth advisors for lots of regular everyday investors that is

definitely not a feature um but thankfully for those types what we've seen over the long term is that bitcoin's had a pretty steady downward trajectory in its volatility today it is absolutely still a volatile asset but that actually some people don't realize you have a lot of uh major Tech names that people hold a lot of in their portfolio even just by holding index funds that uh are more volatile on a standalone basis than um Bitcoin is today I think what people look at more closely and this goes back to the risk on riskof point

and why I think it's so important that people understand you know the ways that Bitcoin does not fit that Paradigm um I was speaking recently to a friend who's in charge of strategic asset allocation for a large institutional allocator and he said you know the only thing I'm looking at only thing I'm looking at is correlation I see that correlation go back down toward zero and stay there it's a slam dunk investment case for us but when it's elevated it's a much higher hurdle so let's shift gears a little bit here to something that a

lot of people in this room won't really care about but it's relevant um uh you guys just launched an ethereum ETF two days ago uh this is its third day of trading um can you talk about like what the interest you've seen from clients like obviously we've seen the flow data uh yesterday was mostly flat there was a 100 million of net flows that came in the the first day there's a lot of trading like can you talk about the interest that you're seeing for eth when it's relative to bitcoin I guess like how how

are how is that interplaying sure well I would say that our client base today their interest overwhelmingly is in Bitcoin first and then uh somewhat in eth there's definitely interest in eth to and there's very little interest uh today Beyond those two right and so that you can map that to the approach we've taken and I think it makes sense um what we've stressed with them is we don't view Bitcoin and eth really as competitors like what Bitcoin is is trying to be as a global monetary alternative as a as a potential global payment system

um eth isn't really trying to be that right the the whole store of value use case within crypto I think is pretty definitively territory that Bitcoin owns eth is trying to do a bunch of different applications that for the most part Bitcoin is not trying to do so really they're more compliment than they are competitors or substitutes I think our our clients are seeing that okay and then I guess like who who is investing in in eth I guess or like how are they investing do you think people are going to if they have a

5% allocation or 3% allocation is that solely to bitcoin are they going to sell some of their Bitcoin to buy the eth ETFs or do you think if they're buying the eth ETF it's more as an add-on like is it is it going to take away from the Bitcoin ETFs or or not it's still early days I think early indications are it's probably more likely to be an add-on that people will recognize that these are complements not substitutes you know we saw the last couple days uh even with eth launching even with um Bitcoin you

know price action down on one of the two days we saw net Creations into ibit not not any outflows so um I I think ultimately it's actually healthy for the ecosystem I don't think we're going to see a long list of crypto ETFs you know if you think of Bitcoin today 54 55% of the market cap eth at 18 the next you know plausible investable assets like 3% so it's just there just nothing close to being at that threshold of track record and maturity liquidity Etc um that the Bitcoin and and to a lesser extent

eth have so our our estimates are like we we think around 20% we think the eth longer term could do in relation to bitcoin what you guys think is roughly the same or what what are your guys expectations well I think most people's estimates kind of come out in that 20 to 25% range like when you look at lots of uh data points across the world you know Canada Europe other product types that that ratio keeps sort of popping up so um you know I think that's a that's a pretty good guess for uh where

that might land let's go back in time to before the ETF a little bit um one of the there was a news story basically about black rocks Aladdin partnering with coinbase the summer before you even filed for the ETF and it kind of went under the radar aside from some real Bitcoin Maxis that were like this means black Rock's going to go in full bore and I was like oh maybe but Aladdin is like a portfolio platform can you just talk about like the relationship you have with coinbase how that came about and like how

that relates to what you're doing now with ibit and Etha and what have you sure um well those were important early foundational steps that ultimately put us in a position to uh do the Bitcoin ETF we started working with coinbase in 2021 to integrate uh at first Bitcoin trading and custody functionality from coinbase Prime into our Aladdin investment management system and our Aladdin system is what not only Black Rock runs its Asset Management operations on but also many of the other largest buy side firms in the world and we develop that functionality such that in

the future any black rock portfolio manager or fund or any Aladdin client fund would be able to trade settle custody uh Bitcoin within their existing operational and risk construct which is super super important for institutions the other thing we did that summer of 22 is we launched a Bitcoin private trust which um ultimately was a precursor to what became ibit so we had built the technological capabilities we had built the asset management capabilities around this over a period of multiple years that ultimately set the stage for us to build the ey shares uh Bitcoin trust

in a way that would adhere to a black rock and an ey shares quality standard yeah I think Sky muchi famously said when you launched that trust that this means they're going to launch an ETF and we always kind of thought like he he was right he was a good call we always thought like it made sense we thought Black Rock would ultimately launch a Bitcoin ETF but we didn't expect you to be in the first wave so you guys caught us off guard with that uh we were we had 1% odds of approval in

in 2023 when you guys filed and quickly upped it to 50% essentially as soon as you guys filed I know we blew up your vacation if I remember you did you did blow up both both of I was on vacation yeah um can you talk about you talk about aadd and how you're fully integrated to to buy and sell these assets directly like how if you have advisers or institutions like what is that conversation like should I just buy ibit to ETF or should I go through Aladdin and buy the assets directly like like what

is the tradeoffs that you're making between those two things so I think the Aladdin clients who want to implement a very extensive trading program they're more likely to use the Aladdin access Solution Direct ly and those who are in more of a sort of Buy and Hold type approach the ETF makes perfect sense for them and then so everything you're doing right now is with coinbase your your your stuff is on the coinbase platform you obviously have a strong partnership with them one of the things that I hear all the time is like people are

worried about this concentration risk in custodians um one is that something you guys are thinking about or worried about are you just completely comfortable with the things way things are currently operating well I think we're always is um navigating an evolving risk landscape uh in what we do not just in in the Bitcoin space um obviously we we have a lot of uh faith in in coinbase uh there was pretty extensive diligence processes you can imagine that led to us uh selecting them as our first provider um in this space but we certainly think that

over time um you know you will see more institutional grade custodians uh entering the space and that's very healthy for the long-term growth of this ecosystem all right so like what's next obviously you guys have a Bitcoin ETF you have an ethereum ETF you said nothing else really kind of makes sense are you looking at like getting more involved in the infrastructure play doing things with mining like is there anything else you guys are doing or you have coming down the pike that you're thinking about like what's next for Black Rock what are they most

bullish on uh going forward aside from these massive platforms we talked about allowing these things to be sold in a solicited BAS yeah well I think um when we think about the digital assets space we think about it across crypto stable coins and tokenization is those kind of the three pillars of it and uh there's a lot that we're excited about in the stable coin space we think that that um you know has the potential to transform many elements of our global payment systems even think about how stable coins can make value settlement more efficient

in capital markets in traditional Capital markets um and the tokenization space you know obviously we we um you know launched a tokenized fund earlier in the years now the the largest uh tokenized Fund in the world there's a lot there that's also exciting in terms of uh enabling greater access uh democratizing uh the the reach of investor types that can invest in in more uh types of investment funds as well as you know making the whole system more efficient and cost effective yeah I often say like you guys um including Vanek and uh bitwise a

bunch of these other issuers are not just launching ETFs they're trying to do other things in the space it's like I view it as like you're you're kind of building bridges in both directions right you're kind of wrapping in with your bidle fund you're you're wrapping a trafi money market treasury type Fund in a defi wrapper and you're doing the exact opposite with the Bitcoin ETF and the ethereum ETF you're you're taking a a trafi wrapper and wrapping some something that's fully decentralized so like you have the bidle fund like I assume that that has

been how much what's what are the asset levels in in the bidle fund right now uh not as much as I bit but no but you're exactly right because you know some people say well you're doing these these two thing you're doing this over here you're doing that over here they're complete opposite how does that make any sense that's contradictory um and actually makes total sense because it speaks to the fact that our client base is uh very diverse in terms of where they're at in their journey and being comfortable with digital asset rails and

digital asset infrastructure and so for some of our clients uh who aren't there yet the ability to access Bitcoin through a brokerage account in a traditional Finance way in a super accessible convenient format that's very compelling we have other clients who have made this migration or maybe they're crypto native they're already in the digital assets space and for them that's the rapper they want they want to hold tokens uh but they want access now to more varied traditional Finance type investment underlier so we're serving both all right guys uh we're out of time but you

heard it here first black rock Bitcoin is not a risk on asset and they view ethereum as a complimentary not uh competitive asset to uh ethereum so um that's all we have time for thanks everyone thank you Robbie thank you James [Music] the Bitcoin conference we started with a dream to build a community focused on bitcoin it all started in 2019 in the heart of San Francisco the first major Bitcoin conference in years that kickstarted a revolution and then Miami a place where enthusiasts developers dreamers and innovators could come together to make Bitcoin better it

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