This episode delves into BlackRock's calculated crypto strategy, exploring the drivers behind the landmark Bitcoin ETP, the complexities of institutional adoption, and the firm's vision for tokenization's role in reshaping capital markets.
Samara Cohen's Role and BlackRock's Foundational Mission
- Samara Cohen, Chief Investment Officer of ETF and Index Investments at BlackRock, oversees the market quality and investment integrity for approximately $7.8 trillion in index funds and iShares ETFs, impacting over 100 million global investors. Her team aims to reach the next 100 million, emphasizing the role of capital markets in financial well-being.
- Cohen views ETFs and indexing as disruptive technologies that democratize market access, enabling broader participation in global economic growth.
- Recounting her early days at BlackRock (starting in 1993 as employee #134 when it was Blackstone Financial Management), Cohen highlights the firm's enduring mission: leveraging technology to enhance risk management and market access for investors, a principle that began with mortgage-backed securities and now extends across global markets and asset classes, including digital assets. "I still think that basic premise... around bringing better technology to allow investors to manage their risk and access markets is as true today... as it was then."
Understanding ETPs vs. ETFs and BlackRock's Evolution
- Cohen clarifies the terminology: ETP (Exchange Traded Product) is the broad category, while ETF (Exchange Traded Fund) is a specific type of fund within that category. She notes that while often used interchangeably, the distinction is increasingly relevant as more diverse assets are wrapped in ETP structures.
- Technically, BlackRock's Bitcoin product (IBIT) is an ETP, or more specifically an ETC (Exchange Traded Commodity) in the US context, as it holds a single commodity, not a diversified fund portfolio.
- BlackRock significantly expanded into the ETF and index business with the acquisition of Barclays Global Investors (BGI) and its iShares brand in 2009, a move considered somewhat controversial at the time for combining active and index strategies under one roof.
BlackRock's Strategic Vision: Integrating Digital Assets
- BlackRock operates with a long-term perspective, setting a "north star" every five years. Cohen, drawing from her experience returning to BlackRock after 16 years at Goldman Sachs, emphasizes the firm's mission-driven approach focused on investor well-being.
- Recent strategic priorities include expanding into private markets (evidenced by acquisitions like GIP, HPS, and Preqin), advancing digital assets and tokenization (highlighted by IBIT), and focusing on retirement solutions within the current macroeconomic regime. Crypto fits into this broader strategy of evolving client service and market access.
Macro Environment and the Role of ETFs
- Cohen acknowledges the recent market unpredictability, noting more "extraordinary market environments" in the past five years than perhaps the preceding 15. This volatility underscores the need for market resilience, adaptability, and tools for rapid repositioning.
- The growth in ETFs is partly fueled by this environment, as they offer transparent, easy, and agile market access. Cohen cites record ETF trading volumes (spiking from ~27% to 40% of the US equity tape on certain days) following recent tariff news as evidence of investors using ETFs to quickly adjust risk exposure.
The Active Decision to Use Passive Tools
- Addressing the active vs. passive debate (and referencing her "alpha beta couple" dynamic with her active manager husband), Cohen stresses two points: managing index portfolios is far from passive, and investors actively choose to use ETFs or index allocations within their strategies.
- BlackRock views active and index investing as a spectrum. Post-COVID, significant institutional uptake of ETFs, particularly in fixed income, demonstrated their utility as building blocks even within active strategies.
- Current market penetration: ETFs/ETPs represent a significant portion of the equity fund market but only about 1-2% of the fixed income market. Bitcoin ETPs hold roughly 5% of Bitcoin's market cap.
The Genesis of the Bitcoin ETP (IBIT)
- The decision to launch a Bitcoin ETP was driven sequentially by: 1) Investment Thesis, 2) Client Demand, 3) Market Structure Readiness, and 4) Regulatory Feasibility.
- Cruelly, BlackRock first launched a private Bitcoin trust in 2022. This provided essential hands-on experience with Bitcoin workflows, risk management, and systems, paving the way for the public ETP in 2024.
- By 2022, sufficient client demand existed, coupled with dissatisfaction regarding existing Bitcoin access methods. The investment thesis for Bitcoin had also matured significantly compared to earlier years.
- Cohen initially found the crypto community's strong desire for an ETP surprising, given Bitcoin's native accessibility. "It almost seemed like the ETP wrapper would deprecate the promise of Bitcoin market structure. But then you learn the reality... is that there's actually a lot in TradFi that is additive."
How Decisions Like IBIT Happen at BlackRock
- Cohen suggests that major strategic decisions like the crypto initiative ideally involve a combination of top-down interest (leadership fascination with market improvements), bottom-up feedback (client demand), and dedicated internal champions.
- She credits Robbie Mitchnik, BlackRock's Head of Digital Assets, as a key internal champion who patiently educated and engaged stakeholders throughout the firm's crypto journey, which played out publicly as the firm's thinking evolved.
Analyzing IBIT's Record-Breaking Success and Investor Base
- IBIT became the most successful ETP launch in history. A key learning was the significant demand from the crypto-native community for the ETP wrapper.
- Investor Breakdown: Roughly 50% are self-directed investors, with the other 50% split between advisor-led retail and institutional clients.
- Strikingly, data suggests about three-quarters of the self-directed IBIT investors had never previously held an iShares product, indicating the Bitcoin ETP attracted a new cohort of investors to the traditional brokerage ecosystem, likely seeking institutional-grade custody and trading transparency.
The Value Proposition: Why Hold Bitcoin via an ETP?
- Beyond potential perceived safety ("too big to fail" narrative), Cohen emphasizes convenience and ease of integration. Investors managing holistic portfolios find it simpler to consolidate assets within one ecosystem rather than bridging TradFi and crypto rails constantly.
- She clarifies that holding IBIT means being a shareholder in the fund, with its own governance structure and custody provided by Coinbase, not a direct counterparty relationship with BlackRock itself.
BlackRock's Bitcoin Allocation Guidance
- BlackRock suggested a 1-2% allocation for investors interested in adding Bitcoin, framed within a total portfolio context. This wasn't a blanket recommendation for everyone.
- The rationale stemmed from risk analysis: comparing the incremental contribution to overall portfolio volatility from a Bitcoin allocation to the concentration risk investors already accepted with holdings like MAG 7 stocks. Allocations beyond 2% were shown to exponentially increase portfolio volatility.
Bitcoin's Evolving Market Behavior
- The market is still determining how to trade Bitcoin – is it risk-on like Nasdaq or a safe haven like gold? Cohen notes Matt Hogan's view: "Bitcoin trades like Bitcoin."
- While the hope is for Bitcoin to behave more like digital gold (a borderless store of value), its adoption trajectory complicates this. Recent performance during geopolitical turmoil was disappointing, showing increased correlation with equities rather than diversification benefits seen in past crises.
- An interesting observation: IBIT flows didn't mirror the recent Bitcoin price decline as sharply, potentially indicating that much of the selling pressure was retail/speculative, while institutional holders in IBIT remained steadier. Bitcoin also exhibits positive "vol of vol" – tending to "melt up more than it melts down."
The Rise of New Institutional Players
- Cohen acknowledges the presence of hedge funds and other institutional players, many initially engaging through futures basis trades. These actors often function as "widget buyers," seeking relative value across asset classes rather than holding strong directional conviction, adding another layer to market dynamics.
Ethereum ETPs: A Different Story
- While acknowledging community disappointment, Cohen states IBIT is the wrong benchmark for Ethereum ETPs. Investor interest is lower due to several factors:
- Bitcoin's investment case (diversification, store of value) is clearer to many institutions.
- Valuating Ethereum and understanding how network utility translates to token value accrual is more complex.
- Investors may feel sufficiently exposed to tech-correlated assets already.
- Cohen pushes back on the idea it's just a "story problem" for Ethereum, suggesting a broader challenge across crypto.
The Critical Need for Data and Standards in Crypto
- Cohen identifies a fundamental issue hindering broader institutional adoption and sophisticated analysis: "crypto does broadly have a data and standards problem."
- Lack of standardized metrics, reliable data, and clear valuation frameworks makes it difficult to analyze tokens beyond Bitcoin and Ethereum, assess value accrual, and build robust investment theses or indices. This complexity affects understanding altcoins and even Ethereum's value proposition.
Beyond Bitcoin/Ethereum: Where BlackRock Sees Potential
- For other crypto products (altcoins), the primary hurdle is establishing a clear investment thesis. Key questions remain: Which applications will gain traction? What real-world problems will they solve?
- BlackRock is closely watching areas with demonstrable utility, particularly tokenized money market funds and tokenized Treasury funds, as blockchain can clearly improve the inefficient movement of cash and collateral in capital markets. Identifying successful protocols and applications in such areas could eventually lead to investment theses for related tokens.
The Challenge of Indexing Crypto
- While indexing could theoretically offer diversified exposure to the crypto space for those bullish on the technology but unsure of specific winners, it faces major hurdles.
- Foundational data and standards are prerequisites. Unlike equities with established metrics (revenue, P&L, governance), many crypto assets lack transparency. Creating meaningful index methodologies and investable portfolios requires solving this data gap first. Jason (host) notes the questionable nature of many assets listed in the top 50 by market cap on popular data sites.
Private Markets, Data, and BlackRock's M&A Strategy
- BlackRock's significant investments in private markets (acquiring GIP, HPS, Preqin for ~$28B) are part of a strategy to expand capital market access for both investors and companies needing capital.
- The Preqin acquisition is crucial, providing the data and analytics infrastructure needed to bring transparency, scale, and broader access to historically opaque private markets – a parallel need exists in crypto. Data and standards are essential for scaling any market.
BlackRock's Future in Crypto: Tokenization and Bridges
- While non-committal on specific crypto M&A, Cohen reiterates BlackRock's bullish stance on tokenization's potential to improve capital markets.
- The focus is on building capabilities and "bridges" that connect traditional finance and crypto ecosystems. This includes ETPs (bringing crypto access to TradFi rails) and tokenized assets like money market funds (bringing TradFi capabilities to crypto-native institutions).
Tokenization's Path: Evolution, Not Revolution
- Cohen emphasizes the importance of managing the transition from legacy financial systems to a more tokenized future. Interoperability between old and new rails will be critical for a long time.
- The launch of BUIDL (BlackRock USD Institutional Digital Liquidity Fund) on a public blockchain, attracting investment from crypto firms like Athena and SkyBridge, exemplifies this two-way bridge-building.
Institutional View: Investable Crypto Assets Today
- From conversations with institutional investors, Cohen states the focus remains overwhelmingly on Bitcoin. Ethereum is a "distant second." There isn't significant institutional demand or analysis extending much beyond these two currently for broad allocation purposes.
Valuing Crypto: New Metrics or Old?
- The discussion touches on whether traditional valuation metrics (P/E, P&L) can apply to crypto assets or if new frameworks are needed.
- Jason suggests a nuanced view: infrastructure layers like Ethereum might be valued more like commodities, while applications like Uniswap could potentially fit P&L-style analysis better. Cohen links this complexity back to how existing regulations struggle to accommodate blockchain's unique capabilities (e.g., 24/7 trading, atomic settlement).
Tokenization Revisited: Solving Real Problems
- Cohen contrasts the current focus of tokenization with the failed 2018 narrative. Instead of trying to force liquidity onto illiquid assets (like real estate), the current, more promising approach uses tokenization to improve the plumbing of existing, liquid markets – enhancing efficiency, resilience, and transparency in securities transactions and collateral management.
BlackRock's 10-Year Vision: Expanding Capital Markets
- BlackRock defines capital markets broadly as the meeting place for suppliers (savers) and consumers (companies, governments) of capital.
- Given constraints on bank lending and government spending, larger, more efficient capital markets are needed to fuel economic growth. Tokenization is seen as a key technology to enable this expansion, particularly by improving core functions like liquidity and collateral movement.
The Future of Tokenized Stocks
- Cohen admits she has "no idea" when tokenized stocks will become widespread. Jason suggests platform convergence (crypto exchanges offering stocks, fintech brokers offering crypto) and, crucially, real demand from on-chain investors for broader asset access will be the primary drivers.
Public vs. Private Blockchains: An Evolving View
- BlackRock's thinking has shifted from an initial assumption that permissioned blockchains would dominate institutional use cases towards embracing public blockchains.
- The rationale includes avoiding the fragmentation pitfalls seen with the proliferation of traditional trading venues and leveraging the inherent transparency of public ledgers. However, challenges remain in building institutional-grade applications securely and effectively on public chains.
Advice for Blockchain Builders (L1s/L2s)
- Rather than focusing on pitching BlackRock directly, Cohen advises builders to concentrate on solving significant, tangible problems within the existing market structure.
- A key example is enabling resilient and transparent 24/7 trading in traditional markets, incorporating appropriate guardrails and investor protections – a complex challenge where blockchain technology could offer solutions.
Memecoins, Gamification, and Investor Onboarding
- Cohen views market "gamification" (like memecoins) with nuance. While potentially risky, it might serve as an entry point, getting younger generations interested in markets (similar to the GameStop phenomenon).
- "I used to think the whole story was taking more savers and turning them into investors. I'm starting to think that maybe there's a midpoint stop where somebody becomes a trader first."
- However, she stresses the critical need for transparency, education about risks, and industry self-regulation to ensure these entry points lead towards responsible long-term investing, not just speculative endgames.
Generational Wealth Transfer and the Future Investor
- Acknowledging the massive ($50-90T) wealth transfer to a younger generation often disillusioned with TradFi, digital-native, and influenced by social networks (with women playing a larger role), Cohen sees this as a catalyst.
- Successfully serving this generation requires partnerships between crypto-native firms and traditional players, combining digital engagement with sound portfolio construction. Brand trust becomes increasingly vital in this evolving landscape.
Samara Cohen's Legacy
- Cohen hopes her legacy will be contributing to making financial markets more transparent, resilient, and accessible, empowering more individuals – like her younger self, a theater major initially intimidated by finance – to confidently participate.
Conclusion
BlackRock's crypto engagement is a strategic, long-term play focused on bridging TradFi and digital assets through regulated products and foundational tokenization, driven by client demand. Investors and researchers should track institutional adoption patterns and the critical development of data standards as key signals of market maturation and future opportunities.
