Back in October 2017, BlackRock, Inc. (BLK) CEO Larry Fink referred to Bitcoin (BTCUSD) as an "index of money laundering." Three years later, he seems to have changed his mind about the cryptocurrency.
During a conversation with the Council of Foreign Relations earlier this week, Fink said that Bitcoin could evolve into a "global market" because it had caught the "attention and imagination" of Millennials. "We look at it as something that's real," he said in the YouTube event, which also featured former Bank of England Governor Mark Carney. According to Fink, Bitcoin could threaten the U.S. dollar's reserve status in international markets and make it "less relevant."
- In an about-face from his 2017 stance, BlackRock CEO Larry Fink says Bitcoin has the potential to evolve into a "global market" and threaten the U.S. dollar's status as a reserve currency.
- Fink joins a growing list of institutional investors commenting on Bitcoin.
- Developments in cryptocurrency markets and infrastructure are responsible for investors taking a second look at cryptocurrencies.
Even as he outlined the cryptocurrency's potential to upend traditional finance, Fink also highlighted drawbacks in its current market. "It is a sin market," he said, referring to the use of Bitcoin by criminals for money laundering and other nefarious activities. Fink also pointed to the thin liquidity that characterizes Bitcoin trading markets and result in wild price swings. "[Bitcoin is] still untested. You see these big giant moves every day," he said.
Why Have Fink's Views on Crypto Evolved?
Fink's comments on Bitcoin are part of a broader reassessment of Bitcoin's potential in recent months. Fink's colleague, BlackRock CIO Rick Rieder, told news network CNBC that cryptocurrencies were "here to stay" and surmised that they could take the place of gold. "It [cryptocurrency] is so much more functional than passing a bar of gold around," he said, alluding to the tracking made possible through a cryptocurrency's blockchain. Other well-known investors have also chimed in with positive assessments.
To a major extent, these evaluations are driven by a change in circumstances. When Fink made his comments on Bitcoin in 2017, the cryptocurrency was on the cusp of a price trajectory that culminated in a record price. Various post mortems and assessments blame speculation for driving price upwards. As its infrastructure crumbled under the weight of investor expectation, the cryptocurrency's price subsequently witnessed a prolonged slump last year.
Since then, the infrastructure for cryptocurrencies has been bolstered by technical developments, such as the Lightning Network, which enables transactions to take place off the main network, thereby reducing wait times, and launch of companies like Bakkt, a derivatives platform for cryptocurrencies that could increase liquidity and participants in crypto markets. Regulators are also increasingly beginning to clarify their stance on cryptocurrencies.
The recent trickle of institutional investors could turn into a flood once BlackRock moves into Bitcoin. But it will take some work.
In 2018, during an interview with Bloomberg, Fink said that BlackRock was waiting for cryptocurrencies to be "legitimatized." The CEO continued, "…when you have the true open nature of it [cryptocurrency blockchains] that you identify who the players are on both sides, that's when we will look at it as an alternative to other currencies," he said.