Coinbase Tries to Court BlackRock to Explore Crypto ETF

The repeated refusals by the U.S. Securities and Exchange Commission (SEC) for the Bitcoin-based exchange-traded funds (ETF) is no deterrent to aspiring firms hopeful of launching the long-awaited cryptocurrency product. Leading cryptocurrency exchange operator Coinbase has emerged as the latest contender in the race to launch a cryptocurrency ETF, and is still seeking to partner with one of the largest asset managers of the world, BlackRock Inc. (BLK), according to a Sept. 8 Business Insider (BI) article.

Coinbase Extends Crypto Product Offerings

Citing people familiar with the matter, BI reports that the proposed crypto ETF is another attempt for diversification by Coinbase in its products and offerings, as the exchange continues to add new flavors to its already diversified business which currently spans across asset management, venture capital, trading, custody, and brokerage. The crypto exchange has had discussions with BlackRock's blockchain working group and expects to benefit from the latter’s expertise in launching exchange-traded products. Started in 2015, BlackRock's blockchain working group was set up “to identify applications of blockchain-related technologies in financial services.”

The day before the BI report, the U.S. head of iShares, BlackRock's ETF unit, cast doubt on the fund sponsor's support of cryptocurrency assets for exchange-traded funds. "Table stakes for iShares funds are assets with safeguards & markets that support long-term holds. Crypto assets still don’t fit the bill for iShares ETFs," Martin Small, a managing director at BlackRock, tweeted on Sept 7.

While there have been rumors about BlackRock’s varying interest in cryptocurrencies, it has not made any concrete foray. In July, its chief multi-asset strategist Isabelle Mateos y Lago said that though the company is watching cryptocurrency, it does not view it as an investable asset, while earlier in March, the company’s global chief investment strategist Richard Turnill said that “Cryptocurrency investing is only for those who can bear 100% losses.” (See also, BlackRock Rips Bitcoin: Buy Crypto Only If You're Ready for 'Complete Losses.)

An increasing number of institutional investment firms like Goldman Sachs, Citigroup, Fidelity, JP Morgan, and NYSE-parent ICE have announced plans to launch a variety of services around cryptocurrency trading. They range from offering custodian solutions to digital asset-based crypto holdings to crypto trading platforms. An ETF seems to be the natural asset to be added to the list in the evolving cypto ecosystem. However, SEC has kept all Bitcoin ETF proponents in the waiting. It has been regularly rejecting the numerous applications for Bitcoin ETF citing possibilities of fraud and need for investor protection. (For more, see SEC Again Rejects a Slew of Bitcoin ETFs.)

With the initiative, Coinbase joins the league of multiple other crypto firms, like the Winklevoss twins-led Gemini exchange, Bitwise Asset Management, and VanEck, who are awaiting SEC nod for their respective ETF.

Earlier in March, Coinbase announced plans for an index fund based on cryptocurrencies, and the product named Coinbase Index Fund was launched in June. While the index fund is aimed at accredited investors and allows investments in the range of $250,000 to $20 million, the proposed ETF is geared toward the mainstream retail investors who may be allowed investments in lower amounts. If the ETF materializes, it will possibly be based on a basket of cryptocurrencies instead of being the one based on a single virtual currency. (See also, Coinbase Opens Index Fund for Large Investments.)

Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns no cryptocurrencies.