Body:  Partnerships can often leave us scratching our heads.   Sometimes we are asking “What were they thinking?”   Sometimes, the question is, “Why didn’t I think of this sooner?”  As we can see in the rearview mirror of time, AOL/TimeWarner was one of the more obvious examples of the former.   But, you know, the partnership between Coinbase and Black Rock seems like one of the latter.  Just think of the possibilities if the SEC were to allow a bank to merge with an exchange.  Well, Black Rock is essentially a Bank, and Coinbase is an exchange.  The possibilities are nearly endless for the right customers.

So, what can they do for one another?

Black Rock can recommend many wealthy clients to Coinbase.  Additionally, as Black Rock invests more of its own assets, other institutional investors will also conclude that cryptocurrency could be a reasonable investment. Potentially, Black Rock could offer an ETF based upon cryptocurrency, and they would have immediate access to execution of their transactions. In return, Coinbase can use their proprietary Aladdin system to better understand the objectives and risks of their individual investments in Bitcoin.  Black Rock is unafraid of the SEC involvement with Coinbase, as it has restricted investments to Bitcoin only.

The CEO of Black Rock seems enamored of cryptocurrency.  He claims that cryptocurrency can be used as a hedge against inflation, and is a wonderful investment because the currencies are not tied to any individual country, as a fiat currency would be.  Even the big thinkers at the World Economic Forum(in Davos, Switzerland) had a hefty dose of cryptocurrency as subject matter.

Are we alone here, in the U.S?

Not hardly.  A division of Societe Generale has tokenized some European bonds and offered them for sale in the Luxembourg Stock Exchange.  In El Salvador, bitcoin is now Legal Tender.   Cryptocurrency is far from dead, and countries would do well to learn about them and decide how to regulate them.

 The Verdict

At least 4 times now, I have seen the term “surveillance partner” being applied to Coinbase.  This would suggest to me that the government is considering allowing Coinbase to largely police its own exchange activities.    To be sure, with at least 2 hot wars going on, in addition to the many other crisis, small and large, our lawmakers have their hands pretty full.  But, still, this bothers me, and strikes me as allowing the fox to guard the chicken coop, just as long as the fox promises not to eat any chickens.

Also interesting to me is the discussion of Central Bank Digital Currencies.  The overarching idea of a cryptocurrency is to have a currency completely separate from an individual nation state.   CBDCs are NOT cryptocurrencies!!  In researching this article, I have seen multiple mistakes, conflating these 2 items.  Please remember the difference.  Cryptocurrencies are issued  by private companies, with the intent to fund some project.   CBDCs are held by a central government and are the same as any fiat currency.  I guess, the lesson here is do not invest in something unless and until you REALLY understand it.

REFERENCES:

BlackRock teams up with Coinbase in crypto market expansion (yahoo.com)

SEC accepts BlackRock’s Bitcoin ETF application, signaling regulatory review (cointelegraph.com)

‘Bitcoin is an international asset’ — BlackRock CEO’s bullish remarks (cointelegraph.com)

“Crypto winter” and renewed confidence in Davos (societegenerale.com)

Editor’s Note: Please note that the information contained herein is meant only for general education: This should not be construed as Tax Advice.   Personal attributes could make a material difference in the advice given, so, before taking action, please consult your tax advisor or CPA.